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July 21, 2015

VIA EMAIL

Office of Regulations and Interpretations

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue, N.W. 

Washington, D.C. 20210

Re: Proposed Conflict of Interest Rule (RIN 1210-AB32)

Proposed Best Interest Contract Exemption (ZRIN 1210-ZA25)

Dear Sir or Madam:

HD Vest Investment Servicessm (“HD Vest”) appreciates the opportunity to comment on 

the Department of Labor (“Department”) proposed rule re-defining who is a fiduciary under the 

Employee Retirement Income Security Act of 1974 (ERISA), and related proposed exemptions 

(the “Proposal”). HD Vest is a broker-dealer with approximately 4,500 registered 

representatives nationwide. The firm conducts business primarily through tax professionals and 

accountants who have longstanding relationships with their clients and care deeply about helping 

them achieve their financial goals, including retiring with financial dignity. 

HD Vest shares the Department’s concern that Americans are not saving nearly enough 

for retirement, and that they need sound financial advice to navigate the complexities of modern 

investing. However, for the reasons set forth below, the Proposal will not achieve the 

Department’s stated goals and on the contrary will materially harm the very retirement investors 

it purports to help. The proposed approach would create a bifurcated and disjointed regulatory 

scheme governing broker-dealers and their customers, and is not realistic in its assessment of the 

costs or benefits. We hope that the Department will consider these comments constructively, and 

significantly alter the Proposal. In particular, we encourage the Department to coordinate with 

the Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority 

(“FINRA”) jointly to craft a uniform fiduciary standard that would apply equally to all investors, 

including those who are saving for retirement outside tax-advantaged retirement accounts.
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I. Financial Advisors Play an Important Role in Facilitating Retirement Savings and 

are Entitled to Fair Compensation

Financial advisors provide a highly valuable service to retail investors, and are entitled to 

reasonable compensation for their work. The goal of any regulation should be to preserve to the 

fullest extent possible the availability of this service at a reasonable cost. The Proposal falls 

short because it would reduce the availability of investment advice, increase its cost and limit 

consumer choice.

A. Financial Advisors Play a Critical Role in Facilitating Retirement Savings

As the Department pointed out, the current test for fiduciary investment advice under 

ERISA was adopted “in a very different context, prior to the existence of participant-directed 

401(k) plans, widespread investments in IRAs, and the now commonplace rollover of plan assets 

from fiduciary-protected plans to IRAs.”1

 The transition from defined benefit plans, coupled 

with heightened complexity in financial markets and products, has increased the challenges 

facing investors saving for retirement. Americans are now more responsible than ever for 

ensuring that they save enough for retirement, and this requires proactive financial planning. 

Unfortunately, it has become clear that without assistance and a financial plan they are unlikely 

even to define their retirement goals, much less achieve them. Therefore, the Department has 

correctly emphasized “the need for plans and IRA owners to seek out and rely on sophisticated 

financial advisers to make critical investment decisions in an increasingly complex financial 

marketplace . . . .”2

The fundamental premise of the Proposal, however, is that commission-based financial 

advisors are currently hurting their clients.3 To justify the Proposal, the Department indicts the 

entire commission-based brokerage industry, laying at its feet hundreds of billions of dollars in 

alleged investor losses. This fundamental premise is controverted and controversial, and should 

not be taken as fact when fashioning regulations for the brokerage industry. Congress, the SEC 

and FINRA, who have much more extensive experience and expertise regulating the securities 

industry, have not reached similar conclusions. They therefore must either be complicit or lack 

the Department’s unique insight. The Department’s view is also not shared by millions of 

investors who have been well-served by having the option to obtain investment advice, trade 

 1 DOL, Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice, 80 F.R. 

21927, 21928 (Apr. 20, 2015) (“Proposed Rule”).

2 Id.

3 See, e.g., DOL, Fiduciary Investment Advice: Regulatory Impact Analysis at 7 (“A wide body of economic 

evidence supports a finding that the impact of these conflicts of interest on investment outcomes is large and 

negative.”), available at http://www.dol.gov/ebsa/pdf/conflictsofinterestria.pdf; Id. at 94 (“In sum, the weight of 

the evidence supports the finding that biased advice, rather than unobserved benefits, is the primary cause of the 

inferior returns suffered by IRA investors in conflicted load/distribution channels.”).
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execution, and a broad range of other valuable ancillary services in exchange for a commission 

that is both negotiable and subject to intense competition. Finally, the Department’s sweeping 

conclusion will be news to the “[m]any advisers” who the Department itself acknowledges “do 

not provide biased advice . . . .”4

This is not to say that there is not room for improvement. Nobody writing on a blank 

slate would fashion a regulatory structure for the securities industry exactly as it exists today. 

