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RESTRICTING ACCESS TO FINANCIAL ADVICE: 

EVALUATING THE COSTS AND CONSEQUENCES 

FOR WORKING FAMILIES AND RETIREES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR, AND PENSIONS 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, DC, JUNE 17, 2015 

Serial No. 114–21 

Printed for the use of the Committee on Education and the Workforce 

( 

Available via the World Wide Web: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=education 

or 

Committee address: http://edworkforce.house.gov 

CEWDOCROOM with DISTILLER

(II) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN KLINE, Minnesota, Chairman 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Todd Rokita, Indiana 

Lou Barletta, Pennsylvania 

Joseph J. Heck, Nevada 

Luke Messer, Indiana 

Bradley Byrne, Alabama 

David Brat, Virginia 

Buddy Carter, Georgia 

Michael D. Bishop, Michigan 

Glenn Grothman, Wisconsin 

Steve Russell, Oklahoma 

Carlos Curbelo, Florida 

Elise Stefanik, New York 

Rick Allen, Georgia 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Ranking Member 

Rube ́n Hinojosa, Texas 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Joe Courtney, Connecticut 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

Mark Pocan, Wisconsin 

Mark Takano, California 

Hakeem S. Jeffries, New York 

Katherine M. Clark, Massachusetts 

Alma S. Adams, North Carolina 

Mark DeSaulnier, California 

Juliane Sullivan, Staff Director 

Denise Forte, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS 

DAVID P. ROE, Tennessee, Chairman 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Tim Walberg, Michigan 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Lou Barletta, Pennsylvania 

Joseph J. Heck, Nevada 

Luke Messer, Indiana 

Bradley Byrne, Alabama 

Buddy Carter, Georgia 

Glenn Grothman, Wisconsin 

Rick Allen, Georgia 

Jared Polis, Colorado, 

Ranking Member 

Joe Courtney, Connecticut 

Mark Pocan, Wisconsin 

Rube ́n Hinojosa, Texas 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

Mark Takano, California 

Hakeem S. Jeffries, New York 

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(III) 

C O N T E N T S 

Page 

Hearing held on June 17, 2015 ............................................................................... 1 

Statement of Members: 

Roe, Hon. David P., Chairman, Subcommittee on Health, Employment, 

Labor, and Pensions ..................................................................................... 1 

Prepared statement of ............................................................................... 68 

Polis, Hon. Jared, Ranking Member, Subcommittee on Health, Employment, Labor, and Pensions ........................................................................... 69 

Prepared statement of ............................................................................... 70 

Statement of Witnesses: 

Haley, Mr. Jack, Executive Vice President, Fidelity Investments, Boston, 

MA .................................................................................................................. 133 

Prepared statement of ............................................................................... 135 

Harman, Mr. Dean, CFP, Managing Director, Harman Wealth Management, The Woodlands, TX ............................................................................ 174 

Prepared statement of ............................................................................... 176 

Kelleher, Mr. Dennis, Managing Director, Harman Wealth Management, 

The Woodlands, Washington, DC ................................................................ 144 

Prepared statement of ............................................................................... 146 

Mason, Mr. Kent, Partner, Davis and Harman, LLP, Washington, DC ...... 118 

Prepared statement of ............................................................................... 120 

Perez, Hon. Thomas E., Secretary, U.S. Department of Labor, Washington, DC ..................................................................................................... 71 

Prepared statement of ............................................................................... 75 

Reid, Dr. Brian, PH.D., Chief Economist, Investment Company Institute, 

Washington, DC ............................................................................................ 159 

Prepared statement of ............................................................................... 161 

Additional Submissions: 

Bonamici, Hon. Suzanne, a Representative in Congress from the State 

of Oregon: 

Letter dated June 16, 2015, from various organizations ....................... 214 

Secretary Perez: 

Transcript Inserts ...................................................................................... 219 

Chairman Roe: 

GAO Report: Retirement Security ........................................................... 3 

Report: Locked Out of Retirement ........................................................... 54 

Questions submitted for the record 221 

Curbelo, Hon. Carlos, a Representative in Congress from the State of 

Florida submitted questions for the record to: 

Mr. Haley ................................................................................................... 222 

Mr. Kelleher ............................................................................................... 226 

Guthrie, Hon. Brett, a Representative in Congress from the State of 

Kentucky submitted questions for the record to: 

Mr. Haley ................................................................................................... 222 

Mr. Harman ............................................................................................... 224 

Mr. Mason .................................................................................................. 228 

Dr. Reid ...................................................................................................... 230 

Mr. Polis, questions submitted for the record to Secretary Perez ................ 232 

Chairman Roe, questions submitted for the record to Secretary Perez ....... 232 

Responses to questions submitted for the record by: 

Mr. Haley ................................................................................................... 240 

Mr. Harman ............................................................................................... 242 

Mr. Kelleher ............................................................................................... 244 

Mr. Mason .................................................................................................. 246 

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Page

IV 

Additional Submissions—Continued 

Responses to questions submitted for the record by—Continued 

Dr. Reid ...................................................................................................... 249 

Secretary Perez .......................................................................................... 250 

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(1) 

RESTRICTING ACCESS TO FINANCIAL ADVICE: 

EVALUATING THE COSTS AND 

CONSEQUENCES FOR 

WORKING FAMILIES AND RETIREES 

Wednesday, June 17, 2015 

House of Representatives 

Subcommittee on 

Health, Employment, Labor, and Pensions, 

Committee on Education and the Workforce 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:03 a.m., in Room 

2175, Rayburn House Office Building, Hon. David P. Roe [chairman 

of the subcommittee] presiding. 

Present: Representatives Roe, Wilson of South Carolina, Foxx, 

Walberg, Salmon, Guthrie, Heck, Messer, Carter, Grothman, Allen, 

Polis, Courtney, Pocan, Hinojosa, Sablan, Wilson of Florida, 

Bonamici, Takano, and Jeffries. 

Also present: Representatives Kline and Scott. 

Staff present: Andrew Banducci, Professional Staff Member; 

Janelle Belland, Coalitions and Members Services Coordinator; 

Martha Davis, Staff Assistant; Ed Gilroy, Director of Workforce 

Policy; Callie Harman, Staff Assistant; Tyler Hernandez, Press Secretary; Marvin Kaplan, Workforce Policy Counsel; Nancy Locke, 

Chief Clerk; Zachary McHenry, Legislative Assistant; Daniel 

Murner, Deputy Press Secretary; Michelle Neblett, Professional 

Staff Member; Brian Newell, Communications Director; Krisann 

Pearce, General Counsel; Lauren Reddington, Deputy Press Secretary; Alissa Strawcutter, Deputy Clerk; Alexa Turner, Legislative 

Assistant; Joseph Wheeler, Professional Staff Member; Tylease Alli, 

Minority Clerk/Intern and Fellow Coordinator; Denise Forte, Minority Staff Director; Christine Godinez, Minority Staff Assistant; 

Carolyn Hughes, Minority Senior Labor Policy Advisor; Eunice 

Ikene, Minority Labor Policy Associate; Kendra Isaacson, Minority 

Labor Detailee; Brian Kennedy, Minority General Counsel; Kevin 

McDermott, Minority Senior Labor Policy Advisor; Richard Miller, 

Minority Senior Labor Policy Advisor; Amy Peake, Minority Labor 

Policy Advisor; and Dillon Taylor, Minority Labor Policy Fellow. 

Chairman ROE. A quorum being present, the Subcommittee on 

Health, Employment, Labor, and Pensions will come to order. 

Good morning. I would like to begin by extending a special welcome to Secretary Perez. And we appreciate your willingness to enCEWDOCROOM with DISTILLER

2 

gage in open and frank conversations about important issues facing 

working families and job creators. 

I know there are areas where we will disagree, but we will always welcome the opportunity to raise our concerns and lay out 

what we believe are more positive alternatives. 

I wish we were here to discuss a proposal that enjoyed broad bipartisan support, one that would help strengthen our economy and 

improve the lives of hardworking men and women. Unfortunately, 

that is not the case. 

Instead, we are here to address a regulatory scheme that will 

hurt a lot of families, retirees, and small-business owners. And it 

could not come at a worse-possible time. 

One of the most difficult challenges we face as a country is a lack 

of real retirement security for America’s families. The defined benefit pension system continues to experience a decades-long decline 

while many workers are still rebuilding the savings they lost in the 

recent recession. 

Due to these and other challenges, including a persistently weak 

economy, too many workers are retiring without the means necessary to ensure their financial security. 

And just a moment. I found some information about retirement 

security by a GAO report, Mr. Secretary, that shows that 29 percent of households 55 and older have no retirement savings and 23 

percent have a defined benefit plan, but no retirement savings. So 

it is a real issue. 

And I would like, without objection, to have this report submitted 

for the record; and also another report submitted for the record, the 

U.S. Chamber finds that the DOL-proposed fiduciary rule could impact 9 million small-business households. And I would like to have 

that introduced for the record also. 

[The information follows:] 

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Chairman ROE. Our goal as policymakers should be to advance 

bold bipartisan solutions that will help more Americans plan, invest, and save for retirement. Regrettably, the Department’s fiduciary regulation would move our country in the opposite direction. 

It would cut off a vital source of support too that many low- and 

middle-income families and small-business owners rely on, and 

that is the help of a trusted financial adviser. 

Four years ago, the Subcommittee examined a similar proposal 

that was later withdrawn under intense bipartisan opposition. I 

said at the time that anyone who provides investment assistance 

should be well-trained, committed to high ethical and professional 

standards, and devoted to the best interests of those they are serving. 

That is why financial advisers have long been subject to a host 

of securities, tax, and disclosure requirements. It is a complex system of rules and regulations, but it is an important one that has 

worked well for decades. 

That doesn’t mean we shouldn’t look for opportunities to improve 

current standards, but we cannot in any way make it harder for 

workers, retirees, and small-business owners to receive the financial advice they need. 

Yet that is precisely what this regulatory proposal would do. Offering some of the most basic assistance would be prohibited, such 

as advice on rolling over funds from a 401(k) to an IRA. Financial 

advisers would no longer be able to assist individuals on how to 

manage their funds on retirement. And small-business owners 

would be denied help in selecting the right investment options for 

their workforce, which would lead to fewer employees enrolled in 

a retirement plan. 

It has been suggested on numerous occasions that this proposal 

will simply apply to financial advisers the same standard recognized in the medical profession. 

Mr. Secretary, I believe you have drawn that comparison from 

time to time and it is a clever talking point, but one that couldn’t 

be more flawed. 

As a physician with more than 30 years of experience in treating 

patients, let me just say that the approach reflected in this proposal would destroy what is left of our health care system. Imagine 

what would happen if doctors were prohibited from receiving compensation or were required to sign a contract with each patient before delivering services or were forced to publish online each and 

every treatment that had been prescribed the following year. 

No doctor could run a successful practice under this type of regulatory regime and no responsible financial adviser will be able to, 

either. 

Make no mistake. If this rule goes into effect, a lot of people will 

quickly learn that their financial adviser, someone they have 

known and trusted for years, will no longer be able to take their 

call. 

And it is important to note that low- and middle-income families 

are the ones who will bear the brunt of this misguided proposal. 

They will lose access to their personal service that they have relied 

on and be forced to find suitable advice online or simply fend for 

themselves. 

CEWDOCROOM with DISTILLER

68 

As is often the case with big-government schemes, the wealthiest 

Americans will do just fine. And those we really want to help we 

will hurt the most. 

Mr. Secretary, this latest fiduciary proposal will lead to the same 

harmful consequences as the first and should suffer the same fate. 

Please withdraw this proposal and work with this committee on a 

responsible, bipartisan approach that will strengthen protections 

for investors and preserve robust access to financial advice. Our 

nation’s workers and retirees deserve nothing less. 

With that, I will now recognize the ranking member of the subcommittee, Congressman Polis, for his opening remarks. 

[The statement of Chairman Roe follows:] 

Prepared Statement of Hon. David P. Roe, Chairman, Subcommittee on 

Health, Employment, Labor, and Pensions 

Good morning. I’d like to begin by extending a special welcome to Secretary Perez. 

We appreciate your willingness to engage in open and frank conversations about important issues facing working families and job creators. I know there are areas 

where we disagree, but we always welcome the opportunity to raise our concerns 

and lay out what we believe are more positive alternatives. 

I wish we were here to discuss a proposal that enjoyed broad bipartisan support, 

one that would help strengthen our economy and improve the lives of hardworking 

men and women. Unfortunately, that’s not the case. Instead, we are here to address 

a regulatory scheme that will hurt a lot of families, retirees, and small business 

owners, and it could not come at a worse possible time. 

One of the most difficult challenges we face as a country is a lack of real retirement security for America’s families. The defined benefit pension system continues 

to experience a decades-long decline, while many workers are still rebuilding the 

savings they lost in the recent recession. Due to these and other challenges – including a persistently weak economy – too many workers are retiring without the means 

necessary to ensure their financial security. 

Our goal as policymakers should be to advance bold, bipartisan solutions that will 

help more Americans plan, invest, and save for retirement. Regrettably, the department’s fiduciary regulation would move our country in the opposite direction. It 

would cut off a vital source of support many low- and middle-income families and 

small business owners rely on, and that is the help of a trusted financial advisor. 

Four years ago, the subcommittee examined a similar proposal that was later 

withdrawn under intense bipartisan opposition. I said at the time that anyone who 

provides investment assistance should be well trained, committed to high ethical 

and professional standards, and devoted to the best interests of those they are serving. 

That is why financial advisors have long been subject to a host of securities, tax, 

and disclosure requirements. It is a complex system of rules and regulations, but 

it is an important one that has worked well for decades. That does not mean we 

shouldn’t look for opportunities to improve current standards. But we cannot – in 

any way – make it harder for workers, retirees, and small business owners to receive the financial advice they may need. 

Yet that is precisely what this regulatory proposal would do. Offering some of the 

most basic assistance would be prohibited, such as advice on rolling over funds from 

a 401(k) to an IRA. Financial advisors would no longer be able to assist individuals 

in how to manage their funds upon retirement. And small business owners would 

be denied help in selecting the right 

investment options for their workforce, which will lead to fewer employees enrolled in a retirement plan. 

It has been suggested on numerous occasions that this proposal will simply apply 

to financial advisors the same standard recognized in the medical profession. Mr. 

Secretary, I believe you have drawn that comparison from time to time. It is a clever 

talking point, but one that couldn’t be more flawed. 

As a physician with more than 30 years of experience treating patients, let me 

just say that the approach reflected in this proposal would destroy what’s left of our 

health care system. Imagine what would happen if doctors were prohibited from receiving compensation, or were required to sign a contract with each patient before 

delivering services, or were forced to publish online each and every treatment that 

had been prescribed the following year. No doctor could run a successful practice 

CEWDOCROOM with DISTILLER

69 

under this type of regulatory regime, and no responsible financial advisor will be 

able to either. 

Make no mistake, if this rule goes into effect, a lot of people will quickly learn 

that their financial adviser – someone they may have known and trusted for years 

– will no longer be able to take their call. And it is important to note that low- and 

middle-income families are the ones who will bear the brunt of this misguided proposal. They will lose access to the personal service they rely on and be forced to 

find suitable advice online or simply fend for themselves. 

As is often the case with big government schemes, the wealthiest Americans will 

do just fine and those we want to help will be hurt the most. Mr. Secretary, this 

latest fiduciary proposal will lead to the same harmful consequences as the first and 

should suffer the same fate: Please withdraw this proposal and work with this committee on a responsible, bipartisan approach that will strengthen protections for investors and preserve robust access to financial advice. Our nation’s workers and retirees deserve nothing less. 

With that, I will now recognize the Ranking Member of the subcommittee, Congressman Polis, for his opening remarks. 

Mr. POLIS. Thank you, Mr. Chairman. 

Today we will be discussing an important issue that has been 

simmering for several years now after the Department of Labor 

chose to modify the first version of this rule several years ago, they 

have been working to listen to a broad spectrum of stakeholders on 

how best to proceed. 

And I think that everybody in the room on all sides of this issue 

believes in a best-interest or fiduciary standard because I think we 

are all here out of concern that the clients’ interests should be 

paramount. 

But what this comes down to is how to make that happen and 

how to implement the rule in a way that makes sense and benefits 

consumers. 

I truly believe today that most advisers do what is in the best 

interest of their clients, and hopefully the final rule won’t be an 

overwhelming burden on those good actors. 

However, providing a standard that those few bad actors need to 

abide by is absolutely essential, as well as to improve transparency 

in the industry. 

As we all know, most Americans are not saving enough for retirement. It is essential that what little is being invested should 

not be biased by conflicted advice. Investors should be able to trust 

the person advising them about the money they need to live after 

retirement without having to worry about that adviser’s self-interest. 

On the other side of the coin, we need to protect individuals and 

small businesses to make sure that they have access to quality advice, because mistakes in investments cost billions of dollars, and 

good advice is well worth the price. 

I am thankful to all of our witnesses for coming today to share 

their experience, and I am particularly glad that we are beginning 

with the Secretary of Labor. And I am glad to hear that he is interested in hearing our feedback about the rule. And I am thrilled 

that he has decided to extend the comment period by an additional 

15 days. 

I know that he has been working diligently on an overall goal of 

expansion of retirement savings as a way to address the retirement 

crisis. They have been doing a great deal of work in the Department of Labor on financial literacy, increasing effective enforceCEWDOCROOM with DISTILLER

70 

ment by the Employee Benefits Security Administration, providing 

technical assistance to employers and workers and retirees about 

saving for retirement. 

A good, workable rule regarding a best-interest standard can 

help increase trust between a client and their adviser, and that is 

an important part of expanding retirement savings. 

I don’t think anybody thinks that the current rule is perfect, and 

that is why I am thrilled we are having this conversation and that 

the Secretary has extended the comment period for 15 more days. 

I will be asking some in-depth questions, both at this hearing as 

well as for the record, because although I believe that this process 

should continue forward to close a loophole and establish a fiduciary standard that reflects today’s retirement landscape, we also 

need to understand and fix any unintended consequences, especially for low- and middle-income investors and small businesses. 

Ensuring that people are receiving good, affordable, conflict-free 

advice should be our end goal here. And I look forward to hearing 

in-depth answers from the knowledgeable questions from the members of this committee so that we can help the Secretary reach an 

end result that helps those most in need and improves trust in the 

client-adviser relationship and leads to greater retirement savings 

for Americans. 

Thank you, and I yield back the balance of my time. 

[The statement of Mr. Polis follows:] 

Prepared Statement of Hon. Jared Polis, Ranking Member, Subcommittee 

on Health, Employment, Labor, and Pensions 

Today we discuss an important issue that has been simmering for the past five 

years. After the Department of Labor retracted the first version of this rule several 

years ago, they have been working to listen to a broad spectrum of stakeholders on 

how to proceed. 

I believe that everyone in the room, on every side of this issue, believes in a ‘‘BestInterest or Fiduciary Standard’’ because the client’s interest should be paramount. 

What this comes down to is how to make it happen, and how to implement this rule 

in a way that makes sense. 

I truly believe that today most advisors do what is in the best interest of their 

clients, and the final rule needs to not have an overwhelming burden on those good 

actors. However, providing a standard that those few bad actors need to abide by 

is absolutely essential. 

As we all know, today, most Americans are not saving enough for retirement. It 

is essential that what little is being invested must not be biased by conflicted advice. Investors must be able to trust the person advising them about the money they 

need to live after retirement. On the other side of the coin we must protect individuals and small businesses access to advice. Because mistakes in investments cost 

billions of dollars. 

I am thankful to all of our witnesses for coming today in order to share their expertise. We are all interested in learning why this is necessary and how this will 

impact advisors; but more importantly how it impacts the advice individuals receive. 

I am especially glad The Secretary of Labor has joined us. I know he is glad to 

be hearing feedback about the rule, and I am especially pleased that he decided to 

extend the comment period by an additional 15 days. 

I know that he has been working diligently on an overall goal of ‘‘expansion of 

retirement savings’’ as a way to address the retirement crisis. They have been doing 

a great deal of work on financial literacy, they have increased effective enforcement 

by the Employee Benefits Security Administration and technical assistance that has 

been provided to employers, workers and retirees. A good workable rule regarding 

a best-interest standard will increase trust between a client and their advisor, and 

I know we all agree that is necessary part of expanding retirement savings. 

I don’t think the Secretary or anyone on his staff would say this rule is perfect, 

but that is why having this conversation and having a comment period is so vital. 

CEWDOCROOM with DISTILLER

71 

I will be asking some very in-depth questions now and also for the record, because 

although I believe this process needs to continue forward to close a loophole and establish a fiduciary standard that reflects the retirement landscape as it looks today, 

we need to understand and fix any unintended consequences, especially for low and 

middle-income investors and small businesses. 

Ensuring that people are receiving good, affordable, conflict-free advice should be, 

and I believe is the end-goal for everyone. 

Chairman ROE. I thank the gentleman for yielding. 

Pursuant to committee rule 7(c), all subcommittee members will 

be permitted to submit written statements to be included in the 

permanent hearing record. And without objection, the hearing 

record will remain open for 14 days to allow statements, questions 

for the record and other extraneous material referenced during the 

hearing to be submitted in the official hearing record. 

It is now my pleasure to introduce our distinguished witness on 

the first panel. 

The Honorable Thomas E. Perez was sworn in as the 26th U.S. 

Secretary of Labor on July 13, 2013. Prior to his confirmation, he 

served as Assistant Attorney General for Civil Rights at the U.S. 

Department of Justice and as the Secretary of Maryland’s Department of Labor, Licensing and Regulation. 

Mr. Secretary, I will ask you to stand and raise your right hand. 

[Witness sworn.] 

Let the record reflect the witness answered in the affirmative. 