However, the Department is not writing on a blank slate. There exists a complex framework of 

overlapping securities regulations developed over decades that must inform the Department’s 

approach to a much greater extent. An important step in that process is recognizing that financial 

advisors play a critical role in helping investors – including retirement investors – in reaching 

their financial goals.

Financial advisors help inexperienced investors limit the harmful effects of the “human 

element” of investing. The study of “behavioral finance” has examined and documented what 

most of us intuitively know about investment decisions:

Behavioral finance holds that investors tend to fall into predictable patterns of 

destructive behavior. In other words, they make the same mistakes repeatedly. 

Specifically, many investors damage their portfolios by underdiversifying; trading 

frequently; following the herd; favoring the familiar (domestic stocks, company 

stock, and glamour stocks); selling winning positions and holding onto losing 

positions (disposition effect); and succumbing to optimism, short-term thinking, 

and overconfidence (self-attribution bias).5

The Department dismisses the common-sense notion that financial advisors can help 

investors avoid emotional and harmful behavior, based primarily on alleged “inferior returns” of 

broker-sold products. Apart from focusing on research that purports to support its position 

(while ignoring a large body of contradictory research), the Department’s analysis is flawed in 

that it does not quantify what it acknowledges are the “many” unbiased financial advisors in the 

commission-based brokerage channel. Is it 20%? Is it 50%? Is it 80%? If there are “many” 

unbiased commission-based financial advisors in the broker-sold channel, the Department’s 

conclusions are questionable since the impact of “conflicted but unbiased” advice on the 

“inferior returns” the Department attributes to this channel is not discussed.6 Moreover, the 

 4 See id. at 7 (emphasis added). 

5 Seth L. Elan, Behavioral Patterns and Pitfalls of U.S. Investors: A Report Prepared by the Federal Research 

Division, Library of Congress under an Interagency Agreement with the Securities and Exchange Commission, 

at 1 (Aug. 2010) (footnote omitted).

6 The Department later makes the generalization that “it is safe to predict that conflicted investment advisers . . . 

will act on their conflicts, and when they do, IRA investors will suffer as a result.” Regulatory Impact Analysis, 

supra note 3, at 84. This contradicts the finding that “many” financial advisers do not act on conflicts and do, in 

fact, provide unbiased advice.
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Department does not discuss why an unspecified percentage of financial advisers actually 

provide unbiased advice despite the presence of conflicts. The answer to that critical question 

seems necessary before proceeding with an entirely new regulatory framework based on broad 

assumptions about how conflicts impact financial advice.

Financial advisors also play an important role in encouraging American workers to save. 

Research shows that “[f]inancial illiteracy and the lack of trust in financial markets play 

important roles in curbing participation in retirement plans. Therefore, employer-sponsored 

retirement plans that require opt-in participation often encounter inertia and passivity on the part 

of employees.”7 The Department summarily dismisses the role financial advisors play in 

encouraging retirement savings, stating:

Some comments appeared to exaggerate the extent to which advisers, especially 

brokers, currently advise small IRA investors and thereby increase their savings. 

In fact, small savers are far more likely to save through job-based retirement plans 

than through direct IRA contributions. IRAs are funded far more via rollovers 

from plans than by direct contributions encouraged by brokers or other advisers. 

Service providers other than brokers, notably banks, appear to serve most small 

IRA investors today.8

The implication is that, even if the Proposal limits access to investment advice, the 

savings rate by small IRA owners would not be adversely affected. This is both counter-intuitive 

and wrong. Lower net worth investors are less likely take advantage of employer-sponsored 

retirement plans if they are not receiving financial advice. Financial advisors who review a 

client’s financial situation encourage contributions to employer plans as a good way to save for 

retirement, even when the advisor is not the “broker of record” who is paid for the transaction. 

Participation in employer plans, especially by smaller investors, would decrease if they were not 

working with financial advisors.

In addition, contrary to the Department’s findings, HD Vest representatives routinely 

work with smaller investors to establish IRA savings accounts. They do not do it for the 

compensation, which is negligible for the amount of time and work it takes, but rather to 

encourage their clients to save even a little bit each year. An investor working with a financial 

advisor is much more likely to overcome the inertia that leads to under-allocating resources to 

retirement savings. People who periodically review their financial situation with a professional 

and come up with a financial plan are more likely to open a retirement account and contribute to 

it regularly. The Department should not dismiss the negative impact the Proposal would have on 

these people. Workers who have not saved at all will have bigger problems as they approach 

 7 Behavioral Patterns and Pitfalls of U.S. Investors, supra note 5, at 4.

8 Regulatory Impact Analysis, supra note 3, at 186.
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retirement than worrying about whether some academic study concluded that investment returns 

might have been higher if their financial adviser were paid differently.

In addition to encouraging retirement savings, the following is a non-exhaustive list of 

areas, all of which can have a significant impact on retirement, where investors are likely to 

make better choices with the help of an investment professional: (1) periodically rebalancing 

their portfolio; (2) periodically reallocating their portfolio based on changing objectives and 

economic circumstances; (3) anticipating and saving for health care costs; (4) investing to 

mitigate longevity risk; (5) saving for education; (6) estate planning; (7) deciding when to access

social security for maximum benefits; (8) choosing the right type of retirement account (they are 

not all equal); (9) optimizing their retirement age (not retiring too early); (10) keeping 

beneficiary designations current; and (11) having reasonable assumptions about their ability to 

withdraw funds in retirement. In addition to advice in these (and other) areas that do not 

necessarily generate additional commissions, there are numerous ancillary services that 

commission-based brokers currently provide without charging additional fees.

Retired clients, who generate less commission revenue because they have passed the 

“accumulation” phase and are entering the “distribution” phase of the investment lifecycle, often 

continue to receive a broad range of advice and other services without paying additional fees. 

The Department notes that clients could face higher overall fees in fee-based accounts, but 

acknowledges that advisory accounts offer clients additional valuable services.9 This ignores the 

fact that commission-based brokers typically provide valuable ancillary services to long-term 

clients to help them manage through retirement and the transfer of wealth to the next generation. 

The Department’s analysis does not adequately consider the impact on these clients if their 

financial advisor were, as a result of the Proposal, instead forced to charge a continuing annual 

fee over the entire course of their investing life.

B. The Proposal Would Increase Costs to Retirement Investors

The fundamental premise underlying the Proposal is that brokers routinely act in their 

own self-interest, and by reducing conflicts (or preserving them subject to additional regulation) 

the Proposal would result in a mass savings to retirement investors in the hundreds of billions of 

dollars. A significant flaw in this assumption is that the Proposal would, without doubt, 

significantly increase the complexity and cost of offering a simple mutual fund to a taxadvantaged retirement account. Rules that increase costs to financial firms typically do not 

reduce the price of their services for investors.

The so-called “illicit” payments brokerage firms receive through 12b-1 fees and revenue 

sharing have become necessary to compensate firms and their representatives for: (1) the 

 9 Regulatory Impact Analysis, supra note 3, at 174.
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products and services they provide for the client; (2) the already substantial and continuously 

increasing compliance costs associated with operating in a complex and heavily regulated 

business; and (3) a reasonable profit. As NASD (now FINRA) recognized when it considered 

additional regulation of revenue sharing in 1997, “existing commission-based compensation 

systems may reflect legitimate business considerations that derive from a competitive market.”10 

These “legitimate business considerations” – which the Proposal ignores – are integral to the way 

the securities industry operates. The Department cannot just prohibit the payments, or impose 

significant additional and costly restrictions, and hope that firms will simply do more for less. 

While the Department grossly underestimates the cost of its own proposal, the problem is 

compounded exponentially by the fact that it does no analysis of the overall cost of current 

securities regulation for broker-dealers, or how the Department’s incremental cost would impact 

the industry, competition or capital formation.

The Federal Register is packed with well-intentioned rules that require firms to do more 

and charge less. The cost of recommending a simple mutual fund (even a low-cost index fund) 

has increased exponentially over the last twenty years, while sales compensation has 

simultaneously decreased. The average front-end sales load investors paid on an equity mutual 

fund in 1990 was almost 4%; by 2014 it fell to only 0.9%.11 During this 24-year period the 

industry increased in complexity with the number of mutual funds proliferating from 3,079 to 

7,923.12 At the same time, increased regulation and “innovations” in the fund industry have 

made it much more costly simply to sustain an open-architecture mutual fund platform. These 

include (but are by no means limited to) multiple share classes, breakpoints, contingent deferred 

sales charges, shares charge waivers, 12b-1 fees, omnibus accounts, sub-accounting, networking 

agreements, no-transaction-fee programs, reinstatement rights, rights of accumulation, letters of 

intent, tax reporting, market timing restrictions, redemption restrictions, non-cash compensation, 

prospectus delivery, confirmation delivery, and point-of-sale disclosure. 