You may be seated. 

Before I recognize you for your testimony, let me briefly review 

so you understand the lighting system; you will have five minutes; 

we will have some latitude with that with the Secretary here. 

And with that, you are recognized. 

TESTIMONY OF HON. THOMAS E. PEREZ, SECRETARY, U.S. 

DEPARTMENT OF LABOR, WASHINGTON, D.C. 

Secretary Perez. Good morning. Thank you, Mr. Chairman. It is 

a pleasure to be here, Ranking Member Polis, Chairman Kline, and 

other members of the Committee. It is an honor to be here, and 

thank you for allowing me to come to discuss the Department’s important efforts to help ensure that your constituents and all Americans have access to sound investment advice that a middle-class retirement requires. 

Merlin Toffel did everything right. He was a veteran of the U.S. 

Navy and an electrician. He and his wife, Elaine, raised their four 

kids in Lindenhurst, Illinois, and instilled in them those middleclass values befitting of their greatest generation. 

They loved to travel. They worked hard and they took care to 

save wisely. Over four decades, they built up an impressive portfolio with Vanguard: Merlin at the helm managing the account and 

Elaine, an accountant, keeping the books. 

Life took its toll. Merlin was diagnosed with Alzheimer’s. When 

Merlin could no longer manage their finances, Elaine made an appointment at the local retail bank. This is the bank they had been 

using for years. They trusted them. 

The bank’s investment broker told her to liquidate the impressive Vanguard portfolio and sold them variable annuities to the 

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tune of $650,000. Elaine trusted that advice. It was in her best interests, she thought. 

But those variable annuities charged nearly 4 percent of the in- vestment per year, or $26,000, the rough cost of buying a new car 

each year. And if the Toffel’s needed to access the money right 

away, as all too many families face when their loved one is in decline, a 7 percent surrender charge would cost them more than 

$45,000. 

In the end, the broker’s conflicted advice cost a hardworking, middle-class family more than $50,000. 

The Toffel’s story is tragic, but regrettably is it not unique. 

Conservative estimates by the Council of Economic Advisers place the cost of conflicted advice at more than $17 billion annually. Our economic analysis shows that conservatively the amount 

that savers would benefit from our rule, and this is only based on 

a slice of the IRA market, would be $40 billion over 10 years. 

For families like the Toffels, families who have done everything 

we ask of the American middle class, the stakes could not be higher. 

ERISA is over four decades old. In my parents’ generation, average Americans retired after working their entire life in the same 

company. Their retirement was met by with both a commemorative 

pen and a concrete pension. Because that pension was a defined 

benefit, the only thing at risk of running dry was the ink in the 

pen. 

But times have changed. Defined benefit plans have given way 

to defined contribution plans. Now consumers are in control of 

making their own investment decisions through from 401(k)s and 

IRAs. We can still count on that commemorative pen, but a secure 

retirement is less predictable. 

For the majority of Americans without a finance degree, the market is, at best, a confusing place. 

I appreciate the fact that you are a very distinguished doctor in 

addition to a member of Congress, Mr. Chairman. I have four siblings and they are all doctors. And you know, I am a lawyer, and 

I promised them I would never be a plaintiff’s personal injury lawyer, and I kept that promise, no disrespect to any plaintiff’s personal injury lawyers around the table. 

But you know what? As I said, three of the most important decisions that people make in their lives are medical, legal, and financial. And I know my siblings, the doctors, they understand that 

they have a very concrete obligation to put their patients’ best interests first, just as I as a lawyer have an obligation to put my clients’ best interests first. That is clear. 

And most people assume that the same holds true for their financial professionals. But that is not necessarily the case. 

Indeed, many of those working in the retirement space are in 

fact doing the right thing. Many of them are fiduciaries already, 

having taken an oath to serve in the best interests of their clients. 

Yet many more are not fiduciaries, and despite marketing that 

might suggest otherwise, they operate under no such commitment 

to do what is in the best interests of their clients. 

When seeking advice on retirement, consumers are at an informational disadvantage. This playing field is not level. 

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73 

But this is not simply about people who do bad things. I actually 

think, and I agree with both the Chairman and the Ranking Member, that the vast majority of people who provide advice are trying 

to do the right thing. I have not heard from anyone who said that 

I don’t do anything but try to put my customers’ best interests 

first. 

But the challenge is that the system is flawed. They are operating within a structurally flawed system, a market that sees the 

personal financial interests of the adviser and the firm all too frequently misaligned with the best interests of the customer. 

So the Labor Department’s conflict of interest proposal has a singular goal: to align the best interests of the customer with those 

of the adviser and the firm. Simply put, we want to create an enforceable best-interest standard so that you can have certainty that 

your financial adviser is working for you first and foremost. 

This proposed rule is a product of lengthy, exhaustive outreach. 

It includes extensive consultation with the SEC, whose expertise 

has been invaluable as we have developed this rule. Our outreach 

to the SEC was not a box-checking exercise, it was critical to the 

rulemaking and it has helped us make a better proposal. 

The proposed rule was also following very significant outreach to 

representatives of consumer groups, the financial services industry 

and members of Congress. And we appreciate that input that we 

have gotten throughout the process. 

We have established a lengthy comment process of roughly 140 

days, which is one of the longest that we have done in a rule, and 

for good reason. 

Throughout this outreach process, I have been very heartened by 

the calls that we have gotten from many in the industry to establish a best-interest standard. 

So for instance, John Thiel, the head of Merrill Lynch Wealth 

Management, said, ‘‘Since 2010, we have supported the notion of a 

consistent and higher standard for every professional that deals 

with the American investor and those that deal with retirement 

plans. As an organization, we have provided input to policymakers 

in Washington. We believe we were heard and we will have an additional opportunity to comment.’’ 

The CEO of Bank of America, Brian Moynihan, said, and I quote: 

‘‘We believe that doing what is in the best interests for your customers is absolutely the right thing to do. We have been clear that 

we see the industry moving and we expect to help it move there.’’ 

There is an increasing recognition inside and outside the industry that the best-interest standard is in fact the right way to go. 

The debate has shifted unmistakably from what problem to an acknowledgment of the problem that people providing investment advice should have an enforceable obligation to look out for their customers’ best interests. 

And now the important questions that remain, and I agree with 

the Ranking Member, is how do we operationalize this standard? 

And we look forward to the feedback and constructive dialogue 

that we continue to have so that we can get ideas on how best to 

operationalize this because leaders of large and small businesses 

alike have recognized not simply that this is the right thing to do, 

but it is the smart thing to do. 

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Jack Bogle, the founder of Vanguard, said, and I quote: ‘‘For as 

long as I can remember I have pressed for a federal standard of 

fiduciary duty, a simple rule that stresses that clients come first.’’ 

Mr. Bogle has 64 years in the business and he said, ‘‘I learned 

early on that when you put your customers’ interests first it is 

great for your customer and it is great for business.’’ 

He has retired, but Vanguard’s competitiveness has not. 

And while Jack Bogle, who built Vanguard, understands the importance of acting in the best interests of his clients, so do many 

small- and medium-sized companies. 

Wealthfront is a relatively small investment adviser just shy of 

four years old. And they wrote to us recently to say, and I quote: 

‘‘We were built from the ground up to operate under the full fiduciary standard despite serving small accounts and charging incredibly low fees. Thankfully, our effort to serve the small investor has 

been rewarded with unprecedented growth. Wealthfront is living 

proof that not only is it possible to provide fiduciary service at low 

cost to small investors nationwide, but also that the market greatly 

rewards these efforts.’’ 

This is what we are hearing from members of the industry. And 

what we are hearing is that the rule is good news for both American workers and retirees and everyone who is leaving a job and 

deciding what to do with their hard-earned money. 

But ultimately, it is not about simply the firms, it is about the 

people. The middle-class life rests on five pillars: fair pay, a roof 

over your head, health care for your family, education for you and 

your children, and the ability to save for you and your family’s retirement. 

I totally agree with you, Mr. Chairman, that we have a retirement crisis. We have got to save more. And what we are trying to 

do in this rule is to ensure that the hard-earned money that people 

have saved throughout their career can go to them and at the same 

time making sure that we have an industry that continues to be 

able to do good and do well. You can do both. 

And I look forward to hearing your questions and concerns. And 

I look forward to continuing the outreach because it has been a 

very, very constructive process for the two years, or roughly two 

years, I have been in this job. I have appreciated the input from 

many members of this Committee who have helped us frame an 

even better rule. 

So thank you, Mr. Chairman, for your courtesy. And I look forward to your questions and those of everyone on the Committee. 

[The testimony of Secretary Perez follows:] 

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Chairman ROE. Mr. Secretary, thank you for being here. And I 

will start off the questioning. 

I know one of the premises that was made is that we have a cri- sis and basically there is a $17 billion number. Being a numbers 

guy, I went back and sort of dug through how that number came 

up, how that actually happened. 

And the way that occurred, the Council of Economic Advisers, 

the way they put that number together was they took the total 

value of loaded mutual funds and IRAs and the total value of annuities and IRAs, added them together, and somewhere in the literature found out or determined that there was a 1 percent difference in that advice and other advice, and there is $1.7 trillion 

in the total assets when you add those together. And that is how 

the $17 billion got there. 

The problem with that is there are a lot of assumptions and extrapolations when you get to that. One assumption was that when 

you paid a loaded mutual fund that you did that every year instead 

of just going ahead and having the one-time load. I have got a loaded mutual fund in my own retirement plan that I haven’t changed 

in 15 years. 

And it was a terrible example that you gave. I really feel badly 

for that family that had a 4 percent annuity and a 7 percent surrender. I agree with that, that is very bad advice that they got. But 

making them a fiduciary, Bernie Madoff was a fiduciary and look 

what happened there. 

So making a fiduciary and more rules, I guess the first question 

I have for you is, do you think all this rulemaking—we have got 

29 percent of the people that don’t have retirement savings—will 

make it easier for people? Will it make it simpler and easier for me 

as a small-business person to provide retirement benefits for every 

employee I had from the day I started my medical practice? 

Will this rule make it easier for me to set that up and provide 

for those retirement savings for people, or will it make it harder? 

Secretary PEREZ. I think it makes it easier for both workers and 

for employers. And let me talk about workers first. 

It is a very confusing world for people who want to get advice, 

because some people that give advice have taken an oath to have 

a fiduciary obligation, some people are broker dealers and they are 

under a suitability standard, and some are actually dual-hatted. So 

depending on where you are in the conversation, they are a fiduciary one minute and they are not a fiduciary the next minute. 

That is remarkably confusing for consumers. And that is not the 

case for a doctor or a lawyer. When you go in there, your doctor 

is always looking out for your best interests and your lawyer is 

looking out for your best interests. 

So, this rule makes it simpler by making sure we have one 

standard. 

As it relates to businesses, businesses are often victims. And I 

have spoken to a lot of small businesses who, you know, they know 

how to make widgets, they are not experts in investing. And what 

they are often getting is advice that also has the same structural 

flaws. 

So when small businesses who are trying to do well by their employees are looking for that advice, this rule is going to ensure that 

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businesses and consumers alike are going to have access to that 

same non-conflicting advice. 

Chairman ROE. My time is limited, Mr. Secretary. Why would 

the NFIB and the Chamber, who represent small businesses, object 

to this rule the way it is proposed? 

Secretary PEREZ. Well, I can tell you that we have also spoken 

to a lot of small businesses as well. And one interesting one— 

Chairman ROE. No. I asked why would they oppose. And then to 

make it easier, these are the rules right here. This is yours right 

here, this big, whole, thick thing you have to read through. And let 

me just go through a couple of things. 

This is what someone has to do now with a BIC exemption, to 

get an exemption, which you provided in there, you did provide a 

way to exempt the broker dealers. A total cost of disclosure must 

be provided to the investor before executing any investment transaction. Disclosure must be provided and all the end costs and anticipated future costs, recommended assets over one-, five-, and 10- 

year periods, making reasonable assumptions about investment 

performance. And the all-in inclusion includes acquisition ongoing, 

deposition, and any other costs that reduce the asset’s rate of return. 

I mean, it is very simple. I looked up mine this morning. And it 

is very simple with the account I have to be able to tell exactly 

what my returns are net of fees. 

I mean, I see some things right here. A public website must be 

maintained and updated quarterly showing the direct and indirect 

material compensation paid to the adviser, financial institution, 

and any affiliate of a financial institution with respect to any asset 

that the investor is able to purchase, hold, or sell through the adviser or financial institution over the last 365 days. 

This is going to be thousands of things that you have to do. Does 

that sound like it makes it easier? 

Secretary PEREZ. I think, sir, this rule is very straightforward. 

You have an obligation, if you are providing advice, to look out for 

your customers’ best interests. 

Chairman ROE. Totally agree with that. 

Secretary PEREZ. Well, that is what the rule says. And that is 

what the proposal says. And what we heard in our feedback was 

we don’t want a straitjacket. We want to make sure that we don’t 

have to ban commissions, for instance. And the rule doesn’t ban 

commissions. We want a flexible road map for compliance that enables us to design what works best for our business, and the bestinterest contract is exactly responsive to that. 

Now, if there are questions about how to operationalize it, as the 

Ranking Member said, we are having that conversation right now. 

And we are having very productive conversations about how to 

make it work. 

The issue you said about publishing fees, I believe in transparency, the problem right now is that the system is really, really 

opaque. You don’t know what your fees are because there are a lot 

of hidden fees. And when you publish these and have that sunshine, there will be, I predict, third parties that are going to 

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vice. And so consumers are going to be more empowered when you 

have that transparency. 

Chairman ROE. Permit me to interrupt. My time is expired. 

Mr. Polis, you are recognized. 

Mr. POLIS. Thank you, Mr. Chairman. 

Secretary Perez, I want to thank you for your Department’s work 

on the lifetime income disclosure regulation. As you know, I am an 

original sponsor of that bill and I strongly believe all workers 

should have access to this tool that federal workers currently have. 

In a snapshot, workers will know not only how much they have 

saved, but also what the balance would translate into in guaranteed lifetime income, very relevant for their own retirement plans. 

And I know that this particular rule here is also part of your 

plan to make sure Americans save enough to retire. 

I wanted to address a few issues in the rule. 

There have been question about the extent to which your Department has sought input from the SEC and other regulators regarding the specifics of the proposal. Would you provide some details 

regarding these interactions and how the Department has gone 

about receiving input in crafting a proposal that marries well with 

securities law? 

Secretary PEREZ. Sure. We have had extensive conversations 

with the SEC. We detailed this in a letter. I have had, I think, 

eight different, either face-to-face or calls, meetings with Chair 

White throughout this process. 

We provided the day before yesterday roughly 800 pages of documentation to note and document the extent of the coordination. 

And it has been very helpful. Our career staffs have met countless 

times over the last four years. And as the materials describe, you 

will see that they had helped inform our judgment in every aspect 

of the rule. 

This Committee has helped inform our judgment as well. And I 

want to thank Congressman Guthrie. 

We had a provision in the old rule that related to ESOPs. And 

there were some concerns raised by Congressman Guthrie and 

some of his constituents with whom we met. And as a result of 

that, we took that out of the current proposal. 

And so we are going to continue to listen and learn, whether it 

is from the SEC, whether it is from members of Congress, whether 

it is from industry. All the stakeholders have really helped us 

make this a better rule. And I am confident that the final rule will 

be even better because we continue to get good input. 

Mr. POLIS. Thank you. And as you know, the proposal includes 

a significant exemption from the prohibited transaction rules for financial advisers who enter into a best-interest contract with customers. To use that exemption, the adviser needs to comply with 

significant disclosure requirements. 

And my question is around the cost-benefit of the amount of disclosures and whether the disclosures actually provide an average 

investor with information that they can process and whether that 

additional burden is worth it. 

And of course, we have heard from some advisers that the disclosures currently in the rule are so burdensome that they simply 

won’t serve some of the middle-income investors. 

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So I was hoping you could address that kind of cost-benefit tradeoff around those disclosure retirements. 

Secretary PEREZ. Sure. The best-interest contract is our way of 

making sure. This is our Ronald Reagan provision in the rule, 

which is that we want to trust and verify. 

I have yet to meet somebody who is an adviser who hasn’t told 

me that they put or they think they put their clients’ best interests 

first. 

And so what we are saying in this rule is we agree with you, that 

is the rule and it is now enforceable. And the best-interest contract 

is a way to make sure that you have a flexible road map for compliance and that it is enforceable. 

There are a number of disclosure requirements that we believe 

are very discrete and very targeted. You ought to know how much, 

you know, what the fees are. I think that is a good idea so that 

you can make informed judgments because, you know, an educated 

consumer is the best consumer. 

Mr. POLIS. Would the consumer also have some basis to know 

whether those fees are high or low relative to the fees of others? 

Because I mean, they might not know in seeing the fee. 

Secretary PEREZ. And that is part of the education that they can 

absolutely get, because you want to comparison shop. There is a lot 

of modeling that you can do to figure out, well, what are the fees 

for a similar product elsewhere? And those are the types of things 

that this rule would permit and, actually, good practice would dictate. 

Mr. POLIS. Along with that education question, in your last 30 

seconds, there is a carve-out, as you know, for investment education in the rule. And I was hoping you could clarify about where 

that distinction is between advice and education. 

Secretary PEREZ. Sure. One of the main things we did, and this 

was responsive to the feedback we got, is to clarify and really explain the line between education and advice, because we all agree 

that education is exceedingly important. And this rule establishes 

very broad parameters for education. 

So one of the most important things that you can do in education 

is talk about asset allocation. That is totally education, nothing 

kicks in there. You know, you should have some of your money in, 

you know, equities, bonds, cash. That is education. 

Tradeoffs between risk and reward are education. 

We had 1996 guidance that we put into the rule, the proposed 

rule, so that we are operationalizing something that the industry 

has been using for some time. 

We clarified that employers can provide advice because employers are trusted advisers that people go to. And they are not generating a fee so they are not fiduciaries, so we clarified that employers can provide advice. 

And we welcome your comments on whether the line is drawn in 

the right place or whether we should do something different and 

better. 

Mr. POLIS. Thank you, Mr. Secretary. 

Yield back. 

Chairman ROE. I thank the gentleman for yielding. 

Next is Chairman Kline. 

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Mr. KLINE. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here. 

I think there is nobody probably in this room and certainly up 

here who doesn’t agree that financial advisers ought to be acting 

in the best interests of their client. But the rule doesn’t simply say 

that. The rule is in fact quite complex. 

Dr. Roe lifted up the book and it is about this thick. And clearly, 

there is a lot of confusion. 

And so I am not as thrilled as the Ranking Member that you 

have extended the comment period by 15 days; 45 would have been 

better. But the more discussion we have, I think, the better because right now I am afraid the rule is going to prove to be pretty 

complex and in some cases may be unworkable. 

Mr. Secretary, you said that you have had extensive outreach to 

the SEC. And since you are here under oath, I have got to assume 

that is a true statement, but it may depend upon what ‘‘extensive’’ 

and what ‘‘outreach’’ means. 

As you know, Mr. Secretary, going back to March 4, the Committee has asked for documents and communications to verify that 

substantive coordination has occurred between the Department of 

Labor and the Securities and Exchange Commission. And after 

months of virtually no response, less than 48 hours before this 

hearing the Department produced 827 pages of mostly scheduling 

emails, Outlook calendar items, and similar things. 

And this leads us to believe the Department has still not provided a complete response to our inquiry. 

So here are the questions. Do these 827 pages represent the entirety of the written communications between DOL and the SEC? 

Secretary PEREZ. Could you repeat the question, sir? I am sorry. 

Mr. KLINE. Do these 827 pages that we just got from the Department represent the entirety of the written communications between 

DOL and the SEC on this fiduciary standard? 

Secretary PEREZ. No. We have had an extensive conversation 

with your staff. And I am a big believer in the importance of oversight. And I think you and I have had this conversation in many 

contexts. And we look forward to continuing to work with you. 

We also had agreed—we offered, I am sure you are aware, to provide a briefing about the extent of the coordination. The materials 

were due the close of business yesterday; we provided them to you 

at the close of business Monday so you would have an extra day 

to review them in preparation for today. 

And we will continue to work with you on this. 

Mr. KLINE. And we reviewed them quickly. 

So I am not sure I still have the answer to the question. Is there 

more documentation that we have not yet received? 

Secretary PEREZ. We are still reviewing everything. This process 

has taken place over five years. And so we wanted to demonstrate 

our good faith in the work that we are doing. And so we turned 

over the 800 pages. 

Mr. KLINE. But you are not claiming executive privilege for not 

providing more documents, you just haven’t found them yet? 

Secretary PEREZ. No. We are continuing to work with your staff, 

and I think we are working in a collaborative fashion. And again, 

we offered up a briefing to show the coordination. 

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And with all due respect, the documents demonstrate, because 

all of the areas of discussion for a particular meeting are noted on 

the document, so the issue that was presented in the oversight request was are we collaborating with the SEC. The documents that 

you have, I would respectfully assert, clearly demonstrate both a 

wide breadth and depth of collaboration with the SEC. 

Mr. KLINE. Well, is it all of the collaboration? That is what we 

are getting at. 

I mean, we would like to have a log from you identifying responsive documents by date, author, subject line, recipients, and a summary of content. That is what we have asked for and we haven’t 

gotten that. We got 827 pages of stuff, and I appreciate getting the 

827 pages. 

But as you know, Mr. Secretary, there has been a great deal of 

debate and conversation and unrest about who should be doing this 

in the first place, right? The SEC is charged under Dodd-Frank 

with some activities here. DOL is acting under ERISA for this. 

But we have been looking at coordination. We have had legislation in this body insisting that SEC act before DOL, that has not 

been signed by the President, it is not law. 

But we are very, very concerned as a body about what this coordination is between DOL and SEC. You have given us a bunch 

of stuff, we are looking for something a little bit more precise than 

that. And I hope you will be able to provide that. 

Secretary PEREZ. Well, I look forward to our staff oral briefing 

because I think you will get even more depth about what we have 

been doing. 

And again, the documents that you have now and the proposed 

rule, you will see that virtually every section of the rule, there were 

conversations with us and the SEC. 

So if the question is, were we talking? The answer is, a lot. 

Mr. KLINE. I guess I believe a lot; I am looking for a little more 

precision. 

I yield back. 

Chairman ROE. I thank the chairman for yielding. 

Mr. Courtney, you are recognized for five minutes. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for being here today. 

Secretary PEREZ. Good morning, Congressman. 

Mr. COURTNEY. You know, just at the outset, I would just sort 

of change maybe a little bit of the tone of the last exchange. And 

again, I have nothing but the highest regard for the Chairman, but 

you know, this Secretary, since he took over, in my opinion, has 

shown, you know, a real willingness to work with the committee 

members on a whole host of issues. 

Mr. Kline and I raised the question of whether or not the Department of Labor’s actions in the Office of Contract Compliance with 

hospitals was an overreach by the Department. 

And to your credit, you ran the forensics and came back and actually terminated an enforcement action which, again, was what 

generated our objection. 

The pension amendment to the Cromnibus, which the chairman 

of the subcommittee and the Chairman of the full committee 

worked with your Department to produce, you know, a change to 

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the crisis that existed in defined benefits again is another example 

of where this Secretary has shown a willingness to work with this 

committee. 

And frankly, that has been a change since you took over. 

The last time the Department came forward with a proposal on 

a fiduciary rule, it was a disaster. I mean, and I am saying that 

as a, you know, as a Democrat. It just was a fiasco. 

And you have already sort of alluded this morning to some of the 

changes that the Department has implemented or proposed with 

the new proposed rule compared to the first fiduciary proposal. 

Again, you mentioned Mr. Guthrie’s concern regarding ESOPs. 

That was deleted. 

The financial education piece, which frankly I personally think 

needs more work, and you have already said this morning you are 

willing to listen to people about ways to let the call centers do their 

jobs without sort of too much restriction. 

But the sellers’ exemption is an example. Maybe you could talk 

a little bit about, you know, where we are today versus where we 

were whatever it was, three or four years ago, when the Department came out with its first set of rules. 

Secretary PEREZ. I think we have come a long way, in short. And 

we have come a long way because I am a big believer, and we had 

this chat yesterday, Mr. Chairman, when you are in the regulatory 

process, number one, you have got to build a big table, you have 

got to make sure you are listening to every stakeholder. You have 

got to understand what the consequences of your proposed actions 

are, intended and unintended. 

And the best way to learn about the latter is to make sure you 

have a big table so that you can hear and learn from people who 

have been in it. And that is what we have done. 

And I am heartened by the fact that this conversation has 

evolved from a there really isn’t a problem to address to an increasing recognition that we have to have one standard and it needs to 

be a best-interest standard because we don’t save enough. 

And when a family works hard to save $50 or $100,000 or a few 

hundred thousand in the case of the example I cited, we need to 

make sure that the advice they are getting is in their best interests. And that is what this is about. 

And the question of how to operationalize that, we asked literally 

dozens of questions in our proposed rule about precisely that, because another principle of effective rulemaking is humility. 

We have ideas about how we think you can operationalize it. But 

we also recognize that so do others. You know, we have met with, 

and I have personally met with CEOs of Fidelity and others, and 

their input is invaluable to us. And we will continue to have those 

meetings. 

I have met with small businesses who are in this space, who, 

frankly, they tell me with regularity anyone who says that they are 

going to get out of the $11 trillion market, could you give them my 

email, because I am serving a lot of small savers, and I am making 

good money using technology and looking out for their best interests. So there is a way to do it. 

And so, I think we have improved the rule as a result of that listening, whether it is a more robust economic analysis, whether it 

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is the ESOP issue that Congressman Guthrie addressed and we 

took it out, whether it is the best-interest contract exemption, 

which is an effort to make sure that we have guardrails, the bestinterest rule, but we have flexibility and compliance. 

There is no bar on commissions. That was an issue that we 

heard and feedback we got and we listened. 

And we clarified the line between education and advice. And as 

I said earlier, if people think that further clarification is necessary, 

give me chapter and verse because we are all ears. 

Mr. COURTNEY. And you know, we are going to obviously watch 

closely as the Department continues its deliberations. 

So when August rolls around and there is a revised, I guess, reg 

that comes out, there is an additional comment period after that 

as well. I mean, if doesn’t just shut down at that point. Am I right 

about that? 

Secretary PEREZ. Absolutely. We are having a public hearing in 

August. The comment period closes, then we have a public hearing, 

then we publish the transcript of that hearing, and we invite comment on that transcript. So we are going to end up having roughly 

140 days of formal comment, and that is on top of the 2 years or 

so of outreach that we have done to date. 

Chairman ROE. I thank the gentleman. 

And Dr. Foxx, you are recognized. 

Dr. FOXX. Morning. 

Secretary PEREZ. Good morning. It is great to see you again. 

Dr. FOXX. Nice to see you. 

Thank you, Mr. Chairman. 

And thank you, Secretary Perez, for being here today. 

I have been listening to the comments made already and having 

read a lot of the material about this with a great deal of interest. 

This, I will tell you, is not an area of expertise for me, but my husband and I discuss these things a lot. He generally handles our investments for us with a little bit of input from me. 

But I am really interested in this issue of best-interest contracts. 

And I know in many cases you can get advice that people think is 

in the best interest. I know my husband over the years has invested money in areas where he thought there would be a great return, and yet something happens outside his ability to control it. 

It happens all the time in investments. You invest in one thing 

and the market is going up and all of a sudden a new technology 

comes along or some substitute for that product and your investment isn’t worth as much. 

You know, best interest, it seems to me, is in the eye of the beholder. 

But I want to ask you a quick question about this. If I talk to 

somebody, a financial professional, to help me open an IRA, why 

do I need to sign a contract before we can even have a conversation? Do you think that kind of requirement is going to intimidate 

the new investors that we need to get into the market and ultimately discourage them from saving? 

You know, signing a contract for the average person is a big deal. 

Secretary PEREZ. The short answer is you don’t have to sign a 

contract before you have a conversation. And we understand that 

the proposed rule and part of our feedback that we have heard, this 

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issue has come up with some frequency. And there have been concerns raised about the timing of when the contract requirement 

would go into place. 

And so your question is a perfect example of the issue of, how 

do we operationalize this, because we have a shared goal in making 

sure that you can go out and get access to advice, shop around. 

You know, I want to know what you are telling me, , and I want 

to make an informed choice. Just like if I buy a car or I buy a refrigerator, I want to do some comparison shopping. 

And our goal is to make sure that comparison shopping is facilitated. 

So we have heard that and that is an issue that we, I am confident, are going to clarify because we want to encourage shopping, 

we want to encourage informed consumers. 

And there is a lot that you can go to now and not have a contract. You can go and see somebody and talk about asset allocation. 

You know, what should my asset allocation be? You can look at 

interactive modeling and plug in a number of different assumptions 

and you don’t need a contract. That is all a part of the shopping. 

The most important part I have learned from talking to folks in 

the industry about the conversations is the asset allocation conversation. You know, what is your risk tolerance threshold? And 

my wife and I have different risk tolerance thresholds in this, and 

we learned that during the course of meeting with our financial 

planner. 

And those are the things we want to facilitate. And those don’t 

require a contract to have those conversations. 

Dr. FOXX. Well, one of the things it sounds to me like, in terms 

of best interest, is that this is going to be a full employment regulation for trial lawyers, because who decides what that best interest 

is going to have to ultimately be decided. 

One more question. Are you concerned at all that long-standing, 

positive relationships between investors and advisers will be disrupted if they are forced to comply with a host of new mandates? 

Secretary PEREZ. I am not concerned because everybody that I 

have spoken to has said that I put my customers’ best interests 

first. I haven’t met anybody who says they haven’t. And so what 

we are trying to do is operationalize and memorialize that. 

And as it relates to your question about— 

Dr. FOXX. If they are already doing that, then why do we need 

to have a host of new rules and regulations? 

Secretary PEREZ. Because we are trusting and verifying. Because 

I am sure that when, you know, the Toffels went in they thought 

they were getting advice that was in their best interest. 

But there is a structural problem here. And it isn’t about bad actors as much as it is about the fact that when you have a suitability standard there are five different products that are suitable, 

but many of those products get you a better commission. And it is 

completely appropriate for you to steer someone to a product that 

gives you a better commission and does so at the expense of the 

consumer. 

I think that isn’t in the best interests of the consumer, and so 

that is why we are trying to change it. 

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And by the way, there is a substantial percentage of folks who 

are already fiduciaries. There is no evidence of a litigation boom 

with folks who are already fiduciaries. 

And we also have a provision in the rule, for your information, 

that allows a best-interest contract to have a mandatory arbitration 

clause for individual claims. So a firm can put that in if they want. 

And it was designed to get at the concern that you address. 

Chairman ROE. The gentlelady’s time is expired. 

Mr. Pocan, you are recognized for five minutes. 

Mr. POCAN. Thank you very much, Mr. Chairman. 

And thank you, Mr. Secretary, for being with us this morning. 

Secretary PEREZ. Good morning, good to see you again. 

Mr. POCAN. Good to see you. Thanks for being here today. 

And you know, I think we all agree that far too many people 

don’t have enough money put aside to live comfortably in retirement and we need to do something to reverse this trend. And I 

really appreciate the work that you and your Department are doing 

to ensure that Americans savings for retirement are able to receive 

investment advice that is in their best interest. 

I appreciate the open-comment period and extension for the extra 

15 days as well. And I think one of the things that you have said 

over and over is in order for this rule to be successful it must be 

workable. And I think that is where I just have a few issues that 

I would like to bring up, just that people brought up to me that 

I think are something I hope you are looking at closely that maybe 

we can have some impact on. 

I would echo Dr. Foxx’s comment about this idea on signing a 

contract with an adviser. I think it does need some clarity and clarification. 

While I completely disagree that the U.S. Chamber and NFIB 

represent small business, I have been a small-business owner for 

28 years, I work in a business-to-business market, a fraction of 1 

percent aren’t members of those organizations. 

But you do know your thing. You are a chef, you may not be the 

best businessperson, but you certainly may not be your best retirement adviser, right? 

But it does have some questions about whether or not if you have 

to sign a contract right away, it isn’t just asset allocation, you 

might have some broader questions about, you know, I want to do 

this in retirement, what should I be looking at. It is just a step further. But if you have to sign a contract for that, it is something 

that seems larger, I think, than just getting some initial advice. 

So you know, I guess I would just like to associate myself with 

the comments on that, but just kind of really raise that issue, because I was talking to another Democrat on the floor yesterday and 

this issue came up with that person as well. So I think more of us 

do look at this as something perhaps a little bigger and would appreciate any consideration you can give to that. 

Secretary PEREZ. Absolutely. And you are addressing two issues; 

one is the line between education and advice, and we have a proposal out there, we think it is broad, but we are hearing feedback 

about how we can make it even clearer. And that feedback is really 

helpful. 

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Secondly is the issue that Congresswoman Foxx raised about 

when you execute that. And again, we have heard that and that 

is why I keep coming back to why I love this process because you 

have to have humility to understand that, you know, you have done 

your best to integrate the feedback you have gotten and folks are 

going to help you make it better. 

And your question, Congresswoman Foxx’s question, other questions about the operational aspects of this are very important. 

Mr. POCAN. And let me raise a couple more, if I could, just while 

I have got the time. 

Secretary PEREZ. Sure. 

Mr. POCAN. Another one is there has been some concern over the 

data that is being collected as part of the rule, both from a substantive perspective and from the cyber security perspective. And 

you have probably heard some of these through the comment process. 

A few of the things were, like, if you represent the investment 

fees versus the return it can be misleading on the type of investments. Some investments are more like apples, some are more like 

oranges, but now we are going to try to combine them completely. 

There have been some conversations about the six years of sensitive data that we are going to collect just making sure that 

doesn’t become something that is a collection of data that isn’t as 

useful. 

And then there is a very specific about, you know, if someone 

makes a good-faith mistake versus something that instantly puts 

them into the excise tax area. 

Those are some of the things that came up. But also then, I 

guess, is this question on the cybersecurity levels and whether 

DOL has the funding within the Department to make sure they are 

going to have that. 

We know we aren’t great at appropriations around here. We 

want to make sure that is all in place. So that is another level, I 

guess, I would just like to raise real quickly. 

And I do have one more after that. 

Secretary PEREZ. No. I mean, the good news is that we have 

heard from various stakeholders every one of those items. And 

again, they are all in a bucket of how do you operationalize this. 

One of our goals is transparency. Right now the system is very 

opaque. You don’t know what the precise fees are. Actually, people 

think it is free. And it isn’t free. And so that is why what we are 

trying to do here is to make sure that, you know, by publishing 

what various fees are then you can have, as I said before, a consumer reports of apples to apples comparisons that will help consumers make informed judgments. 

But all of the issues that you raised are absolutely things that 

we have been thinking about. 

Mr. POCAN. Yes, looking at it, I appreciate it. And the last thing 

I would say with only seconds left, just real quickly, on the eight 

month thing, a few folks have said it is a little short. Can you just 

tell me how the eight month idea for implementation came in mind 

and where we are in flexibility? 

Secretary PEREZ. Well, that is another area where we are hearing a lot of feedback on. And there have been a number of suggesCEWDOCROOM with DISTILLER

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tions that have been raised about phase-ins or, you know, how you 

can make sure that the rule is in effect. So that is an area where 

we invite, we affirmatively ask for comment about that. And we are 

getting a fair amount of it. 

So I hope that we can have more conversation about that. 

Mr. POCAN. Yes. And we will relate some of these concerns directly to you. 

Secretary PEREZ. Sure. 

Mr. POCAN. I just really appreciate the openness, again. I think, 

you know, every time you have come to this committee you have 

been one of the most open folks that I have dealt with in my two– 

1/2 years here. And thank you for— 

Secretary PEREZ. Well, it is an honor to be here. And I learn a 

lot. You make me smarter, all of you, so I appreciate it. 

Chairman ROE. I thank the gentleman for yielding. 

Mr. Walberg, you are recognized. 

Mr. WALBERG. Thank you, Mr. Chairman. 

Secretary PEREZ. Good to see you again, Mr. Chairman. 

Mr. WALBERG. Good to see you. And I hope you have got your 

wife a trip planned back to Michigan, right? 

Secretary PEREZ. Absolutely. 

Mr. WALBERG. Good. 

Secretary PEREZ. U.P. 

Mr. WALBERG. Say hi to the U.P., too. 

Secretary PEREZ. I don’t have a Harley, though. 

Mr. WALBERG. Well, you have got to get one. 

Secretary PEREZ. Yes, I will borrow yours. 

[Laughter.] 

Mr. WALBERG. You are welcome to do that. 

I heard you say nothing is free, and that is absolutely true. So 

in relationship to some costs, I am concerned about the cost of this 

proposal, including the potential litigation and administrative costs 

that may go with it as a result. 

How many additional ERISA fiduciary lawsuits do you project 

will be filed annually if your proposal is finalized? 

Secretary PEREZ. Well, again, there is a provision in the proposal 

that allows for mandatory arbitration clauses in the best-interest 

contract. And that is a provision actually that we took from I believe it was SIFMA or FINRA. 

And so in the area of trying to make sure we are harmonizing 

our rules with other rules, we put that in place because we recognize that was a concern people brought to our attention. 

Mr. WALBERG. Any figure that you have considered on additional 

costs and a number of lawsuits that might be filed? 

Secretary PEREZ. Well, we certainly have considered that. I 

would observe that we now have a controlled experiment going on 

because there is a substantial subset of people in this space who 

are already fiduciaries. So if your theory is correct that if you are 

operating under the best-interest standard you are more susceptible to litigation, that hasn’t been borne out. 

There is no evidence that folks who are fiduciaries get sued more 

often. What the evidence shows is that when times are good, there 

tend to be less lawsuits against advisers. And when times are bad, 

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there tend to be more lawsuits, regardless of whether you are a 

broker dealer or whether you are a fiduciary. 

Mr. WALBERG. Well, in order to make sure that happens, how expensive will this proposal be for participants and IRA holders due 

to increased litigation risks and insurance costs? 

Secretary PEREZ. Well, again, you know, the premise of increased 

litigation risk, I mean, the evidence to date has shown that folks 

who are fiduciaries aren’t dealing with increased litigation risk. 

And everybody who has come in, including broker dealers, and 

said I would like to think that I put my customers’ best interests 

first, if they are in fact doing that then they have little to worry 

about. 

Mr. WALBERG. But they are worried about the complexity of the 

regulation that is expanding with this for all sorts of reasons. But 

there will be litigation costs. Is there any figure out there that you 

have considered for the best interests because, ultimately, won’t 

these costs just be passed on to the investors? 

Secretary PEREZ. Well, again, if there was evidence that fiduciaries were facing increased litigation costs, then that is something we would have flagged. And there is no evidence of that. 

So the notion that this is going to trigger a litigation bonanza 

when you have a mandatory arbitration clause in there and when 

folks are already doing this, presumably, you know, I respectfully 

take issue with the premise. 

Mr. WALBERG. Well, I mean, expanded regulation always adds 

some costs. So I guess I will take your answer, but I am concerned 

that we haven’t assumed some greater costs and, ultimately, the 

impact upon the investor as well as the IRA holders, participants, 

et cetera. That would be a concern for me. And I guess I would put 

it out still further. 

I would like to see the workup done to ultimately bring satisfaction to your mind that you have seen evidence, and that is fine, 

that this won’t increase the costs and, ultimately, those investors 

will experience paying for that cost. 

Let me jump onto one other thing. 

Secretary PEREZ. There is the real cost of the status quo, sir, as 

well. So I mean, and we have that. 

Mr. WALBERG. I can understand that. Yesterday, I spent significant amount of time in the Oversight and Government Reform 

Committee on the issue of OPM and the data breach that went on 

there. 

We also had in recent months VA in front of us as well. 

I was in a classified briefing there also and it was unbelievable 

the lack of preparation and expertise and ability to handle this 

with the OPM director. And ultimately, as you are probably aware, 

there has been a call for her resignation. 

In this issue with the increased amount of data that you are 

going to be pulling in, what are you doing to make sure that data 

is secure and we have investors as well as the fiduciaries protected 

from a breach like that? 

Secretary PEREZ. Well, if you look at our budget request for the 

fiscal 2016 budget, we have a very robust request for IT. And it is 

not simply for this, but it is to make sure that our IT infrastructure is as impermeable as possible. 

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And so I look forward to citing you during our budget deliberations about the need to have our IT requests— 

Mr. WALBERG. Yes, it isn’t always money. It is preparation and 

I hope you are prepared to a great degree right now. I would like 

to have some confidence in that. 

Chairman ROE. The gentleman’s time is expired. 

Mr. Sablan, you are recognized for five minutes. 

Mr. SABLAN. Thank you very much, Mr. Chairman. 

And Mr. Secretary, it is always good talking to you and having 

conversations. 

I have some concerns in addressing, how best do you 

operationalize this best-interest standard in my district? 

Coming into this room, I thought we had nine securities investment or advisers, now I only count that we may have actually four, 

three with each one of the banks and one, the gentleman that is 

a dealer or agent for Fidelity. And so you can see how small the 

market is for us. 

And how do we do this, how do we bring this very well-intentioned best-interest standard, which I like very much, without forcing these investment agents, at least the one with Fidelity, to stop 

doing business in the Northern Marianas with forcing them to close 

shop because the costs of managing this government oversight is 

going to go higher, of course, when his clients aren’t very large? 

And I would like to maybe work with your office. And maybe if 

I understand, maybe—I am sure you may have an answer for this, 

I don’t know. But because we are so small and I can tell, I can 

probably count on my two hands how many people have investments with firms that are, you know, housed in Honolulu probably 

and they have the means to get up and fly there and be there. 

But for those who are the smallest investors, retirement savings 

investors, there is very little. And I would like to see how would 

we manage these small accounts. 

Secretary PEREZ. In the same way you would manage every account. And that is, you know, small investors are the ones who are 

most vulnerable. 

Mr. SABLAN. Very small. 

Secretary PEREZ. Because you know, if you have a 1 percent loss, let’s say you invested, you know, I think it is $10,000 and you have 

it in for 35 years, if you as a result of conflicted advice see a 1 percent diminution in your return, that translates to almost $10,000 

less. So it would be about $35,000 over time and instead it is 

$25,000. 

And so, I think that this rule is most designed for small investors. 

Mr. SABLAN. Don’t get me wrong. I think I like the rule, I think 

it is about time. But it is just that for places as small as the Northern Marianas where there isn’t very much money invested, it is 

just forcing these companies to decide to say, no, we will just stop 

doing business there. 

Except for those 10 people I can count on my hands, everyone 

else would lose the chance towards accessing an investment agent 

maybe, not necessarily a broker, but an agent on how they could 

invest their retirement savings, aside from those who are employerbased. 

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Secretary PEREZ. Well, one thing that has been really helpful, 

and I have certainly learned a lot about this industry over the 

course of the last two years, is that technology is a huge ally. It 

is a huge ally in rural America, it is a huge ally in the CNMI. 

And I mentioned in my opening remarks a company out of California Wealthfront. They are a startup. They are four years in. 

They have now over about $2 billion in assets. They don’t charge 

a fee for anyone who is under $10,000, and that is because they 

believe that—they have a platform that enables them to significantly lower the fees, operate as a fiduciary and do well by doing 

good. 