In other words, the trend for the past 24 years has been that financial advisors 

recommending mutual funds must do significantly more work and at the same time investors pay

substantially less for financial advice. This trend has benefitted investors, and belies the notion 

that the industry is systematically working in its own self-interest to their detriment. It is 

axiomatic, however, that costs cannot continue to increase indefinitely while revenue 

simultaneously decreases. Revenue-sharing arrangements and 12b-1 fees the Department 

criticizes as improper incentives are needed in part precisely because of the complexity of 

 10 NASD, Notice to Members 97-50 (Aug. 1997), available at

https://www.finra.org/sites/default/files/NoticeDocument/p004655.pdf. 

11 Investment Company Institute, 2015 Investment Company Factbook at 105 (figure 5.8), available at 

https://www.ici.org/pdf/2015_factbook.pdf.

12 Id. at 177.
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existing securities regulation. If the Department wants to decrease the cost of mutual fund 

investing for retirement investors, it will not accomplish this through rules that add significant 

additional requirements, risk, complexity, ambiguity, and cost to the product. Ultimately, the 

increased costs associated with the Proposal will have to be passed on to consumers of retirement 

advice.

The Department’s preference for flat-fee arrangements charged directly to retirement 

investors also would likely increase the overall amount many pay for advice and other services. 

For instance, revenue sharing is typically paid by a fund’s investment adviser, not by the fund 

itself. As such there is no direct cost to fund investors. Furthermore, the indirect impact on fund 

investors is speculative. As the SEC has stated:

Revenue sharing arrangements not only pose potential conflicts of interest, but 

also may have the indirect effect of reducing investors’ returns by increasing the 

distribution-related costs incurred by funds. Even though revenue sharing is paid 

to broker-dealers directly by fund investment advisers, rather than out of fund 

assets, it is possible that some advisers may seek to increase the advisory fees that 

they charge the fund to finance those distribution activities. It is not clear whether 

that has occurred. See U.S. General Accounting Office, Mutual Funds: Greater 

Transparency Needed in Disclosures to Investors (June 2003) at 39 (discussing 

uncertainty about how revenue sharing has affected fund fees).13

For a commission-based firm to earn the same compensation under a flat-fee arrangement 

(which the Department assumes it can), the client would have to pay this amount directly, which 

would increase the investor’s direct cost. Moreover, revenue sharing is typically paid at the firm 

level and is not paid to individual financial advisors; as such, it does not present a conflict of 

interest at the point of sale.14 Because revenue sharing is not paid out of fund assets, and does 

not present a direct conflict at the point-of-sale, the correlation the Department suggests between 

revenue sharing payments and reduced investor returns is highly questionable.

In sum, regardless of what label is used for these fees, substantively there is no basis for 

the Department’s global conclusion that (a) payments are excessive in relation to the services 

provided; or (b) overall costs to investors would decrease as a result of the Proposal. In fact, the 

opposite is true. 

 13 SEC, Confirmation Requirements and Point of Sale Disclosure Requirements for Transactions in Certain 

Mutual Funds and Other Securities, and Other Confirmation Requirement Amendments, and Amendments to the 

Registration Form for Mutual Funds, Release No. 34-49148, 69 F.R. 6438, 6441 n.21 (Feb. 10, 2004) 

(proposed rule) (emphasis added).