And so I think technology is a big ally for the residents of the 

CNMI because— 

Mr. SABLAN. Mr. Secretary, and I don’t doubt the well intention 

of this rule. Let me just give you an example. Primerica, for example, has 21 investment accounts in the Northern Marianas, 21. I 

am sure Fidelity has much more. ASC Trust does a larger business 

there. 

But Primerica is a huge company. They have 1.9 million investment accounts in the country, 21 of that is in the Northern Marianas, so we are very small. 

I am just concerned that this new rule will force people to close 

shop. And instead of growing the market for us, it would have a 

negative effect. 

I am not trying to stop your rule and I probably won’t. But just 

having this conversation, I hope that— 

Secretary PEREZ. Well, I look forward to talking with you about 

the various vehicles that are accessible as we speak right now. 

Mr. SABLAN. Thank you for your recent decision, Mr. Secretary, 

that this five years extension also works for that. I appreciate that 

very much. 

Chairman ROE. Thank you. The gentleman’s time is expired. 

Mr. Guthrie, you are recognized for five minutes. 

Mr. GUTHRIE. Thank you. 

Thank you, Mr. Secretary. Thanks for being here. 

Secretary PEREZ. Good to see you, Congressman. 

Mr. GUTHRIE. And I know it has been mentioned a couple of 

times, us working together on sections of this proposed rule. And 

that was just a great process. 

I want to reiterate, I think I talked about it before when we were 

in a public hearing, but I mentioned something in a hearing such 

as this, you said let’s get together and talk about it and followed 

through. And I think that it was a healthy change to the proposed 

rule and we appreciate you doing that very much so. 

The one thing I just want to talk about is the President had a 

proposal. The myRAs, myRAs, and so there is a difference in 

myRAs and IRAs, IRAs. And I know it is Treasury so it isn’t in 

your area, but just how your rule treats, does it treat these differently? 

And I will just start by asking, and I will do this. There is a December 2014 letter from the Department of Treasury that exempts 

the myRA program from ERISA’s fiduciary obligations. And the letter states that the exemption is granted for employers, in part, because, and I will quote: ‘‘some employers may also want to hold emCEWDOCROOM with DISTILLER

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ployee meetings to explain the myRA program and encourage eligible employees to participate. Others may want to answer employees’ inquiries about the myRA program or refer them to Treasury’s 

financial agent.’’ 

And so this description does sound a lot like the advice in many 

similar circumstances that workers in my district rely upon. And 

since the letter acknowledges that workers need to get information 

and begin saving and then exempts myRAs for fiduciary liability, 

why are myRAs different from IRAs? And is that in your area that 

you have looked at? 

Secretary PEREZ. The myRAs are not covered in this rule. And 

the Treasury Department controls all aspects of the myRA rule. 

Mr. GUTHRIE. But in your proposed rule, do you treat the myRAs 

different from IRAs in your proposal? 

Secretary PEREZ. MyRAs are not covered under our rule. 

Mr. GUTHRIE. So you don’t have the fiduciary— 

Secretary PEREZ. Yes. So that wouldn’t kick in at all. 

Mr. GUTHRIE. And the reason they are different, the reason you 

treat the myRAs and IRAs differently? 

Secretary PEREZ. Well, again, the myRAs as I understand it, and 

again, I am outside my lane here, so I want to note that at the outset, the purpose of the myRA was to encourage auto enrollment in 

a different way so that we can help more people who are trying to 

save. 

And when the Treasury Department put those in place, you 

know, as a result of the fact that it is kind of a startup, that was 

the decision that was made. And I think it makes sense. And so 

that is the situation there. 

I can get you more information because I don’t want to misrepresent anything. And at the moment, you know, what I do know is 

that the myRA isn’t covered here. You know, what I don’t know are 

the nuts and bolts of the myRA. 

Mr. GUTHRIE. You know, and I think it is because the myRA— 

I guess where the Treasury Department seems to look at it is the 

myRA is a government-run thing so the government agent wouldn’t 

be a bad actor or a physical agent. 

Secretary PEREZ. Right. Yes. 

Mr. GUTHRIE. I assume that is where they are coming from. 

Secretary PEREZ. Well, there is also no referral fees for myRAs. 

So you aren’t falling into any of the tests that would come under 

here still. That is kind of a biggie. 

Mr. GUTHRIE. Okay. So if an employer—well, you wouldn’t really 

hit the employer in this. But if an employer is making a presentation to employees and said here is myRAs, here is IRAs, I mean, 

how is that handled in the proposed rule? 

Secretary PEREZ. Sure. Well, an employer, if you are talking 

about an employer, I have 50 people in my business, I have a grocery store, I think that was the one we met— 

Mr. GUTHRIE. Yes. 

Secretary PEREZ.—and you are making a presentation, you aren’t 

a fiduciary because you aren’t the one—and I think it was Congressman Pocan who said, you know, I am a good cook, but I am 

not, you know, this is not my bailiwick. 

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So employers can provide those seminars and provide that advice. And they wouldn’t fall within the rule because, again, they 

aren’t the ones who are— 

Mr. GUTHRIE. Selling the product. 

Secretary PEREZ. Right, exactly. 

Mr. GUTHRIE. Okay. I guess my confusion is that the Treasury 

Department treats employers and says employers wouldn’t be fiduciaries. So it seems maybe, and it is probably different than your 

section, so it is probably—I think we have answered where I need 

to go with that. 

But again, appreciate the work that you have done on that and 

done with me and different members of the committee and people 

you have talked to, and I think it has been an open process. 

I know there are some questions and more information will flow, 

but I will tell you I had a good experience working with you and 

I really appreciate it. 

Secretary PEREZ. Anything else that comes up, feel free to give 

me a call to my cell. 

Mr. GUTHRIE. Thanks. 

Chairman ROE. I thank the gentleman for yielding. 

Ms. Bonamici, you are recognized for five minutes. 

Ms. BONAMICI. Thank you very much, Mr. Chairman. Thank you 

for holding this hearing on this really important topic. 

And we talk a lot about retirement security. And I have to tell 

you, I have had a lot of meetings about this issue. 

I am particularly proud of my state. The legislature just passed 

the Oregon retirement security bill which is a voluntary plan to 

make an IRA available to all Oregonians without access to a retirement plan at their workplace, which once again our state is showing some leadership there on this really important issue. 

This is a fascinating, but complex issue and I am fairly new to 

it, even though I did some work years ago as a lawyer in securities. 

So to try to understand the whole jurisdictional issue with when 

the Department of Labor is involved because it is ERISA and when 

state law is preempted and then the SEC involvement. 

And I am glad you are working with the SEC. And I appreciate 

your comments about telling the committee about all of those discussions and correspondence. 

So I wanted to just emphasize how important this is to our constituents, particularly middle- and low-income families in my district and all of our districts. It is important for them to have access 

to financial advice that they can trust. 

And again, I have had a lot of meetings about this. I have also 

heard from people in the industry who are very concerned about 

the implementation. We have made progress with the consensus 

now that the best interest is what the industry is saying they agree 

to and it is the implementation that appears to be the issue. 

I have also heard from AARP, NAACP, National Council of La 

Raza all supporting the rule. And they have really made consumer 

rights a centerpiece of their advocacy. And I have a background in 

consumer protection and I very much appreciate that. 

And to me, it seems like we have the same goal here, to make 

sure that the people who are getting advice are getting advice that 

they can trust and that it is in their best interests. 

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So let’s talk a little bit about some of the issues that have been 

raised. Particularly, will you please clarify because I have heard 

over the past couple of years it is going to be a big problem because 

we won’t be able to sell any products on commissions? That has 

been clarified, correct? 

Secretary PEREZ. We won’t be able to? 

Ms. BONAMICI. Sell products and get a commission. 

Secretary PEREZ. Right. Commissions are not banned under the 

rule. 

Ms. BONAMICI. Thank you. And then the information versus advice, and this has to do with the timing. Are you open to working 

on that and taking advice from people who are here? When does 

that contract—you talked a little bit about what if somebody calls 

in and can they get advice about the balance of investments. Let’s 

talk about the timing because that has been raised by industry as 

well. When does that contract need to be signed? 

Secretary PEREZ. Right. And as I said, I think, in response to a 

couple of other questions, we want to make sure that we are facilitating advice and that conversation and the shopping that is critically important for consumers. And so that is an area that people 

have said it doesn’t feel clear enough to me when I have to sign 

the contract. 

And so we are working together to make it clear. And our goal 

is to make sure that we can facilitate the shopping and that we are 

talking about it. 

And one thing I think that is clear in the rule is that there is 

a heck of a lot that you can do right now. So you can go to your 

adviser and he or she will tell you, you know, what is your asset 

allocation and what is your risk tolerance threshold and let’s go online and, you know, we can plug in some assumptions and you can 

see how if you go more equities versus bonds and given your risk 

tolerance threshold how it will affect you. 

All of these things are in the realm of education. We have a 

whole group of folks that do a steady diet of educating, including 

seminars and things of that nature, because we recognize, again, 

as I have said, an educated consumer is the best customer. 

At the same time, I am confident that line is going to be drawn 

even sharper as a result of the input that we are getting right now. 

And we welcome that. 

Ms. BONAMICI. And I appreciate your involvement. And certainly, 

the products are much more complex than when I think ERISA 

was enacted in the mid-1970s. And you know, it really is a different world out there and it is critical. 

So I just want to emphasize that I appreciate your Department’s 

willingness to work with the industry, your openness to hear the 

concerns. Because again, we have the same goal, we want to make 

sure that people are getting advice that they can trust, that is in 

their best interest. 

And even though prevention is obviously ideal, your story that 

you told at the beginning about what happened to the family, you 

know, it is devastating what happened. I hope they had a remedy 

and I hope that through this process we make sure that people who 

do end up in those situations have a remedy so that they don’t lose 

their life savings and their home. 

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So again, thank you for your willingness to work with us. And 

appreciate your being here. 

Secretary PEREZ. I look forward to it. 

Ms. BONAMICI. Yield back. Thank you, Mr. Chairman. 

Chairman ROE. Thank you for yielding. 

Dr. Heck, you are recognized for five minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here today. 

Secretary PEREZ. Good morning. 

Mr. HECK. You know, I think we have heard from everybody on 

the panel that no one would disagree of the importance of making 

sure that it is the best interest of the client who is seeking investment advice that comes first, just like the patient seeing their doctor or the client seeing their attorney. 

And again, it comes down to what my colleague just said about 

the implementation that seems to be under discussion and making 

sure that the actions of a few don’t impact the practices of the 

many who are doing a good job and providing advice and education 

to their clients. 

You know, I appreciated the anecdote you told about that couple 

that had problems with their investments. And you know, I have 

a constituent, Janice who called her insurance agent to see if he 

could help her with her recently deceased husband’s 401(k) plan. 

They were retired, lived off of his pension as well as Social Security. From time to time, they take some money out of the 401(k) 

to supplement their income. 

Once her husband passed away, she became a beneficiary of a 

decedant 401(k). So then when Janice tried to get some much-needed money from a plan, she was informed from the company that 

she was not eligible to withdraw the funds anymore because she 

was the beneficiary and that she needed some help in understanding what her options were. 

So she called her agent. They discussed her needs, went over 

some of her options. She could take the funds out and pay taxes, 

continue to invest the dollars using a rollover, discuss the types of 

risks she was willing to take in the time frame they were working 

with to help her meet her needs. 

Ultimately, she was able to make a decision, rolled over approximately $21,000. 

There are many people like Janice who perhaps would not be 

able to find the information and knowledge to take care of these 

or many types of 401(k) rollovers or transactions that are in their 

best interest under the proposed rule. 

So if you could tell me, how does the rule actually protect the interests of individuals in this type of a situation? 

Secretary PEREZ. Well, the rollover market is a huge market. 

And that is where you really need the right advice. And one thing 

that our rule does is clarify that employers are very much able to 

provide advice, including keep your 401(k) with us even after you 

leave. Because we are talking about, you know, a trillion-dollar impact here. 

And so the standard, whether it is the rollover, whether it is, you 

know, how do I invest my 401(k), is the same. You have to make 

sure you are looking out for your clients’ best interests. 

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Mr. HECK. And I would say that this situation, this is the insurance agent that they have used their entire lives, that they did 

have trust in, and that this insurance agent did look out for— 

Secretary PEREZ. I would agree from the circumstances that you 

have described. And again, that insurance agent sounds to me, at 

least from the limited facts that we know, has been already looking 

out for people’s best interests, which is why compliance with something you are already doing is very readily attainable. 

Mr. HECK. You quoted, you know, Mr. Bogle of Vanguard saying 

that, you know, they would basically look for a simple rule where 

clients come first. However, it doesn’t appear that this rule is that 

simple. 

So there are concerns amongst those individuals, like this insurance agent, that the proposed rule would actually limit their ability 

for providing these services to their long-term clients, because before they enter into this discussion they are going to have to have 

a contract signed, they are going to have to have all this disclosure 

and disclose any potential fees that might be upfront. 

I mean, it is the same thing if somebody was coming into my office that I had a long relationship with and all of a sudden I had 

to ask them to sign a disclaimer form and all these forms about potential fees and what not. Why would I continue to use that individual as my adviser? 

Secretary PEREZ. Well, I actually think that the implementation 

of this is a lot simpler, sir, especially for those like the person you 

described who is already doing the job and is already abiding. 

Because folks, whether it is a large firm, they already have in 

place policies and practices to make sure that they are mitigating 

conflicts. And so what we are saying now is, you know, you have 

an obligation to do that. 

And so if they are already doing it, I think compliance is very 

workable. 

Mr. HECK. I think we have a few seconds left. You said several 

times that commissions aren’t banned under the rule. 

Secretary PEREZ. Yes. 

Mr. HECK. But what are the restrictions, obstacles or impediments to people providing products based on commission under the 

rule, if any? 

Secretary PEREZ. Well, you have to make sure that you are putting your clients’ best interests first. And so, you know, the situation that we deal with now is under the suitability framework. You 

may have four or five different options that are suitable, and two 

of those options get you a significantly higher fee than the other 

two options. 

Well, if under a review of the circumstances that is reasonable, 

well, then, you could do it. But chances are, you know, the thing 

we are trying to do is correct the malalignment right now because 

I want to make sure that when that person is making the decision, 

making the recommendations to me, that he or she is motivated by 

my best interest as opposed to I have got four products here that 

are suitable and I want you to take these two products, even if it 

gets you 1 percent less. 

I don’t think that is right. And I think that has real costs for people. 

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And we have prepared a toolkit for every member of Congress 

who wants to use it so that they can help educate their constituents on the questions to ask. Because this is a complicated world 

and there is an inequality of information and we want to empower 

consumers. 

Mr. HECK. Thank you, Mr. Chairman. 

Chairman ROE. Time is expired. 

And Mr. Secretary, we don’t want to become fiduciaries. 

Mr. Takano, you are recognized for five minutes. 

Secretary PEREZ. You would do pretty good at it, sir. 

Mr. TAKANO. Thank you, Mr. Chairman. 

Welcome, Mr. Secretary. 

You mentioned a few times in your testimony that this is a simple proposal that allows for flexibility to reflect not only different 

business models, but also the innovation and technological advances some in the industry have made and continue to make. 

How do you envision the industry reacting in terms of product 

offerings and tech-based solutions? And how will this help small 

savers? 

Secretary PEREZ. Well, let me take the example of Wealthfront. 

Wealthfront is a California-based company. They started roughly 

three years ago. And this is actually a letter from their CEO. 

They were built from the ground up to operate under a full fiduciary standard, despite serving small accounts and charging incredibly low fees. And they have now become a $2 billion asset management company. 

They don’t charge management fees for accounts under $10,000 

because ‘‘we do not believe we need to make money on those in the 

beginning stages of saving and investing. We charge a fraction of 

what others charge for accounts over $10,000.’’ 

‘‘And we know that there is a significant debate regarding ways 

to increase the protections and requirements around providing 

high-quality fiduciary service. We believe technology can dramatically aid in this front.’’ 

‘‘Wealthfront is living proof that not only is it possible to provide 

fiduciary service at low cost to small investors nationwide, but that 

the market rewards these efforts.’’ 

‘‘And we believe that technology can not only improve the quality 

of service provided to small investors, but also lower the barriers 

and costs that have limited their access in the past, whether they 

are in California’’—they have a 50-state footprint. I don’t know 

whether they are in the CNMI. 

But we have spoken to folks like Wealthfront. We have spoken 

to individual broker dealers who are doing this on the front lines. 

I think technology is a real ally in this. 

Mr. TAKANO. But has this been borne out, the technology? My 

concern is that some would say, what I have heard from people in 

the industry, is that this rule will disincentivize people to help the 

small saver. And you are saying, well, technology will help offset 

that problem. 

And I am just wondering, so Wealthfront has been able to build 

a market, they have been able to reach these small savers, the 

$10,000-a-year savers, I am just wondering whether or not if there 

is a test of this technology. 

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Yes, go ahead. 

Secretary PEREZ. Well, Wealthfront is not the only company that 

has figured out how technology can be your ally in helping to serve 

small-, mid-sized, large-sized savers. I mean, technology is, I think, 

a linchpin to the innovation that is enabling more people to get access to advice. And that is why I think this is so important. 

An equally important fact here, and I think this is something 

that often gets overlooked, is a lot of people don’t seek advice right 

now because they don’t trust the advisers. 

Mr. TAKANO. Okay. 

Secretary PEREZ. And what we are trying to do by establishing 

a best-interest rule is to help bridge the trust gap that currently 

exists. Because there is a lot of marketing out there, but sometimes 

the marketing and the reality, there is a little bit of a gulf between 

the two. 

And so when we can have, you know, increased trust by having 

a best-interest standard, I think we help everybody, including 

small savers and large savers, get access. 

Mr. TAKANO. I want to talk more from the point of view about 

the remedies for the saver who thinks that they have been deceived 

or misled. 

At the end of the day, this rule is about guaranteeing Americans 

being able to make investments to retire comfortably. Can you tell 

me a bit more about the process for investors if they feel they have 

been misled? 

You talked about the mandatory arbitration. But are there other 

remedies besides? I mean, arbitration may be a big part of it. 

Under what agency would they seek redress? Is it FINRA? Who is 

the— 

Secretary PEREZ. Well, we currently, our Employee Benefits Security Administration, EBSA, we have right now a robust docket 

of enforcement cases. Bernie Madoff, we were part of that prosecution team. The Enron case, we were part of that effort. 

We have a steady diet of cases right now involving folks who 

have breached their fiduciary obligation to the detriment of individuals. And so that will continue. 

In this particular rulemaking, you know, what we are trying to 

do is to create for the individual who has been wronged potentially 

a remedy through the best-interest contract. The proposition that 

we are putting forth here is that you now have an enforceable contract, so that looking out— 

Chairman ROE. Mr. Secretary, could you go ahead and wrap that 

up because we have another panel also—that answer. 

Secretary PEREZ. I am done, sir. 

Chairman ROE. Time is expired. 

Mr. TAKANO. Thank you, Mr. Chairman. 

Chairman ROE. Mr. Allen, you are recognized. 

Mr. ALLEN. Thank you, Mr. Chairman. 

Secretary PEREZ. Good morning, sir. 

Mr. ALLEN. Thank you, Mr. Secretary. Thank you for being here. 

Appreciate what you are doing. 

You know, you talk about trust. I am from the small-business 

community myself and about 30 years ago recommended that our 

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folks participate in our 401(k) program. Of course, I am assuming 

that now makes me an investment adviser. I don’t know. 

Secretary PEREZ. Actually, it doesn’t, sir. 

Mr. ALLEN. It doesn’t? Okay. But anyway, recommended that. 

And they asked me, well, why? And I said, well, you know, frankly, 

I can’t trust that Social Security is going to be here when you retire, you know, based on if you look at the actuarials and all that 

of Social Security. 

And so, yes, there is a trust problem out there, even with our 

own Social Security system. Exactly where is that going and why 

aren’t we working on that to try to fix that and then we will start 

giving people advice on how to deal with their own savings? 

But as far as the rule is concerned, obviously the investment 

business is just like my business, it is a relationship business. 

You know, I have never had anybody that hired our company 

that went to the Internet and said, well, I am going to pick this 

company. You know, they would actually check out exactly our reputation in the industry. 

Plus the fact, as I understand it from my friends in the investment business, it is a highly regulated industry already. And the 

fact that you had the Enrons and the others involved, you know, 

part of that problem was the fact that it was accounting that 

should have been long ago discovered as far as, you know, keeping 

two sets of books. 

But as far as trying to give investment advice, I don’t quite understand how you are going to make this work. I mean, say you 

are dealing with my business right now and you said, okay, we are 

going to implement this rule in your business. What would that 

look like? 

Secretary PEREZ. Well, again, you aren’t a fiduciary, sir, because 

you are running a business. 

Mr. ALLEN. Okay. 

Secretary PEREZ. If somebody is giving you advice or there is somebody, your employee, has $100,000 in their 401(k) and they 

want to know how to invest it and they go to an adviser and he 

or she gives that person advice, they simply have to look out for 

your best interests. Just like if you go to the doctor, they have to 

look out for you. 

Mr. ALLEN. Let me ask you this. You know, I advised our folks 

to get involved in this 401(k). Well, they were all tickled to death 

with it until 2008 and 2009 when the market took a tumble. 

And along with my investment adviser and myself, we suggested 

that, hey, you know, America is going to come back. We need to 

have the confidence the country is going to come back. 

Now, I am going to tell you what, they are a happy bunch right 

now. But what would it look like had that not happened? And here 

I am and my investment adviser had given this advice, what does 

your rule do to me then? 

Secretary PEREZ. Well, again, you have a duty to act with reasonableness and prudence, just as a lawyer has a duty to look out for 

their clients and a doctor has a duty to look out for her client, her 

patient. 

Mr. ALLEN. Who determines that? Who determines what is reasonable and prudent? 

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Secretary PEREZ. These are rules. Reasonableness and acting 

with prudence, this is a construct that has been in place in the financial service industry for literally decades, just as in other contexts, whether it is, you know, in the medical malpractice context, 

the duty of care. That is not a new concept. 

And so the notion that you have to look out for your customers’ 

best interests isn’t anything new. And in fact, you know, again, 

many people are already doing it. 

Mr. ALLEN. Don’t we already have those rules in place? 

Secretary PEREZ. For some, but not for everyone. And that is why 

it is really confusing. Because if your constituents, when they go 

in, they think that everybody is looking out for them and some 

have a legal obligation to do it and some don’t. That is a problem. 

That is confusing. 

Mr. ALLEN. So how are you then going to mandate that people, 

I guess, check out their reputation or their investment advice? 

Secretary PEREZ. Well, no. What we are establishing is that the 

adviser that they seek out has an obligation to look out for their 

best interests. I cannot, we do a lot of education and outreach and 

we hope that people will take the due diligence that they need. 

But what we are doing is making sure that the people they go 

in to see, we are taking out the uncertainty. Is this person looking 

out for my best interests or does this person have other options? 

I don’t think that is good for consumers. That is why we are doing 

this. 

Mr. ALLEN. How can I— 

Chairman ROE. The gentleman’s time has expired. 

Mr. ALLEN. Thank you, Mr. Chairman. 

Chairman ROE. Ms. Wilson, you are recognized for five minutes. 

Ms. WILSON of Florida. Thank you, Mr. Chair. 

Secretary Perez, good to see you. 

Secretary PEREZ. Good to see you. 

Ms. WILSON of Florida. I know that you are just as concerned as 

I am about the economically vulnerable. I represent one of the most 

economically depressed districts in the country and these individuals I represent work extremely hard to provide for their families, 

but they struggle to make ends meet. The median household income in my district is $36,748 a year, 30 percent less than national 

average. 

South Florida also has a high cost of living which is growing faster than the national average. These economic realities make it extremely difficult for my constituents to save at the levels that guarantees a secure retirement. 

In fact, on average, south Floridians have saved 20 percent less 

in their 401(k) retirement accounts than the average American. 

For example, as a former educator I worked with many teachers 

who lived on limited wages for years, but were given lump sums 

out of DROP, sometimes as much as a half-million dollars to last 

them through retirement. They did not know what to do with all 

of that money. 

Because there is so little margin for error for those with limited 

savings, I want to be sure that they have access to sound advice 

from financial professionals, trusted. 

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My late husband was a financial adviser, so to speak, back in the 

1980s. He sold tax-sheltered annuities to first-time people who had 

little money, but were able to save. 

So I know there is going to be a rule. I know there is a proposed 

rule. And I am hoping that this rule will make sure that, when it 

is finalized, that people are not intimidated and will find the process access-friendly, that they will want to save and be given that 

sort of financial assistance. 

I want to thank you for responding to my letter and extending 

the comment period so stakeholders have the opportunity to submit 

comprehensive feedback. 

And under your leadership, I am confident that the department 

will continue to engage with stakeholders and the public and really 

look at the feedback that has been provided, because it is my understanding there has been a lot of feedback. 

I know how committed you are to making this rule work for all 

investors. I have heard your life story and I know where you come 

from and how you have achieved. 

Can you speak more about the process that will ensure that all 

interested parties are heard in the formation of the final rule? 

Secretary PEREZ. Certainly. We are in the middle of the formal 

comment period. One of the things that we don’t generally do, but 

we did here, was to have a public hearing in August so that we can 

take additional comments on the rule. Following that public hearing, we will publish that transcript of that hearing and invite comment on that. 

We continue to do regular meetings. And I am working not only, 

you know, with our team, but a lot of other folks have been involved in this effort. My colleague Jeff Zients at the White House 

has been very helpful. 

And our goal is to get it right. I think we can thread this needle. 

Your concerns that you have expressed about small savers, everybody, that is a concern we all share. And I actually think that 

small savers can least afford the consequences of conflicted advice. 

And you know, places like Wealthfront and others are serving 

every corner of this country now. 

And I look forward to learning from you and others about how 

we can use this as an opportunity to actually enhance access to 

services for everyone, but in particular for small savers, because I 

think we can. Because when we increase trust in the people from 

whom you are getting the advice, then we can increase access even 

greater. 

Ms. WILSON of Florida. Just one final comment. Technology is 

very intimidating to many people in our communities. It is something that we feel comfortable with because this is what we do. But 

people who don’t have access to technology, it is intimidating. So 

let’s be sure that we don’t eliminate them from the equation because they are thrust into a pit that they don’t quite understand— 

Secretary PEREZ. The human element, absolutely. 

Ms. WILSON of Florida.—but that when this rule is finished, they 

will have the same opportunities. 

I want to make sure that not only people with small amounts of 

money, but first-time investors, people who find themselves with 

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DROP, a half-million dollars and not know what to do with it. 

These are the people I am concerned about. 

Thank you. 

Chairman ROE. Thank you. The gentlelady’s time is expired. 

Mr. Messer, you are recognized for five minutes. 

Mr. MESSER. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary. 

You use the phrases ‘‘small savers’’ and ‘‘first-time investors,’’ 

and that is what we are here to talk about today in this hearing. 

I represent a district full of those people. I represent 19 counties 

in east, central and southeastern Indiana, working communities, 

people that work in agriculture and manufacturing. 

I am also the product of a single-parent family. My mom just retired from the Delta faucet factory there. She raised my brother 

and me on her own. She was somebody that couldn’t really afford 

to save until she was well into her 40s and falls in the category 

here. 

I think one of the things we have got to remember as policymakers is we aren’t just accountable for our intentions, we are also 

accountable for our results. And we could bring forward rules with 

the best of intentions designed to protect people that, in the end, 

actually hurt the very people we are trying to protect. 

I think part of the challenge of threading the needle here that 

you have talked about is we have looked at other countries that 

have tried to do it and not had much success. And so we need to 

be careful that with the best of intentions of protecting these investors we don’t end up making their situation much worse. 

Of course, the best way to avoid that is by coordinating with others who have knowledge in the field. 

And I know Chairman Kline talked to you a little bit about your 

efforts to coordinate with the SEC. We are, of course, concerned 

that we haven’t gotten the documentation from you that shows that 

coordination also at the Department of Labor. 

I want to give you a quote and ask you to respond to it, Secretary 

Perez. In February of this year, SEC Commissioner Daniel Gallagher said the follow, ‘‘The DOL has not formally engaged the commissioners, at least not this commissioner, on its fiduciary rulemaking process and the impact it may have on investors. And despite public reports of close coordination between the DOL and the 

SEC staff, I believe this coordination has been nothing more than 

a check-the-box exercise by the DOL designed to legitimize the runaway train that is their fiduciary rulemaking.’’ 

Secretary Perez, is this true? 

Secretary PEREZ. I did not coordinate with that particular commissioner because I coordinated with Mary Jo White. She was the 

one commissioner because she is the chair, just as when I coordinate with the EEOC I go through the chair. 

And the documentation— 

Mr. MESSER. All this work is done at the chair level? 

Secretary PEREZ. Pardon me? 

Mr. MESSER. So all this work is done at the chair level, there is 

no staff coordination? 

Secretary PEREZ. No. If I could finish, sir. The documents, the 

800 pages of documents that we have provided demonstrate the 

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dramatic and extensive coordination between our staffs. And you 

will look and see that there is, you know, page after page of documentation relating to meetings, relating to calls, relating to conversations about various aspects of the rule. 

I also traveled, sir, to the U.K. because I wanted to learn from 

their experience as well. And what we learned, we learned a lot 

about how the U.K. experience can inform our judgment. 

I have also spoken to the Consumer Protection— 

Mr. MESSER.—specifics about what was— 

Secretary PEREZ. Pardon me? 

Mr. MESSER. Much of that documentation didn’t include specifics 

about what was discussed in those meetings. 

Do you care, does the Department of Labor care about the inconsistency and confusion that could result from unharmonized rules 

of the road in this area? 

Secretary PEREZ. Well, it is interesting that the former chair of 

the SEC is very supportive of the Department of Labor moving forward. And actually, the current chair has indicated publicly that 

she thinks the best-interest standard is the right way to go for the 

SEC regulatory agenda. 

So actually, she is saying conceptually that they should be doing 

the same thing that we are proposing in this rule. 

Mr. MESSER. Again, I think most folks, no one would quarrel 

with the intention of protecting these investors. The question is, 

will these rules actually make matters worse for those investors? 

You commented earlier about potential coordination with FINRA. 

And I want to give you another quote and give you the opportunity 

to respond. In March at the 2015 Annual Financial Industry Regulatory Authority Conference, FINRA Chairman Rick Ketchum said, 

quote: ‘‘I fear that the uncertainty stemming from contractual analysis and the shortage of useful guidance lead many firms to close 

their IRA businesses entirely or substantially constrain the clients 

that they will serve.’’ 

Secretary Perez, to what extent did you coordinate with FINRA 

and other industry analysts? And why didn’t you address their concerns? 

Secretary PEREZ. Well, actually, what is interesting to note, if 

you look at the totality of Mr. Ketchum’s comments, he says now 

that a best-interest standard is indeed the right way to go, and I 

appreciate that. He says a requirement, and he talks about the solutions, requirements that firms carefully design structures and 

procedures to minimize conflicts, that is what we are trying to do 

in this rule. Adherence to existing security laws, more effective disclosures. 

So actually, there is a remarkable amount of overlap between 

what our rule says and what he stated. 

And we met with FINRA staff as recently as last week. And we 

met with the Consumer Financial Protection Bureau. 

I personally traveled to England to meet with regulators over 

there and learn from them. We have done a lot of outreach and will 

continue to because it is important in this process. 

Mr. MESSER. Thank you. And we appreciate your time. 

Chairman ROE. I thank the gentleman for yielding. 

Mr. Jeffries, you are recognized for five minutes. 

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Mr. JEFFRIES. I thank the chairman for yielding, as well as for 

Secretary Perez for your presence and your leadership. 

The rule that we are discussing today was first put forth in 2010. 

Is that correct? 

Secretary PEREZ. Yes, that was 2010. 

Mr. JEFFRIES. And then it was subsequently withdrawn. Is that 

right? 

Secretary PEREZ. It was withdrawn and then we re-proposed it 

earlier this year after a lengthy period of outreach. 

Mr. JEFFRIES. And can you walk us through sort of the substantive changes that have been made from the withdrawal to the 

re-institution of it? 

Secretary PEREZ. Sure. One of the issues that was raised was 

there was a concern about having a more extensive economic analysis. So this rule contains a much more extensive economic analysis. 

There was a concern that Congressman Guthrie and others addressed about a provision we had in the 2010 rule about employee 

stock ownership plans. And the recommendation was to take that 

out, and we took that out. 

There was a concern about giving more flexible exemptions from 

the rule that you have to put your clients’ best interests first. And 

the best-interest contract exemption is the attempt to do just that, 

so that we have created guardrails, but not straitjackets. So that 

is a new feature of this rule. 

We clarified the line between education and advice and we continue to take comment on that to see what the reaction is to where 

the line is drawn. And we have had some discussion about that 

today. 

So those are some examples of, I think, material changes from 

now as opposed to 2010. 

Mr. JEFFRIES. Thanks. Now, there has been some discussion 

about ongoing engagement with the SEC. 

Secretary PEREZ. Yes. 

Mr. JEFFRIES. Has that engagement resulted in any substantive 

changes that have either been adopted or are under consideration? 

Secretary PEREZ. Well, I think the SEC, our interaction with 

them, especially I had interaction I think there was eight different 

times with Chair White, our staffs have been together innumerable 

times, and I can certainly tell you with confidence that I think the 

rule, the proposal is a better proposal as a result of that interaction. It was a soup-to-nuts interaction talking about, you know, 

so many aspects of this process. 

Mr. JEFFRIES. Are there any specific concerns that the SEC 

raised that the Department of Labor has responded to in yielding 

the newly proposed rule? 

Secretary Perez. Again, you know, we had a consistent back-andforth. And again, we welcome that. And I had a consistent backand-forth with Chair White. I didn’t participate in the career-level 

meetings and those were the ones where there was a lot of good 

discussion and good feedback under way. 

And again, I think as a result of that feedback you will see there 

are provisions in the rule that I think are very, very, you know, 

informed by our judgments and our feedback, not only from them, 

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but from the Consumer Financial Protection Bureau, from members of Congress, from consumer groups, from industry stakeholders. 

Everybody has an expertise to bring to bear in this. And our goal 

was to make sure we built a big table so that we could take all that 

advice to bear. 

Mr. JEFFRIES. Now, is my understanding correct based on your 

earlier testimony that the CEO of Bank of America supports the 

proposed rule? 

Secretary PEREZ. Well, what I said before was that what Brian 

Moynihan said was we believe that doing what is in the best interest for your customers is absolutely the right thing to do. We have 

been clear that we see the industry moving and we expect to help 

it move there. 

And so, you know, the fundamental tenet of this rule, which is 

that you have to act in your clients’ best interest, is a tenet that 

has increasing support. 

Now, we are getting a lot of feedback from everyone, including 

but not limited to B of A, about the questions of operationalizing 

that and making sure we give it good meaning and that we address 

the issues of unintended consequences, things of that nature. 

But a really important part of this rule, a linchpin if you will, 

is making sure that when you walk in and your constituents walk 

in to get advice that they don’t have to wonder whether that person 

is operating under one standard, a higher standard or a lower 

standard or maybe both. 

Mr. JEFFRIES. Lastly, as my time is expiring, Mr. Secretary, how 

would you define a small investor in terms of is there a threshold, 

is there an amount of the investment? Who are the individuals that 

could potentially benefit or could potentially be harmed by this approach depending on what stakeholder you are listening to? 

Secretary PEREZ. I think any investor who is going to have greater assurance that his or her person giving the advice is looking out 

for their best interests is going to be benefit. 

And you know, small, medium, large is kind of in the eye of the 

beholder. You know, I have spoken to people who have clients that 

have $5-$10,000 in their portfolio. I have spoken to people with clients who have millions. And the rule is the same. 

Chairman ROE. The gentleman’s time is expired. 

Mr. Grothman, you are recognized for five minutes. 

Mr. GROTHMAN. Thank you very much. 

My first question is with regard to fraternal organizations, okay? 

Fraternal organizations, okay? 

Secretary PEREZ. Okay. 

Mr. GROTHMAN. Fraternal organizations, first of all, are a little 

bit different breed because they have certain requirements under 

the IRS code so they are, you know, kind of highly regulated by another agency. And for that, they also disproportionately, I think, 

take care of smaller investors, maybe a lot of the IRAs or under 

$25,000, which is just kind of a unique thing as well. 

And I think the combination of the fact that they have their own 

rules under the IRS and that they have a lot of smaller investors 

are going to make this much more difficult for them to implement. 

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Have you had discussions with these fraternal organizations? 

And are you prepared to have further discussions and maybe make 

changes so that these large organizations which have so many investors in them, including myself, are continued to be able to 

thrive? 

Secretary PEREZ. The short answer is we have had discussions 

with fraternal organizations. I think that is 501(c)(8) of the Internal Revenue code. 

And what we did in the rule, we ask a number of questions in 

the rule, and one of the questions that we ask is: do you have a 

unique set of circumstances that dictate that we should be taking 

a different approach as it relates to your circumstance? And this 

is an example. 

The meetings that have been taking place with fraternal organizations, that is the issue that we invited. And I welcome that and 

we are having that discussion as we speak. And I look forward to 

your more specific observations about what you think should be 

done in relation to them. 

Mr. GROTHMAN. Well, if you want, we can meet in my office. I 

mean, I think right now these large organizations with I am sure 

millions of investors and many employees are really jeopardized. 

And that is a problem you have whenever you have, you know, 

some massive new rule, some one-size-fits-all rule. Sometimes you 

have people who don’t fit that rule. 

And I am told and it makes sense to me that this would be devastating for these large organizations. 

Now, do you plan on making further changes before this rule 

would be implemented or meeting with them again? 

Secretary PEREZ. Oh, again, we have already met, we will continue to meet. And the purpose of meeting with people is to learn 

from people and figure out what changes are called for in a final 

rule. 

And as you have seen, the current proposal is far different from 

the 2010 proposal. And that is because we sat down, we built a 

large table and we listened to folks. And we are continuing that 

process now. 

And so I appreciate the fact that folks have been taking us up 

on it. And anyone who comes to see you to say I have a challenge, 

I would encourage you to send them our way because we want to 

listen and learn. 

Mr. GROTHMAN. Good. Good. That will be good. 

Next quick question, and I am kind of jumping ahead here to the 

testimony of somebody that is going to be speaking later, it just 

kind of jumps out at me that apparently there is going to be a public database of compensation, total compensation given to employees of firms or that sort of thing. Is that true? 

Secretary PEREZ. There is a transparency provision that is designed to get at the following problem. Compensation schemes are 

very opaque right now because you can legally get your fees from 

different sources in this. And what we want to make sure is when 

consumers are making judgments they understand how much 

things cost and so they can make an informed judgment as to 

whether this is a good deal for them. 

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Mr. GROTHMAN. Right. Just what kind of jumped out at me was, 

you know, if I am making $40,000 a year, if I am making $90,000 

a year, if I am making $150,000 a year, all of a sudden, am I reading this right, that all of a sudden that is going to be public knowledge? I mean, maybe it should be. I am just saying it is kind of 

interesting. 

Secretary PEREZ. Well, the database isn’t public. I think the one 

you are referring to is not a public database. 

Mr. GROTHMAN. It says a website. No? 

Secretary PEREZ. But it is not a public website. 

Mr. GROTHMAN. Okay. Final question I have for you. People are 

permitted to earn reasonable compensation and nobody should be 

able to earn unreasonable compensation, of course, but who defines 

that and what is the definition of reasonable compensation? 

Secretary PEREZ. Well, again, these are definitions that have 

been part of the practice for literally decades. You know, acting 

with reasonableness and prudence under the circumstances. 

Everything is a case-specific determination, but these principles 

of acting prudently and looking out for your consumer, your customers’ best interests have been well-established. This is not something that is drawn out of thin air. 

Chairman ROE. The gentleman’s time has expired. 

Mr. Hinojosa, you are recognized for five minutes. 

Mr. HINOJOSA. Thank you, Chairman Roe. 

Can you hear me? 

I want to thank you and Ranking Member Polis for holding this 

important hearing. 

But I especially want to thank Secretary Perez for being here 

and for the work you and your staff have been doing in the conflicts of interest rule re-proposal. 

Subcommittee Chairman Roe and I co-chair a Senior Citizens 

Caucus, which covers financial literacy to help these senior citizens 

make good financial choices in their retirement years. 

So this rule that we are discussing is of great interest to both 

of us as chairs and to many members on both sides of the aisle, 

as I have heard the questions. 

I think that we want to ensure access to advice at a very low administrative cost as federal employees which number probably several million get a quarter of 1 percent administrative costs for investing our Thrift Savings program investment and retirement 

portfolio. 

I think that I really paid attention to Congressman Rick Allen 

from Georgia, giving us his example of investors losing a large 

amount back in December 2007 and the following year, 2008, which 

is the time of the worst recession in 50 years. 

And I enjoyed listening to how you handled that. And many of 

us did the same. We stayed in the market. 

But I will say to you, Mr. Secretary, that sometimes older men 

and women have good advice, simple. I remember hearing one tell 

me, just remember that you buy low and sell high. And so I did 

that. On the first week of January of 2008, I called and I changed 

my particular investment portfolio into Treasuries 100 percent. 

And that is the best thing that I could have done. 

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Secretary PEREZ. Why didn’t you call me, sir? I could have followed suit. 

[Laughter.] 

Mr. HINOJOSA. I can only say that this hearing today has been 

very, very interesting. 

And I want to ask a question or two before my time gets away. 

I read Mr. Haley’s written testimony which reads he claims the 

best-interest contract is problematic and that the rule is unworkable as drafted. Moreover, that small business and lower and middle-income investors will be harmed the most. 

Mr. Secretary, in your view, do you believe this to be the case? 

Secretary PEREZ. I don’t, for all the reasons that I have discussed. Small investors are the ones who can least afford the consequences of conflicted advice. 

Mr. HINOJOSA. I absolutely agree with you 100 percent. Let me 

ask you another question because we agree on many things. 

I am most interested in the proposed rule’s impact on the small 

savers and those middle-class workers who do not have hundreds 

of thousands of dollars to invest, but who are interested in insuring 

what they do have to invest, they want it to grow, and I want their 

savings to do that, too. 

Is there any reason that they should expect to pay more for the 

administrative services they currently receive as in examples that 

I heard that are up to 4 percent of the investment? 

Secretary PEREZ. Well, I think it is not going to be in your best 

interest. I would rather have more money in my pocket when I can 

get a better return. And the challenge right now is that the system 

is misaligned and too often advice is motivated by the fees it generates for the person giving the advice as opposed to what is in the 

best interest of the customer. 

Mr. HINOJOSA. In my opening remarks, I said that we, federal 

employees, and we number in the millions, only pay a quarter of 

1 percent for advice and for them to do the investments for us. And 

that 4 percent, as you said, is way, way too high. 

So I will ask one last question before my time is up. Would you 

say this rule can help address the challenges in retirement savings 

gap many Hispanic and minorities face when it comes to saving for 

retirement, because they, according to the materials I have read, 

are amongst the highest, like 40 percent, that have very little in 

assets to protect and invest? 

Chairman ROE. Mr. Secretary, I am going to have to ask you to 

hold that thought. 