14 See Notice to Members 97-50, supra note 10 (“A disclosure approach would seem to require, at a minimum, a 

determination of what kind of information would need to be disclosed (e.g., only those cash compensation 

arrangements that raise significant point-of-sale conflicts, such as sales contests, rather than entity-level, 

revenue sharing arrangements . . . .”) (emphasis added).
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II. The Proposal Would Reduce Investor Choice and the Availability of Financial 

Advice at a Reasonable Cost, Especially for Small Investors

The Department’s answer to investors’ need for sound financial advice is hundreds of 

pages of complex, burdensome, ambiguous and impractical conditions and prescriptions that 

undoubtedly will result in fewer Americans having access to meaningful financial advice. The 

Proposal would reshape the financial advice industry in ways the Department cannot possibly 

predict. The Department assumes without justification that an expansion of the ERISA fiduciary 

requirements will result in a mass transfer of wealth to investors with minimal complications, 

disruptions, unintended consequences or downstream effects. Based on these unwarranted 

assumptions and conclusions, the Proposal takes an overly prescriptive, one-size-fits-all 

approach to complicated issues and products, and even more complicated markets involving 

inter-connected participants of different types and sizes and business models already subject to 

extensive regulation. It clearly and explicitly favors certain business models and products over 

others. The predictable effect will be that many retirement investors who currently have access 

to financial advice at an affordable price will no longer be able to “seek out and rely on 

sophisticated financial advisers to make critical investment decisions in an increasingly complex 

financial marketplace.” 

The Proposal will negatively impact investors by increasing barriers to entry in the 

retirement advice market, and decreasing competition and consumer choice with respect to 

financial advisors and the products they can offer. Firms will have to increase fees to account for 

the added complexity and risk, or exit the market altogether. There is already a clear trend of 

firms and registered representatives exiting the industry in large numbers under a constant 

barrage of new regulations. At the end of 2007, there were 5,005 securities firms and 672,688 

registered securities representatives.15 As of December 31, 2014, there were fewer than 4,100 

brokerage firms and about 636,700 registered securities representatives.16 In other words, 18% 

of the brokerage firms in the industry in 2007 were no longer around by 2014.

This is a disturbing trend in that the reduced supply of advisors is coming at a time when 

the demand for advice is increasing. Unfortunately, as compliance costs increase closing shop is 

the only realistic option for firms that do not have the scale or capital to deal with everincreasing regulatory burdens.17 Every new regulation adds to the cumulative cost of doing 

 15 FINRA, 2007 Year in Review and Annual Financial Report at 2, available at

http://www.finra.org/sites/default/files/Corporate/p038602.pdf.

16 FINRA, 2014 Year in Review and Annual Financial Report at 14, available at

http://www.finra.org/sites/default/files/2014_YIR_AFR.pdf.

17 See, e.g., No-Action Request Letter from Michael F. Farrell, MGI Securities, Inc. to Michael Macchiaroli, U.S. 

Securities and Exchange Commission, 1992 WL 136464 (Mar. 31, 1992) (principal of small broker-dealer 

explaining that he is filing Form BDW to withdraw broker-dealer registration “for several reasons, the most 
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business, and the Proposal would add significant incremental requirements to an already 

suffocating regulatory framework. To understand the likely effects of the Proposal, it is 

important that the Department evaluate it in the broader context of existing regulatory 

requirements. Even if firms can absorb the effects of an individual incremental rule, the 

cumulative effect of new and increasingly complex requirements will continue to cause the 

extinction of brokerage firms. The Proposal’s negative impact would be especially pronounced 

on smaller firms, many of which service retail investors in rural and less densely populated areas. 

The Proposal, therefore, would further disenfranchise a segment of the market for retirement 

advice that is already underserved by larger wirehouse firms.

III. The Proposal Could Have Potentially Dramatic Effects on Capital Markets 

It is beyond question that the Proposal’s direct impact will be to reduce consumer choice 

and competition, and increase the cost of retirement advice. The indirect impacts of the Proposal 

are harder to guess; however, given the significance of retirement assets to the capital markets 

the consequences of guessing wrong would be disastrous. 

For example, the Department clearly and explicitly favors index mutual funds over 

actively managed funds.18 The Department equates index funds with “products that are in the 

best interest of the investor,” and actively managed funds with “products that are not in the best 

interest of the investor.”19 The Department then posits, in a prodigious understatement, that as a 

result of the Proposal “[p]assive and other lower cost investments may gain market share.”20 

The Department’s statements regarding actively managed funds – which are highly 

controverted and controversial – have broad implications the importance of which cannot be 

overstated. If the Proposal is adopted, assets would be reallocated to index mutual funds as a 

result of firms’ need to avoid liability and other consequences of non-compliance in light of an 

ambiguous “best interest” standard and the Department’s own preferences, not the relative merits 

of those investments. The Department should exercise extreme caution before concluding – on 

behalf of all investors today and in the future – that it knows best how to allocate capital.