Secretary PEREZ. I have one sentence. 

Chairman ROE. I am sorry. The time has expired. 

Mr. Carter, you are recognized for five minutes. 

Mr. CARTER. Thank you, Mr. Chairman. 

Secretary, thank you for being here. 

Mr. Secretary, I have to be quite honest. I am going to preface 

my questions by saying that I am deeply disturbed by this and not 

in favor of this at all. I will just go ahead and tell you. 

But, let me ask you something. The premise for your action here 

seems to be that you are saying that conflicts of interest have resulted in higher fees for those that are in IRAs than are in 401(k)s 

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and that it is because of these conflicts of interest that it has resulted in the higher fees. 

Yet the Investment Company Institute has discredited that number and said that isn’t true, said that it has only increased at .16 

percent and that indeed can be attributed to the fact that they get 

more advice and that they get a higher level of service. 

So if your premise is that the conflicts of interest are the reason 

why we need to have contracts, and yet we have the Investment 

Company Institute who disputes that, what is your premise then? 

Secretary PEREZ. Well, sir, we have many people in the industry 

who are saying that we need to have a best-interest standard because the system is misaligned. When I go in to see my doctor, I 

know that he or she is looking out for my best interest. I have got 

cancer, you are going to tell me what is best for me, you aren’t 

going to tell me what is suitable for me. 

And when I go into a doctor or when I go into a financial adviser 

and they are telling me what is suitable, well, what that means is 

that there may be four or five products that are suitable. 

Mr. CARTER. But aren’t you kind of painting it with a broad 

brush here by saying that all investment bankers or all investment 

consultants don’t have your best interests at hand? 

Secretary PEREZ. Well, with all due respect, sir, in my opening 

statement I explicitly said that most of the people in this business 

are trying to do the right thing. There are a few bad apples. 

What we have is a structural systems problem. People are rational, they respond to the incentives that are there. And it is perfectly 

legal right now to steer someone to a product that maximizes your 

return as the broker dealer at the expense of the return of the individual investor. 

And that is what we are trying to change. We are trying to 

change this malalignment and make sure that every time I walk 

in and every time your constituent walks in, they can have confidence that their adviser is going to do that. 

Mr. CARTER. Mr. Secretary, wouldn’t you agree that this is already an over-regulated field, that we have probably more regulations in this area than we have in any other area? And what you 

are suggesting is that more regulation will actually solve the problem. 

Secretary PEREZ. The Toffel family couldn’t disagree with you more, sir, because the Toffel family lost $50,000 as a result of conflicting advice. 

Mr. CARTER. I understand that. But there have been many families, and I am sure you could give many situations and many examples, where just the opposite has happened where you have had advice given by advisers that has resulted in people being able to live 

a better retirement. 

Let me give you an example. I am a small-business owner. I have 

owned a small business for over 27 years now. When I first went 

into business, I started a 401(k) within my business. And I will say 

that it is one of the best things I ever did, a great program. And 

it is one of the things that I am most proud of in my business, the 

fact that I can offer my employees that kind of program where they 

can invest, I can help match, we have profit sharing within that, 

they can borrow from it and they do that. 

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In fact, just this past week I had an employee who is actually 

borrowing from her 401(k) in order to pay medical bills that she is 

saddled with right now. 

So that is something that has worked out well. And I don’t think 

that I would have done it had I had to enter into a contract with 

a financial adviser. I mean, I am a pharmacist and my patients 

don’t have to sign a contract with me before I make recommendations for them. 

I am not seeing where more government regulation is going to 

solve this problem. This seems to me to be a solution in search of 

a problem. 

Secretary PEREZ. Well, sir, one thing I can wholeheartedly agree 

with you on is we will not agree on this. 

Mr. CARTER. Well, and you are absolutely right because the fact 

is that I am a free market person. And the fact is that I believe 

the free market works. 

My example, unlike what you might see, is a better example and 

an example of where it has worked and it has worked well. And 

I am very proud that I was able to offer that to my employees. 

They are very happy with it. I am very happy with it. It provides 

all of us with a good retirement and it did not come about because 

we had a contract with a financial adviser. 

Mr. Chairman, I yield back. 

Chairman ROE. The gentleman’s time is expired. 

Mr. Scott, you are recognized for five minutes. 

Mr. SCOTT. Thank you. 

Mr. Secretary, what is wrong with the free market just taking 

place and people being able to get what it can out of transactions? 

Secretary PEREZ. Well, the free market didn’t quite work for the 

Toffel family, congressman. And it didn’t work because the system 

right now creates incentives and it is perfectly legal for people to 

give advice that is motivated not by a concern first and foremost 

for your clients’ best interests, but by the fee structures. That is 

what we are trying to change. 

Mr. SCOTT. If you had the free market, would there be any limit 

to what an unscrupulous adviser could get out of a client, even if 

they might agree to it? 

Secretary PEREZ. I fear we would have more Toffels. 

Mr. SCOTT. When we are talking about pension funds, this rule 

only affects pension funds, is that right? 

Secretary PEREZ. Well, it affects, you know, 401(k)s, it affects 

IRAs, it affects rollovers. Trillions of dollars is what we are talking 

about right now. 

Mr. SCOTT. Tax-advantaged accounts. 

Secretary PEREZ. Correct. 

Mr. SCOTT. We made these tax-advantaged for a reason. Is there 

any reason that they should be treated more preciously than other 

funds that an investor may have? 

Secretary PEREZ. Well, Congress made a judgment to give taxpreferred treatment, and that was a good judgment, that was a 

sound judgment. I don’t think Congress made a judgment to give 

tax-preferred treatment so that people who are then trying to make 

sure they have a healthy retirement, like the Toffels, then get 

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themselves into the circumstances they have found themselves in, 

which were totally preventable. 

Mr. SCOTT. We have heard about this industry being highly regulated. Did I understand you to say that if an investment adviser 

knows that another product may not be as good, but he can make 

more money on the other product, that he can sell that product to 

the client knowing that he is going to make more and the client’s 

going to make less? 

Secretary PEREZ. There is a suitability threshold that must be 

surmounted. But within that suitability threshold, you can have a 

number of products that have different commission or other fee 

structures for the person selling that. 

And the current system does not prevent you from taking advantage of that incentive. And I think that is wrong, and that is what 

we are trying to change. 

Mr. SCOTT. So if you are selling essentially an S&P 500 fund and 

you know that the client could get it at a much lower price, there 

is nothing wrong in the present system in selling the mutual fund 

that pays the broker more money right out of the client’s pocket. 

Secretary PEREZ. You would want to look at not simply price, but 

return and things of that nature. 

Mr. SCOTT. S&P 500 fund, all of them are going to do essentially 

the same. 

Secretary PEREZ. The premise of your question, yes, I mean, assuming all things are equal, then that is the challenge that we are 

trying to address in this rule is to make sure that we are putting 

your clients’ best interests first. 

Mr. SCOTT. Now, how would a client know that they are getting 

ripped off like this without the rule? 

Secretary PEREZ. That is a huge part of the challenge that we 

confront, because people are unaware. You don’t know what you 

don’t know. There is a very significant inequality of information 

here. And that is why this rule is necessary. 

Mr. SCOTT. And that is why the client went to the adviser in the 

first place to try to get some good advice. 

Secretary PEREZ. Well, and they assumed that they were trustworthy. They read the marketing materials. And in fact, most are 

very trustworthy, but we are trying to do the Ronald Reagan trust 

but verify by having an enforceable contract. 

Mr. SCOTT. What level of sophistication are we talking about? 

People coming to an adviser looking for the right advice, how vulnerable are many of the people to getting ripped off? 

Secretary PEREZ. Well, if you are like me you don’t know a heck 

of a lot about it. And I feel like I am a fairly educated person, but 

I also when I go to my financial adviser I feel the same way as 

when I go to my mechanic. These are two areas where I know very 

little about and I want to trust somebody else and I want to make 

sure that trust isn’t misplaced. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Chairman ROE. I thank the gentleman for yielding. 

Thank you, Mr. Secretary. 

And before I close, just a couple of comments. I think we all 

agree with the best-interest standards. I think everyone in the inCEWDOCROOM with DISTILLER

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dustry does and everyone here today does. I don’t think there is 

any issue about that. 

Also, the GAO report clearly showed that we have 29 percent of 

the people in this country that have saved no money over 55, that 

is over half the nation; 23 percent just have a small defined benefit 

and no savings. 

So we have a huge crisis. I don’t think we need to make it harder. We need to make it easier for people to invest money. Fortyfive percent of people in the TSP have a default, that is just a 

treasury, and that is a very poor return. 

And you gave an example of a very unfortunate investment advice. Let me just share, Mr. Carter shared with you some, I can 

share with you many of them. A $78,000 investment in November 

of 1996 that went through the worst economic recession since the 

Depression, that in March of 2015 in a broker dealer fee-based plan 

was $362,000 left alone and invested with that same advice. So 

there are great stories out there also. 

And I think the question I would have to ask is, at the end, and 

you can think about this, does this rule make it easier? And for 

businesses to do this, does it make it cost less? 

Can you make a commitment basically today that no one will 

lose their financial adviser? I mean, it is like the President said if 

you like your doctor you can keep it, but it didn’t work out that 

way in reality when all the rules of the Affordable Care Act came 

in. 

Will people not pay higher costs, a low-income person who very 

much Ms. Wilson and others over here are worried about? The 

small investor, will they be forced into a plan where 1 percent of 

$10,000, maybe three-fourths of a percent that I might pay on a 

managed account, are they going to have to pay that? 

So those are the things I think we need to think about in the 

rulemaking process. 

And I want to thank you for being here. You have been very 

forthright today. And look, for a large family like yours with five 

in the family, four out of five turning out okay was not bad. 

Secretary PEREZ. That is pretty good. I agree. 

[Laughter.] 

Chairman ROE. So thanks very much, Mr. Secretary. 

Secretary PEREZ. Thank you for your time, sir. 

Chairman ROE. Thank you. 

Secretary PEREZ. And I always appreciate your courtesy. 

Chairman ROE. Thank you so much. 

It is now my pleasure to invite our second panel to the witness 

table, please. 

It is now my pleasure to introduce our distinguished panel of witnesses for the second panel. Our first witness is Mr. Kent Mason 

who is a partner of Davis & Harman LLP specializing in employee 

benefit matters. Prior to entering private practice, Mr. Mason held 

positions at the Joint Committee on Taxation and in the Treasury 

Department. He represents a broad cross-section of firms that offer 

and service employee benefit plans. 

Mr. Jack Haley is the executive vice president, Professional Services Group, with Fidelity Investments. He has been with the company more than 30 years and currently serves on its executive 

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board. Mr. Haley also currently serves as president and chairman 

of the board of directors of Fidelity Management Trust Company. 

Mr. Dennis Kelleher is the president and chief executive officer 

of Better Markets, Incorporated, a nonprofit organization that promotes the public interest in the capital and commodity markets. 

Previously he has held several senior-staff positions in the United 

States Senate and was a partner with the law firm of Skadden, 

Arps, Slate, Meagher & Flom. 

Dr. Brian Reid is a chief economist at the Investment Company 

Institute where he leads the institute’s research departments. Previously, Dr. Reid was a staff economist at Monetary Affairs Division of the Federal Reserve Board. 

Lastly, Mr. Dean Harman is the founder and managing director 

of Harman Wealth Management. He has over 17 years of experience working with individuals and families with planning and investment management. Mr. Harman is a member of the Board of 

Directors of the Financial Services Institute. 

Mr. Mason, you are recognized—well, before I start let me swear 

you in. 

[Witnesses sworn.] 

Let the record reflect the witnesses answered in the affirmative. 

And you may take your seat. 

Before I recognize you to provide your testimonies, let me briefly 

explain our lighting system. You have five minutes to present your 

testimony. When you begin, the light in front of you will turn 

green. When one minute is left, the light will turn yellow. When 

your time has expired, the light will turn red. At that point, I will 

ask you to wrap up your remarks as best as you are able. 

And members will each have five minutes to ask questions. 

Mr. Mason, you are recognized for five minutes. 

STATEMENT OF MR. KENT MASON, PARTNER, DAVIS & 

HARMAN, LLP, WASHINGTON, D.C. 

Mr. MASON. Thank you, Mr. Chairman. 

My name is Kent Mason. I am a partner with the law firm of 

Davis & Harman and I have worked in the employee benefits area 

for over 30 years. 

I want to thank the subcommittee for inviting me here to testify. 

I am testifying today on my own behalf based on extensive discussions with plan sponsors as well as numerous financial institutions. 

Before turning to the meat of my testimony, I want to mention 

three key points. And this first one echoes, I think, what you have 

said here, Mr. Chairman. 

The industry is absolutely fine with a best-interest standard and 

has been for the past four and a half years, you know? I mean, 

every time somebody says, well, now, there is concern from the industry, there hasn’t been for four and a half years. 

The concern has always related to the prohibited transaction 

rules. And these are the rules that make certain business models 

effectively illegal, such as the brokerage model; and those are the 

business models that provide assistance to low- and middle-income 

individuals and to small businesses. So that has been the issue for 

four and a half years and it has really not been addressed. 

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The second point I want to hit is, even aside from the advice 

issue, we have had a lot of talk this morning about education. I 

just want to make one thing clear. The 2015 proposal significantly 

cuts back on permissible financial investment education. 2010 preserved financial education; 2015 explicitly cuts back permissible financial education. 

And that leads to the third point I want to hit before going to 

the meat of my testimony, which is I think there has been a perception that this has been an evolution. That we took the 2010 proposal and we sort of updated it and made some progress and we 

got to 2015 and we are going to make some more progress. 

In actuality, there is a growing consensus among the industry 

that the 2015 proposal, and this is detailed in my written testimony, is actually much worse and much less workable than the 

2010 proposal. So the trend line is going in a disturbing direction. 

In the meat of my testimony, I would like to focus on two points: 

the effect of the re-proposal on small accounts, small IRA accounts, 

and the critical need for legislation. 

Small accounts, there are two ways that IRA accounts can get assistance. One is the brokerage model with commissions paid and 

payments from the mutual funds, such as marketing fees or record 

keeping fees. 

As I explain in detail in my written testimony, as a practical 

matter the proposal makes the brokerage model illegal. So really, 

that model is off the table. 

The second way to provide investment assistance is through 

something called an advisory model. Now, if somebody comes to me 

and says I want to enter into an advisory relationship, what I owe 

that person is 24/7/365 fiduciary responsibility. I owe them aroundthe-clock fiduciary responsibility. 

In exchange for that, what I get is a flat fee like 1 percent of pay. 

And that 1 percent of pay, the problem is that structure won’t work 

for small accounts. Because if somebody comes to me with a $4,000 

IRA, I can’t provide around-the-clock, 365-day service for $40 for 1 

percent of pay. So that is not available to small accounts. 

Oliver Wyman found that because of this analysis, just under 

their study sample, over 7 million IRAs would lose access to an investment professional and as many as 360,000 fewer IRAs would 

be opened every year. 

And a lot of the reaction to this has been, well, industry will 

never walk away, they will never walk away from this market. But 

that is exactly what happened in the United Kingdom under almost an identical rule. The industry went away from small accounts in droves. 

And then the question is, when would this happen? Under the 

current structure, under the current timetable from the Department of Labor, millions of small accounts would be told in the fall 

of 2016 that their investment adviser can no longer serve them because of new government regulations. October, September of 2016, 

that is the message that would be delivered. 

And just to wrap up, what we need here is bipartisan legislation 

that establishes a best-interest standard with workable rules, not 

the unworkable rules that are in this proposal. 

[The testimony of Mr. Mason follows:] 

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Chairman ROE. Thank you, Mr. Mason. 

Mr. Haley, you are recognized for five minutes. 

TESTIMONY OF MR. JACK HALEY, EXECUTIVE VICE PRESIDENT, FIDELITY INVESTMENTS, BOSTON, MASSACHUSETTS 

Mr. HALEY. Chairman Roe, Ranking Member, members of the 

Subcommittee, and thank you for the opportunity to testify. 

My name is Jack Haley. I am an executive vice president at Fidelity Investments. I oversee a team of investment professionals 

dedicated to helping employer clients and their workers access a 

wide variety of high-quality investment products and services to 

meet their investing needs. 

At Fidelity we have the privilege of helping more than 25 million 

people save for their financial goals and serving more than 14,000 

workplace clients, including 8,000 small businesses who offer retirement savings benefits to their workers. 

From our roots as a small mutual fund company, Fidelity has 

grown into a diversified financial services leader. Fidelity takes seriously the responsibility of helping employers set up and offer 

competitive retirement savings plans. 

I appreciate the opportunity to share our experiences helping 

small businesses and express our concerns about the Labor Department’s proposal. 

First, I want to answer a call from the Department of Labor by 

stating directly up front Fidelity acts in the best interests of its clients and investors. We support a best interest fiduciary standard, 

but the details matter. 

We are proud of the services, products, and choices we provide 

our customers, but we fear that this proposed regulation will severely restrict our ability to continue providing this assistance to 

small-business workers. 

While the framework of the proposal would theoretically allow 

service models to remain when acting in the best interests of customers, its so-called best-interest contract exemption contains so 

many problematic conditions that the rule is unworkable as drafted. Labor’s proposal effectively prohibits access to affordable financial help, even when it is in the interests of the investor. 

We believe a balanced approach where savers can be protected 

by the best-interest standard and continue to have access and 

choice in their retirement products, services, and providers. 

We look forward to continuing to work with the members of Congress and the administration to ensure that this balance is 

reached. 

Small businesses remain the lifeblood of our economy. These 

hardworking entrepreneurs and businesspeople bring significant 

expertise and passion to their work. We see their desire to offer 

competitive, high-quality retirement savings benefits to attract and 

keep a highly skilled workforce. 

Not surprisingly, with all they have to do to manage their businesses, there is little time, expertise, or desire to manage their retirement savings plans. That is why small businesses turn to us. 

We provide a range of critical services, from helping companies understand and select the right savings vehicles, to providing all of 

the critical functions to keep a plan running smoothly, including 

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record keeping, compliance testing and reporting, selection and ongoing monitoring of investment, and, most importantly, education 

and guidance for their employees. 

Unfortunately, the DOL proposal would specifically prohibit service providers from assisting small businesses. The result would 

have a devastating impact on retirement coverage and savings for 

millions of workers employed by small businesses across the country. 

I reiterate, we support a best-interest fiduciary standard, but 

without exemptive relief from ERISA’s strict rules Fidelity would 

be prohibited from providing critical services to small-business clients, even when we provide help that is in their best interest. 

Just as important as our small-business services is the critical 

education and guidance we provide to their employees. The proposed rule jeopardizes many of the ordinary, everyday conversations we have with job changers, even if the conversation is merely 

educational where we do not discuss investments or advice. 

We are also able to help workers prepare for retirement by discussing potential product and service offerings with them. The proposal would require workers to sign a contract before a conversation would even occur. Each customer would have to have a contract with each of our phone reps, which number in the thousands, 

in order to get answers to basic questions. 

In addition to this new contract, the rules also include burdensome, confusing disclosure requirements that do not actually disclose potential conflicts. These requirements are not in anyone’s 

best interests and must be addressed. 

These are just a few examples of the critical services we provide 

to small businesses and employees and how the proposal would 

harm the very people the rule intends to protect. 

We believe a balanced approach providing investors with fiduciary best-interest protections, retaining existing service models, is 

achievable. 

We look forward to working with you to make the necessary 

changes to allow individual retirement savers and businesses offering retirement plans to have choice and access to the products and 

services they need. 

Let me close by stating unequivocally that we support a best-interest fiduciary standard crafted in a way that allows workers 

choice and access to the services they need and desire. 

Thank you, and I am happy to take questions. 

[The testimony of Mr. Haley follows:] 

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Chairman ROE. Thank you, Mr. Haley. 

Mr. Kelleher, you are recognized for five minutes. 

TESTIMONY OF MR. DENNIS KELLEHER, PRESIDENT AND CEO, 

BETTER MARKETS, WASHINGTON, D.C. 

Mr. KELLEHER. Chairman Roe and members of the Subcommittee, thank you for the invitation to Better Markets to testify 

today. 

I would like to discuss just a few points that are detailed in my 

written testimony. 

First, it is unacceptable that brokers and others today are allowed to put their economic interests above their clients’ best interests. That conflict of interest is costing Americans saving for retirement tens of billions of dollars every year. 

Make no mistake about it. That is what is at stake here and ending that is what the Department of Labor’s proposed rule is all 

about. 

Today, tens of millions of hardworking Americans are struggling 

to make ends meet, provide for their families, and save a little for 

retirement. Figuring out how to invest those retirement savings 

forces many to seek investment advice from a broker, but that 

broker can put his or her economic interests above the client’s best 

interests. 

What does that mean? 

If there are two similar investments but one pays the broker 5 

percent and the other pays the broker 1 percent, then it is perfectly 

legal today for that broker to advise the client to invest in the product that will cost his client five times what it should be. 

Making matters worse, often the products that pay the brokers 

more don’t perform as well as similar products. That means not 

only has the client paid five times more up front, but he or she is 

also stuck with a product that doesn’t perform as well over time. 

The client is doubly victimized. 

As famed Vanguard founder Jack Bogle has called it, they are 

victimized by the tyranny of compounding costs. 

That is what is happening every day in this country. It is costing 

Americans tens of billions of hard-earned dollars. 

For example, the Department of Labor has detailed that these 

conflicts in the IRA arena only are costing savers as much as $430 

billion over 10 years or $43 billion a year. 

Second, the rule governing retirement investment advice is 40 

years old; it is outdated and incapable of properly protecting workers and retirees in light of the dramatic and far-reaching changes 

in the way Americans now have to save for retirement. 

When this rule was written 40 years ago, almost all retirement 

savings were in defined benefit plans which were run by employers 

and managed by investment professionals with fiduciary duties. 

Forty years ago, 401(k)s did not exist and IRAs had just been created. Today, 40 years later, 401(k)s have gone from zero dollars to 

$4.6 trillion and IRAs have gone from $3 billion to $7.4 trillion. 

By 2012, 90 million Americans, more than two-thirds of all workers with retirement plans, had individual contribution plans. They 

are all forced to figure out their own retirement investments. This 

is a monumental and mind-boggling shift from 40 years ago, and 

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yet the rule has remained frozen in time as if nothing has changed 

when everything has changed. 

As the world has changed, so, too, must the rule change. And the 

time is now for the Department of Labor to act. It has considered 

this proposal for years. It has sought and received input from all 

stakeholders, including, in particular, industry. It has addressed 

many of the industry’s concerns and incorporated many of their 

suggestions into the proposal, including their priorities. 

Yet they continue to object and the reason is clear: They simply 

do not want to change the status quo and work under a simple 

principle, a rule that says you must put your clients’ interests first. 

The industry’s complaints, however, boil down to a false choice, 

either brokers get to put their interests above their clients’ best interests or they won’t serve those clients. That is a false choice. 

The real choice is this: Let the DOL act to protect 100 million 

workers and retirees across this country or continue letting brokers 

and other advisers put their interests ahead of their clients’. That 

is the real choice. 

If some brokers don’t want to do that or feel that they can’t make 

enough money doing that, then there are plenty of retirement investment advisers who are more than willing to put the clients’ interests first and, frankly, today there are tens of thousands of advisers doing that right now across the country with fiduciary duties, low cost, best interest of the client, serving them today, literally hundreds of thousands. 

In conclusion, we all agree we have a very serious retirement crisis in this country. Not enough people are saving for retirement 

and too many of those that do aren’t saving enough, as the chairman said in his opening statement. 

They need to keep every penny in their retirement accounts and 

not in their brokers’ pockets. That is why updating a 40-year-old 

rule is so important and why putting the clients’ best interests first 

is imperative. 

Thank you, and I look forward to your questions. 

[The testimony of Mr. Kelleher follows:] 

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Chairman ROE. Thank you, Mr. Kelleher. 

Dr. Reid, you are recognized. 

TESTIMONY OF DR. BRIAN REID, PH.D., CHIEF ECONOMIST, 

INVESTMENT COMPANY INSTITUTE, WASHINGTON, D.C. 

Mr. REID. Thank you, Chairman Roe and Ranking Member. 

I am Brian Reid, chief economist of the Investment Company Institute, a leading global trade association representing mutual 

funds and other regulated funds in the United States and around 

the globe. 

I am here today to discuss the economic analysis that the Department of Labor uses to justify its proposed rule defining fiduciary duty for retirement advice and services. 

I have spent a lot of time on the DOL’s regulatory impact analysis. I regret to say that it is fatally flawed. Its analysis is an exercise in storytelling, crafted more to support the Department’s agenda than to measure accurately the proposal’s impact on retirement 

savers. 

In fact, the economic analysis raises the question of whether the 

DOL fully understands the market for retirement advice. 

The DOL justifies its proposed rule by claiming that this market 

suffers from a substantial market failure resulting in serious harm 

for retirement savers who invest through broker dealers. But the 

Department’s assertions don’t stand up when tested against actual 

data and experience. Even worse, the DOL’s proposal could actually 

have significant net social harm. 

I have five points to explain why. 

First, the DOL’s analysis is flawed when it claims that retire- ment savers will lose as much as $1 trillion over the next 20 years 

without its rule. The DOL reaches this number by arguing that 

brokers who are paid commissions through front-end loads on mutual funds are directing their investors into funds that under-perform. 

But a simple test, with data drawn directly from the market 

since 2007, shows just the opposite. Investors who own mutual 

funds with front-end loads actually bought funds that outperformed, not underperformed, the average return for their fund 

category. 

This one finding eliminates almost all of the rationale that the 

DOL uses to justify its proposal. 

Second, the DOL ignores market realities and the fact that investors may end up paying more, not less for advice under its proposal. The DOL predicts that its rule will drive down brokers’ fund 

commissions by almost two-thirds, but will not drive brokers from 

the retirement market. That seems highly unlikely to me. 

Furthermore, the DOL ignores the costs that investors will face 

if brokers do exit the market. The DOL estimates that investors 

are paying up to 28 basis points a year in front-end loads, but advisers charge, on average, almost four times as much for alternative, fee-based accounts. 

If the DOL rule forces savers into fee-based accounts, savers may 

end up paying more, not less. 

Third, none of the academic studies that the DOL uses addresses 

the core question: whether an investor’s performance is different 

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when her adviser is a fiduciary compared to when her adviser isn’t 

a fiduciary. Thus, the DOL does not actually measure and cannot 

measure, based on these studies, whether an investor will get better results using a fiduciary adviser. 

Fourth, the DOL fails to identify and analyze the significant 

harm to savers that could likely result from this proposal. With the 

new burdens created by the DOL’s proposed rule, the high minimum balances typically required for fee-based accounts, it is inevitable that many IRA investors would no longer be able to obtain 

advice at all. Retirement savers will be worse off if they do not 

have access to assistance and advice. 

Finally, data show that IRA investors are concentrated in lowercost funds, not higher-cost funds. The White House Council of Economic Advisers has widely promoted an estimate that IRA investors lose $17 billion a year through under-performance largely 

stemming from excess fees. 

The CEA report uses a hypothetical calculation to argue that, on 

average, IRA investors pay 1 percentage point a year more in fund 

fees than do 401(k) investors. 

If we put actual fund data into the CEA’s calculation, the difference between what IRA investors pay and what 401(k) investors 

pay is 85 percent less than what the CEA assumes. 

Now, let me be clear. The ICI has long supported the principle 

behind the DOL proposal that financial advisers should act in the 

best interests of their clients when they offer personalized investment advice. Unfortunately, the DOL’s proposed rule is hopelessly 

complex, confused, and unworkable. 

As the subcommittee recognizes, this issue is vitally important to 

American workers and their families. Research by ICI and others 

show that the U.S. retirement system is working to help deliver a 

secure future for millions of Americans. But those successes depend 

on workers’ access to advice and services. 

Any policy that impairs retirement savers’ ability to get the help 

that they need will significantly harm the prospects of millions of 

workers. Unfortunately, the DOL proposal will do just that. 

I look forward to your questions. 

[The testimony of Dr. Reid follows:] 

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Chairman ROE. Thank you, Dr. Reid. 

Mr. Harman, you are recognized for five minutes. 

TESTIMONY OF MR. DEAN HARMAN, CFP, MANAGING DIRECTOR, HARMAN WEALTH MANAGEMENT, THE WOODLANDS, 

TEXAS 

Mr. HARMAN. Good afternoon, Mr. Chairman, Ranking Member 

Polis, and members of the Subcommittee. 

I am Dean Harman, founder and managing director of Harman 

Wealth Management in The Woodlands, Texas. 

I am here representing the Financial Services Institute. FSI advocates on behalf of independent financial advisers and independent financial services firms. FSI is a strong supporter of a uniform fiduciary standard. But, unfortunately, the Department of Labor’s proposal is unworkable, complex, and costly. 

Let me make it plain. This proposal will harm retirement investors. 

Let me start by sharing one of the ways this proposal is unworkable. For a client to be able to pay for my services using a commission model, my firm would have to comply with the requirements 

of the best-interest contract exemption known as BICE. 

BICE requires that we give clients an estimate of all investment 

costs for one, five, and 10-year periods. In order to do this, I would 

need to predict investment performance. This will put me in direct 

conflict with SEC and FINRA rules. 

These projections may also create unrealistic expectations for investors. 

The proposal is also too complex. For example, BICE requires 

that firms maintain a machine-readable public website and update 

it quarterly. This website would disclose compensation received by 

the adviser, the firm, and any affiliates for every investment product sold. 

In the independent investment model, financial advisers have access to a wide variety of investment options. All of these investment products have unique pricing structures. Every single mutual 

fund family may offer as many as 500 or more versions of its fund. 

Compiling, presenting, and maintaining the required Internet disclosures would be a massive undertaking. 

This complexity of the project could lead to inadvertent errors 

which may result in litigation. More importantly, the complexity 

may confuse investors and discourage them from saving for retirement. 

This proposal is also too costly for investors seeking retirement 

services. They may encounter high costs as financial advisers are 

faced with a mountain of regulatory burdens that lead advisers to 

institute or raise asset minimums on retirement accounts. 

Because of this, investors of moderate means will find it difficult 

to gain access to valuable retirement advice and products. I do not 

want to turn away a potential client who needs my advice, but that 

will be the consequence of this proposal. 

That last point is so important. Let me give you an example from 

my own practice. I manage about $200 million in assets for 618 clients. Of those total assets, $10 million are held by 331 clients with 

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an average balance of $30,000. These clients are mainly lower net 

worth, elderly, or young professionals just starting out. 

For these individuals, an advisory fee model does not make 

sense. A commission-based model is appropriate for them because 

it eliminates the out-of-pocket costs and provides a way to pay for 

the advice, products, and services that these clients need. 

I want to ensure that any written rule by the Department of 

Labor will make it easier for these investors to continue receiving 

high-quality retirement services from a trusted financial adviser, 

but this proposal fails them. 

In conclusion, FSI supports a uniform fiduciary standard. We 

will continue to work with the Department of Labor to protect investors and expand access to retirement advice. Unfortunately, the 

current proposal is unworkable, it is complex, and it is costly. 

Thank you, and I look forward to any questions that you may 

have. 

[The testimony of Mr. Harman follows:] 

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Chairman ROE. Thank you, Mr. Harman. 

Thank you to all of the panel for your testimony. 

I will now recognize Dr. Foxx, for five minutes. 

Dr. FOXX. Thank you very much, Mr. Chairman. I appreciate it. 

You gentlemen were all here and you heard the Secretary. Of 

course, we never have enough time to ask the questions and get 

answers that will be helpful. But I intend to ask him this question 

in follow up and hope I can get some kind of a specific answer. 

He kept saying that it is a structurally flawed system, but he 

never truly identifies what that is except saying he doesn’t think 

the best interests of the clients is always done. 

I would like to ask, and I would love each of you to respond, 

maybe perhaps not today, but I would like to get an answer from 

each of you. 

But I am going to ask Mr. Mason and Mr. Harman if you would 

answer. Can you tell from what the Secretary has said exactly 

what the structurally flawed part of the system is? And would this 

fix that? I think you have said no already. But does it work except 

for very bad actors that might violate any system that is put into 

place? 

Mr. Mason? 

Mr. MASON. Yes. I think just on your last point, a lot of the horror stories that we hear that are really just upsetting to hear and, 

you know, are illegal under current law; so, I mean, so in terms 

of is this a structural flaw of present law, some of these horror stories, absolutely not. A lot of these things are illegal under current 

law. 

The only thing that I got out of it, and you know, I don’t speak 

obviously for the Secretary, but the thing that I got out of it today 

was the core principle that advisers should act in the best interests 

of their clients. And that is an issue in which there is, you know, 

in terms of the people who have spoken both up there and back 

here, there has been unanimity. 

The one disagreement is essentially that they have come up with 

this exemption from the prohibited transaction rules that you have 

to go through in order to provide help to small accounts, I talk to 

dozens of financial institutions and there isn’t one who can use it. 

So the issue they are either trying to correct, best interest, that 

is fine; the way they went about it doesn’t work. 

Dr. FOXX. Mr. Harman, before you answer, I would like to say 

what I got from his comments is that they want equality of outcomes, they want guaranteed outcomes for everyone. It seems to 

me that is it. They want maximum benefit. Well, all of us want 

that, for heaven’s sake. But there are risks associated. 

So Mr. Harman, if you would, if you have any additional comments to what Mr. Mason said. 

Mr. HARMAN. I think Mr. Mason’s points are right on point. Currently, advisers are highly regulated as it is. So we have had this 

current structure for many years. I don’t think it is broken. I think 

we need to have the ability to provide multiple solutions for clients 

based on what their individual needs are. 

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income clients, their needs are oftentimes different than what we 

would consider to be high-net-worth clients. And the options and 

products that they need available also need to be preserved. 

Dr. FOXX. I also think there is a problem with, again, who will 

ultimately decide what is in the best interest of the client. And I 

truly believe that is just going to result in a lot of lawsuits, because 

you pretend this eight-ounce cup has four ounces of water in it, is 

it half empty or half full? Who defines what the best interest is, 

is I think, ultimately, going to be decided in the courts and by expensive trials. 

So thank you all very much. 

I yield back. 

Chairman ROE. I thank the gentlelady for yielding. 

Mr. Scott, you are recognized for five minutes. 

Mr. SCOTT. Thank you. Thank you, Mr. Chairman. 

Mr. Mason, you mentioned the $4,000 fund and said a 1 percent 

fee would be insufficient to make it worth your while to give advice. How much money would you have to get out of that fund to 

make it worth your while? 

Mr. MASON. Well, I am not in the business, but different financial institutions set different minimums in terms of how much they 

will require for an advisory account like that. Some of them, for example, are $100,000 or $50,000. 

In order to accept 365-day liability and responsibility, you really 

can’t do it for $40. It is not economically sound. 

Mr. SCOTT. But basically— 

Mr. MASON. I am sorry, go ahead. 

Mr. SCOTT. Basically, the $4,000 fund amount would be problematic whatever you are doing. 

Mr. MASON. No, no, see, actually not because under the brokerage model what happens is it is a completely different relationship. 

Suppose I have to act in the best interest, but I am on the brokerage model. And Jack were to come to me and ask me for help. I 

could give him help on that particular transaction, but I would 

have no ongoing duty to counsel him with respect to what to do tomorrow or the next day. 

That is a transactional model that has worked very well to help 

the low- and middle-income individuals on a much less expensive 

basis get the assistance they need. So it is a completely different 

model. And that is why the advisory model doesn’t work. 

Mr. SCOTT. Now, under the rule, if you are doing just a transaction, are you covered by the best interest? 

Mr. MASON. Absolutely. In other words, again, Jack comes to me 

and asks me for my advice under our sort of scenario and under 

the Department of Labor’s, you would have to give advice that is 

in the best interests and we would support that, absolutely. 

Mr. SCOTT. Okay. 

Mr. Kelleher, if you are doing a single transaction and somebody 

comes to you for the transaction, are you subject to the best interest under this rule? 

Mr. KELLEHER. Yes. 

Mr. SCOTT. On a single transaction? 

Mr. KELLEHER. I am sorry? 

Mr. SCOTT. On a single transaction? 

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Mr. KELLEHER. One of the loopholes in the current rule is that 

if it is not on a regular basis, then it falls outside of a fiduciary 

duty. And one of the things the new rule is intended to do is to 

capture actual substantive retirement advice, even if it is only one 

time. 

Mr. SCOTT. Okay. But if you just ordered the mutual fund, you 

wouldn’t be subject to it, right? 

Mr. KELLEHER. It depends on the context. As I understand the 

rule, if you were giving substantive retirement advice— 

Mr. SCOTT. You are giving advice. 

Mr. KELLEHER. Right. 

Mr. SCOTT. Okay. 

Mr. KELLEHER. It is very clear on education and call centers. Not 

every person that works in a call center is going to become an adviser. In fact, there is a very broad description as to all sorts of advice that people can use at call centers and elsewhere. 

And in fact, the rule on that point is specifically tailored to the 

input by the industry on this very issue. It hasn’t taken away their 

complaints, notwithstanding they have been addressed rather extensively. 

Mr. SCOTT. Okay. Now, Chairman Roe mentioned an investor 

who was very satisfied because the size of their investment went 

up over the years. He didn’t say how the investment measured 

compared to an S&P 500 fund. If you can evaluate advice over the 

years, what should you compare it to? 

Mr. KELLEHER. Well, one of the things that this is focused on is 

if you put the clients’ best interests first, then you can actually 

evaluate on a level playing field the Chairman’s example as well 

as the Secretary’s example. The problem now is that with the very 

low suitability standard, which allows the broker or the adviser to 

act in their own best interests above the best interests of their clients, you don’t actually know whether the—and I can’t remember 

the chairman’s example, I think it was $365,000 the account grew 

to—that may or may not be actually a good return. 

If it is a return and the broker ended up getting 5 percent at the 

front end and they lost, as Jack Bogle would say, the tyranny of 

compounding costs and every year he lost x percent where a similar product he could have been put into, he well could have had 

$495,000, $500,000 or more. You don’t know because no one is required currently to act in their best interest. 

And that is the core of the problem. Many of the problems and 

complaints go away if everyone is required to put the clients’ best 

interests first. 

Mr. SCOTT. And let me ask Mr. Haley a question. As I understand your testimony, you are comfortable with the best-interest 

rule, you just want it administered in a way that can be easily administered. Is that right? 

Mr. HALEY. That is correct. 

Mr. SCOTT. And can you help write the language where the bestinterest standard is used, but it does not have the complications 

that you see in the present rules? 

Mr. HALEY. Yes. 

Mr. SCOTT. I yield back. 

Chairman ROE. Thank the gentleman for yielding. 

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Just for clarification, that IRA was my wife’s. 

[Laughter.] 

It did beat the S&P. And I happen to know it very closely because it was in my own family. 

Mr. Allen, you are recognized for five minutes. 

Mr. ALLEN. Well, just for the record, I am a little nervous that 

a department of the federal government that owes more than $18 

trillion would be working on a rule that overreaches about fiduciary responsibilities. That would make us all nervous, I think, sitting here. 

But Mr. Harman, as you said in your testimony, as an investment adviser, based on this rule, you would have to predict what 

your client would earn? 

Mr. HARMAN. Yes. It is my understanding under the current 

BICE exemption that in order to be able to predict fees on an account for a 1-, 5-, and 10-year period, you also have to make assumptions as to the returns that the asset allocation— 

Mr. ALLEN. So basically under the current interest rate policy of 

this government, you would have to recommend that your folks 

have a 60 basis point earnings in their programs. 

Mr. HARMAN. You would have to— 

Mr. ALLEN. To guarantee. 

Mr. HARMAN. Yes, you would have to come up with some assumption that the portfolio would return at a certain rate. 

Mr. ALLEN. And Mr. Mason, if this rule eliminates the brokerage 

side of the business, how big is that business? What percentage of 

the total financial industry, can you guess on that? 

Mr. MASON. Ninety-eight percent of the IRAs under $25,000 are 

held in brokerage accounts. So the damage that would be done to 

the small investor is incalculable; 98 percent of the IRAs under 

$25,000. 

Mr. ALLEN. That is unconscionable to me that—I mean, I sit here 

and I just cannot believe. You know, I wish you all had gone first 

because I think I am a little more educated about what really is 

going on here. 

[Laughter.] 

Mr. Haley, you said that, again, you answered the question as 

far as support of best-interest regulatory rule. In your mind, did 

the Department of Labor come to any industry experts and ask 

them what they thought about what might be in the best interests 

of the investor in this situation? 

Mr. HALEY. I am not aware of that. We have had conversations 

with them in response to their proposed regulations. 

Mr. ALLEN. The rules. 

Mr. HALEY. And we are waiting to hear what their response is. 

Mr. ALLEN. Okay. So you have any idea what—I guess I should 

ask the Secretary of Labor. That is why I wish he had gone last. 

Where did they come up with this rule? Does anybody know that? 

I mean, who wrote this thing? If it was not the industry, who is 

actually responsible for this? 

Mr. MASON. I think that what happened was back in 2010 they 

thought that, well, these rules are out of date. And I think that the 

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tially, and again, I hate to use this term, but the prohibited transaction rules, they are also out of date. 

Mr. ALLEN. Right. 

Mr. MASON. Because it is those rules that prohibit the brokerage 

model from functioning. And so what happened is they updated one 

piece of it and updated it in a way in which we have very grave 

concerns about. And then they really haven’t updated the prohibited transaction rules and those are the rules that cut off low- and 

middle-income individuals and small businesses from help. 

So if they could update those to accommodate the new system, 

that is how we can achieve the best of both worlds, a best-interest 

standard with workable rules that allow access to low- and middleincome individuals. 

Mr. ALLEN. So the consensus would be is that the rule does need 

to be updated? 

Mr. MASON. I don’t think the industry has any concerns about 

updating a rule to ensure a broader best-interest standard. We are 

absolutely fine with that. It is really if that is going to be the case, 

we absolutely have to update the prohibited transaction rules to 

make them workable for the world that does exist today. Because 

right now, this would, just as you said, I mean, this would be a terrible development for the small accounts and the small businesses. 

Mr. ALLEN. Mr. Haley, how do we solve this problem? 

Mr. HALEY. Well, the first thing is the exemptive relief under the 

BICE does not apply to small businesses. So if you think about Fidelity, how do we serve small businesses? Number one, we have 

over 8,000 small businesses with less than $100 million in assets 

or less than 100 employees. 

Today when that 401(k) comes to us, they give us a request for 

a proposal. They are looking for the lowest fees. They are also looking for a prototypical document. 

We do that. They ask us, what type of investments would you 

like, you know, in the portfolio? We are an open-architecture firm, 

so when you think about it, one of our divisions is Fidelity’s Funds 

Network. That is the largest mutual funds supermarket in the 

world. We have $1.4 trillion on our platform of non-Fidelity assets. 

So I am not conflicted. We give them a lineup. 

I actually like to tell the story. I am the largest distributor of 

Pimco’s mutual funds, okay? In addition to being— 

Chairman ROE. Mr. Haley, Mr. Allen’s time is expired. 

Mr. ALLEN. I yield the time I don’t have. 

[Laughter.] 

Chairman ROE. Ms. Bonamici, you are recognized. 