Importantly, if the Proposal is adopted, brokers forced to follow the Department’s bias 

against actively managed funds (rather than their own opinion of their clients’ “best interests”) 

 

important ones being the costs associated with a one man firm and the ridiculous amounts of filing requirements 

for a simple firm selling mutual funds on an application way basis”).

18 See Regulatory Impact Analysis, supra note 3, at 76 (“It turns out that the excess cost of active management –

trying to identify and buy (sell) underprices (overpriced) securities – is almost always higher than any gain in 

performance over a lower-cost, passive management approach. As a result, past superior performance by an 

active manager more often reflects luck than skill . . . .”). 

19 See id. at 228.

20 Id.
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could fuel an exodus of retirement assets from actively managed funds. Because mutual funds 

are large conduit investors in equity and debt securities, the Department’s de facto mandate 

would also cause a major reallocation of capital in the underlying companies owned and financed 

by those mutual funds. The impact on demand for equity and debt securities of companies 

owned by actively managed funds is unclear, but capital undoubtedly would become much more 

expensive for companies that are not included in a popular index. 

The Department’s proposed approach would effectively transfer the responsibility for 

allocating investment capital away from thousands of portfolio managers who compete for 

investors in an intensely competitive marketplace to a select few companies who design popular 

indexes. As a result, popular index creators would wield unconscionable power to allocate (and 

re-allocate) scarce capital. The Department should consider that companies selected for indexes 

generally are chosen based on factors irrelevant to whether they would make good retirement 

investments. Moreover, many indexes are capitalization-weighted (i.e., the largest amount of 

each dollar invested gets allocated to the largest capitalization companies in the index). Apple 

and Exxon Mobil will be big winners under the Department’s passive management gambit. 

Small- and medium-cap companies that are not in an index, on the other hand, could see their 

access to public capital dry up altogether. 

This scenario is not unlikely given the ambiguity of the Department’s proposed standards 

and its derogatory statements regarding actively managed funds. In any event, choosing 

retirement assets based solely on the style of fund management and cost, rather than the merits of 

the underlying investments, will have a significant impact on the markets and result in a highly 

inefficient allocation of capital.

IV. The Proposed Best Interest Contract Exemption is Impractical, Especially for 

Smaller Accounts, and Will Cause Substantial Disruption in the Market for Advice

At the heart of the Department’s Proposal is the notion that it is meant to mitigate the 

effects of conflicts of interest but otherwise is business-model neutral. The proposed best 

interest contract exemption (“BICE”) purports to preserve flexibility with respect to how 

retirement investors pay for financial advice and how ERISA fiduciaries are compensated, 

subject to compliance with a torrent of new regulatory requirements. The proposed BICE does 

not leverage existing compliance systems developed under the securities laws or even the 

Department’s own rules, and includes requirements that are impractical, if not impossible, to 

implement. For all intents and purposes, an impractical exemption is the same as no exemption 

at all.

The Securities Industry and Financial Markets Association (“SIFMA”) and Financial 

Services Institute (“FSI”) set out in detail many of the issues that firms would face in attempting 

to comply with the BICE, and HD Vest joins in these comments. Based on these concerns and 
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others, HD Vest does not anticipate attempting to rely on the BICE as it is currently proposed. In 

particular, HD Vest believes that the various disclosure requirements in the BICE should be 

dropped or significantly amended. The following are some of the major concerns that need to be 

addressed before the BICE would have any practical application:

• Proposed disclosure requirements should leverage existing systems, including 

expensive processes recently developed to comply with Department fee disclosure 

rules. 

• The proposed cost disclosure at the time of purchase is unworkable in that firms 

cannot compile the required information and the proposed time and method of 

delivery is unrealistic. This is particularly troubling given the expanded scope of 

casual conversations that would be swept up within the scope of the revised 

“fiduciary” definition. 

• The proposed annual disclosure requires information that is not currently available 

and cannot be developed at reasonable cost.

• The proposed web page disclosure is overbroad and unduly costly.

In the absence of a meaningful and practical exemption, broker-dealers will not be able to 

continue to do business under a commission-based model. As FINRA noted in its comment 

letter:

If the Proposal were adopted as is, many broker-dealers will abandon these small 

accounts, convert their larger accounts to advisory accounts, and charge them a 

potentially more lucrative asset-based fee. They will do so largely because of the 

BICE constraints on differential compensation, the ambiguities in the best interest 

standard, the lack of clarity concerning various conditions, the costs of 

compliance, and uncertainty about the consequences of minimal non-compliance.