Ms. BONAMICI. Thank you very much, Mr. Chairman. 

And thank you to the witnesses. You have been here a very long 

time and I am glad you are all here. It has been a very enlightening conversation. 

I have always found that consumer confidence is really an important part of economic growth. It is good for businesses large and 

small when their customers know that they are being treated fairly 

and honestly. 

If you look back at the history of where the SEC came from, you 

know, after the Great Depression the SEC was formed and those 

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securities rules were written in order to bring that confidence back 

to the market. So it is a critical part, that consumer confidence. 

And it is important as we have this conversation about the critical issue of retirement security that consumers have that confidence in their advisers and their transactions. 

So I am really glad to hear of industry’s support for the best-interest standard. 

And let me just clarify something real quickly, because I want to 

make sure I am understanding what you are saying. Some of you 

have said the best-interest standard and some of you have said the 

best-interest fiduciary standard. Does everybody agree that the 

best-interest standard is a fiduciary standard? Does anybody not 

agree with that? 

Mr. MASON. I think we agree. 

Ms. BONAMICI. Okay, great. That is really helpful. 

And I want to ask a couple of questions and save time for Mr. 

Kelleher. 

But Mr. Mason, you and Mr. Harman sort of brought up the 

same thing. I thought maybe for a minute you were law partners, 

you were like Mason & Harman. 

[Laughter.] 

Mr. HARMAN. There is no relation. 

Ms. BONAMICI. So Mr. Mason, you said something about the brokerage model doesn’t work under this rule for small accounts. 

And Mr. Harman, you basically said the same thing, that this 

proposal will, I think you said, fail the lower-net-worth clients who 

pay on commission. And I am confused about why, because the Secretary sat here and said commissions will be—there will be the 

ability to charge commissions under this rule. 

So can you briefly tell me why you say that the brokerage model 

won’t work? And then I want to save time for a question for Mr. 

Kelleher. 

Mr. MASON. I am happy unless you want to— 

Ms. BONAMICI. Go ahead, Mr. Mason. Go ahead. 

Mr. MASON. Okay. I am happy to do it. Briefly, it is going to be 

a challenge because what it is there is a long, long list of requirements that essentially are unworkable. I will give you one example. 

I think there was a great discussion this morning on the contract 

rule about how you have to enter into a contract before you even 

enter into a relationship and then the secretary indicated openness 

to sort of work on that. 

Ms. BONAMICI. Right. 

Mr. MASON. But I will mention one other that was mentioned by 

one of the members here this morning, which is one of the disclosures is to provide detailed information on every piece of direct and 

indirect compensation earned by the adviser, the financial institution and every affiliate on every single asset that could be purchased by any retirement investor in the country. 

Well, there are thousands and thousands of different mutual 

funds. 

Ms. BONAMICI. Of course. 

Mr. MASON. Did you want to say something? 

Ms. BONAMICI. No. I just wanted to make sure that I have time 

left. 

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Mr. MASON. Yes, I apologize. 

Ms. BONAMICI. And thank you for pointing out that. 

Mr. MASON. But that is one of, say, 10 things. 

Ms. BONAMICI. I am going to reclaim my time for some other 

questions. 

Mr. MASON. Go ahead. 

Ms. BONAMICI. That was very helpful. 

And Mr. Haley, you brought up the contract before the conversation. But that is not what Secretary Perez said. 

So Mr. Kelleher, you heard the discussion both with the Secretary and the discussion here today about this problem that has 

been raised or this issue that has been raised about the best-interest contract exemption would require signed contracts before any 

conversations. But that isn’t what the Secretary said. 

So it seems like we are talking about two different things here. 

Mr. KELLEHER. Well, I mean, first, let’s look at the facts. In 2010 

the Department of Labor proposed a rule and the industry says we 

are for best-interest standards and they killed the rule. And here 

we are again. 

What they said at the time is the rule is unworkable, withdraw 

it, consider our input and re-propose it. The Department of Labor 

did exactly, and I could give you the quotes from 2010, 2011, and 

2012, from the titans of the industry who said that; so they withdrew the rule. They have done extensive outreach, unprecedented 

outreach over the years with the industry. 

They have accommodated the industry. The industry said the 

world will end if we can’t charge commissions. So working with the 

industry, the Department of Labor for years has figured out how 

to accommodate that complaint. 

They could have done what the U.K. did, ban commissions. And 

by the way, the statement earlier about the U.K. isn’t accurate in 

terms of the response of the industry to that fiduciary standard 

without commissions. But they have accommodated the commission 

interest here. And yet, nonetheless, the industry is against it. 

So they say they are for a fiduciary standard, but they are never 

actually for the one that is pending. 

And it is interesting because every major labor, consumer, investor, and senior citizen group supports this rule. And a letter went 

to the chair and ranking member of this committee today from I 

don’t know how many, 40 or 50 of them, detailing that support. 

And you started with trust and confidence of the American people and investors. That is what this goes to. Put their best interests 

first and you will restore trust and confidence. 

Ms. BONAMICI. And I see my time is expired. I just wanted to 

note that there are other areas where there is a fiduciary duty that 

we can get this done. And if you are all in agreement that we need 

to have this fiduciary standard, I don’t see any reason why we can’t 

make this happen. 

Thank you, Mr. Chairman. 

Chairman ROE. Thank you for yielding. 

Mr. Grothman, you are recognized. 

Mr. GROTHMAN. Sure. Well, I have two short questions, keep it 

short here. 

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The first one—and I had another committee hearing, so maybe 

I missed if you dealt with it, Mr. Harman. 

I had a little discussion about an hour ago with the Secretary as 

to whether or not compensation paid to people was going to wind 

up on a public website. And I was citing your testimony here and 

it was our testimony. Yes, this testimony that it wouldn’t be. 

Could you comment on that? Or do you believe that under this 

rule, you know, kind of an interesting thing, that, say, if I worked 

for a brokerage firm or whatever, that someone can get on a 

website and see how much I am making? 

Mr. HARMAN. I am sorry. Could you repeat it again? I was having a hard time hearing it. 

Mr. GROTHMAN. Okay, this is the deal. 

Mr. HARMAN. Thank you. 

Mr. GROTHMAN. I asked a question before of the Secretary, and 

I asked a question off of your expected testimony. It appears to me 

in your testimony here that you are under the belief that if this 

rule goes into effect you will be able to get on a website and see 

how much individual people are making. If you want to look on 

page 18, the website must be in machine-readable format and include the direct and indirect compensation payable to the firm, 

each individual adviser and each individual affiliate of the firm for 

each asset available the last year. 

Okay, which looks to me like if I am an employee of, you know, 

you name it, somebody can get on a website somewhere, has the 

chance to get on a website somewhere and see I made $40,000 last 

year, $140,000 last year, whatever I am making. 

Now, the Secretary implied that is going to be confidential and 

the website is only for, I don’t know, not public use. 

But could you give me your opinion as to what is going on there? 

Mr. HARMAN. Yes, absolutely. Thank you for the question. 

I guess one of the concerns about the website, my understanding 

is that it would be public under BICE. But one of the big concerns 

is context and information around context. I am concerned that this 

will create additional confusion for investors because they don’t 

know necessarily how to interpret this data and that. 

Then the other thing from a performance reporting standpoint 

that is concerning is every client has different objectives. And so 

back to kind of benchmarking that was mentioned earlier today, it 

is difficult to know one client from the next whether that was successful or not based on the fact that different people have different 

goals and different objectives for their portfolio. And their portfolios 

are managed differently to achieve those goals. 

Mr. GROTHMAN. Okay. And when I read your testimony, I take 

it to mean if I am an agent for a captive industry or whatever, 

somebody can get on a website, and maybe that is fine, maybe we 

should all know what everybody else is making. It is just kind of 

an interesting thing, the proposal is, that I can get on a website 

and see that John Jones made X amount of dollars last year. Is 

that the way you read that? 

Mr. HARMAN. I do. And again, the public nature of that has been, 

you know, concerning from a confidentiality standpoint. 

Mr. GROTHMAN. That is just an interesting thing. 

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Now, my other question will be for Dr. Reid and then we will let 

you guys be. The administration claims that advice is costing $17 billion a 

year. Could you elaborate one more time as to how that figure is 

arrived at or whether you think it is accurate? 

Mr. REID. Both the Council of Economic Advisers and the Department of Labor have argued based on their reading of the academic literature that individuals in brokerage accounts are underperforming by at least a full percentage point a year, the Department of Labor says perhaps 2 percentage points. 

This is actually a fairly easy task. You can go into the 

Morningstar data, you can look and see where the assets are holding for the types of funds that they are talking about in their analysis, you can actually find that the assets are concentrated in lowcost funds that outperform their Morningstar average. 

And so the claim that they do under-perform by this 1 percentage point is not based in data or in actual experience. 

Mr. GROTHMAN. Thank you. 

I yield the rest of my time. 

Chairman ROE. I thank the gentleman for yielding. 

Mr. Sablan, you are recognized for five minutes. 

Mr. SABLAN. Thank you very much. 

Mr. Harman, you actually got me there in your testimony. But 

then the statement that investors would be under-served because 

they don’t really know where to go to, who is that investor you are 

talking about? 

Mr. HARMAN. Which investors am I talking about? I am talking 

about lower net worth and midsize clients, midsize investors as 

well. So people— 

Mr. SABLAN. How much wealth do they have invested? 

Mr. HARMAN. Really, anyone with less than $50,000. 

Mr. SABLAN. Okay. I am just curious because I was very pleased 

with the response Mr. Haley provided Ranking Member Scott that 

there could be a way to work this thing out. After, Mr. Kelleher— 

Mr. Kelleher, right—said that actually the Department, this isn’t 

the first time we have had this, I just got into the subcommittee, 

but that 2010, 2011, or 2013, so that every time—why don’t the industry get together with the Department of Labor and work something out that works for all of us? 

I mean, I don’t think any one of you will say that you don’t want 

to be known as not having the best interests of your client. But 

then why is it so difficult to get there when Mr. Haley says that 

we can without actually without writing a rule that doesn’t—it 

makes negligible any offenses to it. I am just curious. 

I am from the Pacific islands, so I don’t really know these things. 

Educate me, please. 

Mr. KELLEHER. The way to align that would be to support a bestinterest rule. There are a lot of people running around saying we 

support the best interest, we just don’t want it to be in the rule. 

And they don’t say it that way, and that is the problem. 

You know, today there are 90,000 certified financial planners, 

there are 10,500 registered investment advisers with the SEC representing 200,000 individuals, all of whom provide services in the 

clients’ best interests. 

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The sky hasn’t fallen. They are making plenty of money. They 

are doing right by their clients. And it proves, the market proves 

that is not only possible for the client to thrive, but for the business 

to thrive. 

And we also have these new entrants that were mentioned earlier. Rebalance IRA, Wealthfront, Personal Capital, their entry is 

coming in from small businesses across the country, technology and 

otherwise, to serve small savers, small businesses as well as large 

savers and large retirement accounts with a fiduciary duty. 

The only question is, is the rule going to put the clients’ interests 

first of the brokers’ interests? That is what we are talking about. 

That is the choice. 

And if everybody is going to say I support the best-interest rule 

for my clients, then stop saying it, step up and support a rule that 

actually does it. 

Five-plus years of warfare against the rule doesn’t quite coincide 

with the pretty words. 

Mr. SABLAN. But now, let me get this straight. We have spent 

five years trying to work out this rule. And whose fault is it that 

it isn’t yet a rule? 

Mr. KELLEHER. Well, I think if you look at what—the Department of Labor has undertaken unprecedented outreach. Better 

Markets has participated outreach. Better Markets has participated in the rulemaking process across— 

Mr. SABLAN. I have another question, Mr. Kelleher. This is just 

out of curiosity because, again, I need an education to catch up on 

all of this. How much exactly is it costing the industry for government oversight over this investment? How much is the cost of government oversight to the industry that they have to get their lawyers paid so that they could make sure everybody is following the 

rules? 

Mr. KELLEHER. You mean how much today? 

Mr. SABLAN. Yes. Say, is there an average on industry standards, 

say, 10 percent, 15, whatever? 

Mr. KELLEHER. I don’t know if anybody has put a number on it. 

But I think everybody has conceded that it is a very highly regulated industry, and I think everybody concedes it is appropriate to 

be a highly regulated industry when you are dealing with people’s 

retirement money— 

Mr. SABLAN. Oh, sure. 

Mr. KELLEHER.—which isn’t only tax-advantaged, but incredibly 

hard-earned. 

Mr. SABLAN. Yes. 

Mr. KELLEHER. And so it is appropriate that we have for everybody the right rules and the right laws in place so that the money 

from hardworking Americans is treated appropriately in their best 

interests where they get the best return, lowest cost, best outcome. 

Mr. SABLAN. All right. And again, you know, I am just afraid 

that Mr. Haley’s agent will close shop if he is concerned about, yes, 

the additional cost for defaulting— 

Mr. KELLEHER. There is also a cost, by the way, of no oversight. 

A rule that puts the brokers’ interests first is costing the American 

people a fortune. 

Mr. SABLAN. I understand that. 

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Mr. KELLEHER. So there is actually a cost for poor regulation or 

no regulation. 

Mr. SABLAN. I understand. I think the five-years spent, you 

know, time spent on trying to come to an agreement and we have 

no agreement. So I agree. 

I yield back. 

Chairman ROE. Thank the gentleman for yielding. 

We have mentioned, I will finish the questions briefly, we have 

mentioned the word ‘‘trust’’ and the secretary did. And all due respect to the Secretary, who do I trust more, the Department of 

Labor or my financial adviser? And I can guarantee you it is my 

financial adviser who is looking after my interests a lot more because he just texted me during this hearing. 

[Laughter.] 

I just got a text from him. So I do, and I sincerely mean that. 

I have great trust in him, and I have a great relationship, a 20- 

year relationship with my financial adviser. And we will continue 

to do so as long as he is doing that business, and I am doing it. 

I think a few of the things I think we agreed on today, and I 

think this has been a great hearing by the way, from the Secretary 

is the best-interest standards and to update the rules that will 

make it, and Mr. Sablan mentioned this, about making this happen. I think this can happen, I really do. I think everybody here 

at this hearing thinks it needs to be updated. 

It ought to be done, but it also ought to accommodate without the 

onerous—I mean, look, do you ever read, that is where the details 

are, not the little one sentence, but this is where the rubber hits 

the road. Believe me, as a doctor having to deal with Medicare— 

and by the way, I wish the Secretary would ask Medicare to be as 

transparent as he is asking these financial people to be. That 

would help me a lot in my work. 

But I think that I heard Mr. Carter say it, I have heard others 

say it here is that we don’t want this to get so unmanageable because somebody pays the bills here and it is always me, the client, 

that does that. 

And I want Mr. Harman to answer this question if he would, just 

a second ago. And he mentioned a minute ago that confused me a 

little bit. In the new rule, it says you have to predict future earnings. And every time I have ever picked up any mutual fund or 

looked at it at all—in full disclosure, Fidelity has some of my retirement account, I will make that public—past performance 

doesn’t predict future returns. I hear it every time. 

Is that a conflict? Or how do you reconcile those two things? 

Mr. HARMAN. It is a tremendous conflict, I think. And you mentioned trust in your statement here. And that has the potential to 

significantly undermine trust, simply that alone by putting that in 

there. Because as we know, things are not static, they don’t always 

end up 10 years from now exactly as we might think they would 

today, even though we are making the best recommendation for the 

client at that point. So that is problematic. 

And it is problematic that it crosses current FINRA and SEC 

regulations as well. 

Chairman ROE. I think it absolutely does. I think you cannot now 

go out and my adviser can’t go and say, yes, I am going to guarCEWDOCROOM with DISTILLER

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antee you or you are going to probably make this much money. He 

has never said that, in my life I have never heard him say that. 

The market is volatile. We certainly saw it in—look, I have been 

through the recession of 1981, through the later recession of the 

later 1980s, in 2000, and it will come again. This is not the last 

recession we will have. Hopefully it won’t be as bad. 

Let me ask one other question. Is it true that higher-cost plans, 

Dr. Reid, always yield a lower cost? 

And Mr. Kelleher mentioned a minute ago about it happened to 

be a family member’s IRA that was a managed account like that. 

Look, I don’t care if I pay 3 percent on a load if I make 12 and 

my net is 9. I am looking at my net return and not just what I pay 

in a fee because I may get a better return, I may not. 

Is there data out there in the industry to show that? 

Mr. REID. So Mr. Chairman, I think this obsessive focus on fees 

alone, and even a fiduciary standard doesn’t say that it has to be 

the lowest-cost fund, can really be blinding so much so that the 

train can leave the station and you are not on it. 

And what do I mean by that? What I mean is that investors who 

were not properly allocated to the market, who didn’t have enough 

equity exposure completely missed the market run-up since 2008. 

We have been in the most vigorous, bull market in the stock 

market probably in the last 100 years, and yet as one of the panelists has indicated, 45 percent of government employees in the TSP 

are in the G Fund, which basically makes just enough to get above 

inflation. 

That is evidence, when you don’t get help and advice, how much 

you can lose out. It is a cheap alternative, it is low cost, but they 

missed the train. 

Chairman ROE. But someone just mentioned briefly the website. 

That was confusing me what the Secretary said. Who would have 

access to this website with all this data? Would you have to sign 

the contract? Is that how we would get access to the website? How 

does that work? Because you heard him say that. 

Mr. MASON. For example, every participant in an entire plan, so 

if you have 100,000 participants in a plan, every single participant 

would have access to the information that is stored. 

Chairman ROE. In that website. 

Well, I want to thank you all very much for your participation. 

You have been very patient sitting through a long first panel. 

And I will yield to Ms. Bonamici for closing remarks. 

Ms. BONAMICI. Thank you very much, Mr. Chairman. 

And first, I would like to enter into the record the letter referenced by Mr. Kelleher dated June 16, 2015, from various organizations in support of the rule. I would like to enter that into the 

record. 

[The information follows:] 

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215 

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Insert offset folio 147 here 94927.147
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Chairman ROE. Without objection, so ordered. 

Ms. BONAMICI. Thank you very much, Mr. Chairman. 

And I am going to give the opening statement on behalf of the 

Ranking Member. But I want to say that I am an optimistic person. And when I hear everyone has the same goal, the best-interest 

fiduciary standard, and there are some definitional differences 

about how we get there, I am confident that we can get this done. 

And I get to say this because I also serve on the Science Committee, it is not rocket science to get this done. 

[Laughter.] 

So we are a long way, 40 years away from the days when most 

people had traditional pensions to rely on in retirement. This shift 

away from defined benefit plans has exacerbated retirement insecurity in this country. And the proposal we discussed at length 

today modernizes this outdated fiduciary rule that was developed 

when the defined benefit plans were the standard, which is certainly not like today. At the end of 2014, $7.4 trillion in U.S. retirement assets could 

be found invested in IRAs. Much of that had been in ERISA-covered plans before being rolled over. And $6.8 trillion could be found 

in private, employer-sponsored, defined contribution plans like a 

401(k). 

Individuals with little to no financial expertise must determine 

their own retirement strategy as well as make complicated investment decisions in order to prepare for retirement. 

Too many middle class and working families are worried about 

saving enough for retirement, and it is critical that when these individuals seek advice from professionals they receive recommendations and advice that is in their best interest rather than conflicted 

advice that is in the best financial interest of their adviser. 

Unfortunately, conflicted advice has been permitted under the 

standard we have been operating under for the past 40 years. 

The Department’s proposal, which they have been working on for 

years with input from the industry, is reasonable and affords participants the access to all the necessary information available to 

help them make informed retirement decisions. 

We look forward to continuing to work with the Department to 

ensure that the final rule appropriately addresses concerns. 

Thank you very much to the witnesses for such an enlightening 

hearing. 

Chairman ROE. Thank you very much for yielding. 

And in conclusion, we do have a situation in America today 

where not enough people save for retirement. We know that. Twenty-nine percent of people over 55 don’t have any savings at all. 

That is frightening when you think about it. It means they are 

going to have to—and life expectancies are going up and up and up, 

so it puts great strain on social services. 

So we need to, and I believe this, the day I started practice we 

had a pension plan for every employee that was in our practice, 

and we still do to this day. And many of you, and certainly, Mr. 

Harman, you do have individuals, small investors. 

Fidelity is a huge company; you are a smaller business, of course. 

But you provide a tremendous service for people and advice that 

help people who are not sophisticated investors gain knowledge 

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about how to invest their money and how to save for the future and 

give them a lot of confidence about how they are going to live when 

they get older. 

I can assure you, having a mother that will be in assisted living 

right now, and knowing those costs and so forth, you can’t save 

enough money. I don’t know if anybody ever said they have saved 

too much money. And that is obviously a challenge that we all 

have. 

We have a big problem that we worked through on multi-employer pension plans. You remember, that is still a serious problem 

we haven’t completely solved. So saving for our future and for our 

retirement is a national problem. We need to make that easier, not 

harder. 

I certainly heard very encouraging things here today from the 

secretary and from industry about the best-interest fiduciary standard. I think all of you support that. No one supports conflicted advice, no one that I know of does. 

So I think we need to hopefully work this out. And the BIC exemption is not workable. I mean, I have tried to sit down and figure it out, and I have already heard from Mr. Haley—again, full 

disclosure—our small business isn’t going to be able to get advice 

because Fidelity is our brokerage service for our business. 

And I just realized when he said what he said that we won’t be 

able to get advice from Fidelity with this new rule. That is ridiculous for a group that is trying to do the right thing by employees 

and its folks that work for them. 

So I thank you all. This was a great hearing. 

[An additional submission by Secretary Perez follows:] 

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If there are no further comments, the hearing is adjourned. 

[Whereupon, at 1:21 p.m., the Subcommittee was adjourned.] 

Æ 

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