Broker-dealers are not permitted to offer flat-fee arrangements for advice without 

registering as an investment adviser.21 In the absence of a meaningful exemption, a collateral 

impact of the Proposal will be that additional firms will have to either abandon their clients or 

register as investment advisers to offer flat-fee arrangements. Even if there is an ostensibly 

workable BICE, if the compliance costs associated with the exemption are significant, 

representatives may still choose to convert to a registered investment adviser (“RIA”) model to 

offer flat-fee arrangements. 

The Department made certain assumptions about the conversion cost registered 

representatives would face, and assumed “that five percent (approximately 11,000) of BD 

registered representatives will convert to RIA status in each of the first five years as a result of 

 21 See Financial Planning Ass’n v. SEC, 482 F.3d 481 (D.C. Cir. 2007).
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the new proposal and that half as many will convert in each subsequent year.”22 Given the 

problematic structure of the proposed BICE, this underestimates the number of firms that will 

have to adjust their business model. Even if the conversion rate were only five percent, however, 

the Department did not consider the impact these conversions would have on its sister regulators. 

The SEC and states have jurisdiction over RIAs, and therefore would have increased obligations 

imposed upon them if the Proposal is adopted. While it is not the Department’s direct problem, 

the SEC has already made clear that it does not have the resources to effectively examine 

existing RIAs,23 and it is not clear how the SEC and states would meet the Proposal’s unfunded 

regulatory mandate with respect to a significant number of new RIAs. 

V. The Department Should Issue Rules Jointly with the SEC to Provide Uniformity 

and Avoid Unintended Consequences

Based on all these considerations and many others, to avoid significant unintended 

consequences and disjointed and bifurcated regulation of retirement accounts, the Department 

should act jointly with the SEC to establish uniform rules for investors.

A. There Should be a Uniform Best Interests Standard Applicable to all Investors

If the Proposal is adopted, financial advisors would deliver advice to clients under 

different standards of care depending on the account registration. Serving the same client who 

owns an IRA and a non-IRA account under different standards only creates unnecessary 

confusion. Advisors should work under one standard that can be easily explained to clients. 

The Department’s proposed regulations police subjects at the very core of the SEC’s 

jurisdiction. To the extent there is a problem that can be solved through a fiduciary standard, the 

Department should work with the SEC to adopt a uniform standard applicable to all investors. 

The Department has said that it cannot wait for the SEC to finish its work because the 

Department has a mandate to protect retirement investors. However, the proposed rules do 

nothing for the significant number of investors who save for retirement outside tax-advantaged 

accounts. According to the ICI, only 63% of American households even have a tax-advantaged 

retirement savings account.24 What about the rest? Not only would the Proposal not help these 

investors, the Department’s prescriptive approach, and the changes it would require specific to 

ERISA fiduciaries, would actually make the adoption of a universal fiduciary standard more 

 22 Regulatory Impact Analysis, supra note 3, at 173.

23 See Mary Jo White, Testimony Before the U.S. House of Representatives Comm. on Appropriations, Subcomm.

on Fin. Svcs., and General Govt. (May 7, 2103) (“During FY 2012, although the SEC continued to use and 

improve risk-based analysis to select examination candidates in its examination program, it was able to examine 

only about eight percent of registered investment advisers. Over 40 percent of advisers have never been 

examined.”), available at http://www.sec.gov/News/Testimony/Detail/Testimony/1365171516034.

24 2015 Investment Company Factbook, supra note 11, at ii (2014 Facts at a Glance).
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difficult. If the Department really wants to make a difference for all retirement investors, it 

should work with the SEC to create uniform protections that would apply beyond ERISA.

HD Vest supports the adoption of a uniform best interest standard. Our Advisors already 

act in their clients’ best interests, and have no problem being held to a best interest standard with 

respect to all of their investment advice. Any standard, however, whether it is adopted 

exclusively for tax-advantaged retirement accounts or more broadly, has to consider the realities 

of the securities industry and markets, leverage existing compliance systems and infrastructure 

and truly seek to preserve investors’ ability to choose how they obtain and pay for financial 

advice. As FINRA noted in its comment letter, “the Proposal should be based on existing 

principles in the federal securities laws and FINRA rules. In doing so, the Department would

help remove many of the ambiguities that will frustrate good faith attempts at compliance, would 

conflict with existing rules, and would better ensure that the Proposal’s objectives are achieved.” 

The principles articulated by SIFMA and FSI provide an excellent framework and significantly 

advance the consideration of a uniform standard. FINRA’s guiding principles for a uniform 

fiduciary standard also provide a framework that can be converted into rules if the various 

agencies can work in tandem to resolve differences in approach. Cooperation and coordination 

will avoid the unnecessary costs of an ambiguous and disjointed regulatory scheme to the great 

benefit of investors and the securities markets.

B. Working With the SEC on Joint Rules Would Help Avoid Significant 

Unintended Consequences

As the Proposal recognizes, “[s]ince the Department issued its 1975 rule, the retirement 

savings market has changed profoundly. Financial products are increasingly varied and 

complex.”25 The complexity of financial products, however, is nothing compared to the 

complexity of the securities markets themselves. The Department concludes that, because of this 

increased complexity, it should step into the breach. On the contrary, the heightened complexity 

of the markets makes it much more likely than it was 40 years ago that the Department’s radical 

new approach will result in significant unintended consequences. Indeed, the SEC’s deliberate 

approach to the uniform fiduciary standard rulemaking under section 913 of the Dodd-Frank Act 

reflects the significant amount of time and work necessary to understand the impact and reduce 

unintended consequences. The SEC has greater experience, expertise, historical context, 

knowledge and resources to fashion conduct standards for the securities markets, and was 

specifically empowered by the Dodd-Frank Act to do so. These factors counsel strongly against 

the Department acting on its own to adopt and enforce prescriptive regulations in this area.

Moreover, Congress has enacted specific checks and balances in the securities laws to 

ensure that regulations affecting the securities markets and market participants do not impede 

 25 Proposed Rule, supra note 1, 80 F.R. at 21951.
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efficiency, competition and capital formation. Section 23(a)(2) of the Securities Exchange Act 

of 1934 provides that:

The Commission and the Secretary of the Treasury, in making rules and 

regulations pursuant to any provisions of this chapter, shall consider among other 

matters the impact any such rule or regulation would have on competition. The 

Commission and the Secretary of the Treasury shall not adopt any such rule or 

regulation which would impose a burden on competition not necessary or 

appropriate in furtherance of the purposes of this chapter. The Commission and 

the Secretary of the Treasury shall include in the statement of basis and purpose 

incorporated in any rule or regulation adopted under this chapter, the reasons for 

the Commission’s or the Secretary’s determination that any burden on 

competition imposed by such rule or regulation is necessary or appropriate in 

furtherance of the purposes of this chapter.26

In granting the SEC specific authority to adopt rules governing product-specific 

disclosures for retail investors, Congress again included a requirement that “the Commission 

shall consider whether the rules will promote investor protection, efficiency, competition, and 

capital formation.”27 Congress was clearly concerned about the degree to which additional 

disclosure requirements could impair the securities markets. This is a critical consideration 

given the extensive degree to which the Department would mandate specific and highly 

burdensome disclosures regarding securities products and services.

The fact that ERISA does not contain the same strictures does not mean that these 

considerations are not germane to the Proposal. A more likely explanation is that Congress 

never contemplated that the Department would use the ERISA definition of “fiduciary” to pass 

sweeping rules on matters within the core of the SEC’s jurisdiction under the securities laws. 

The Department’s proposal circumvents these statutory requirements and the result, while well 

intentioned, represents risky experimentation with a significant portion of the U.S. economy. At 

a minimum, the Proposal will establish a radically different regulatory regime for retirement and 

non-retirement investors. At worst, it will be extremely disruptive to competition and access to 

capital. It is important to keep in mind that the Department’s proposed requirements would be in 

addition to, not in place of, the already over-complicated, costly and often redundant and/or 

contradictory regulations imposed by a myriad of federal, state and self-regulatory securities and 

banking regulators. The Proposal will increase investor confusion and decrease access to 

 26 15 U.S.C. § 78w(a)(2); see also id. § 78c(f) (“Whenever pursuant to this chapter the Commission is engaged in 

rulemaking, or in the review of a rule of a self-regulatory organization, and is required to consider or determine 

whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in 

addition to the protection of investors, whether the action will promote efficiency, competition, and capital 

formation.”) (emphasis added).

27 Id. § 78o(n)(2).
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securities professionals and the securities markets. The lives of retirement investors will be 

impacted by the Proposal, but not in the ways the Department intends and not for the better.

Sincerely,

Roger C. Ochs

President & CEO