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U.S. Department of Labor 

July 21, 2015 

Page 2 

From a business model perspective, the IRA market is serviced via two main models: the advisory 

model and the brokerage model. The key difference between the advisory model and the brokerage 

model is that in an advisory relationship, the investment advisor is ultimately responsible for the 

investment decisions in the account, and is generally governed by the provisions of the ’40 Act, while 

in the brokerage model the investor decides, and such brokerage accounts are governed by the 

provisions of the’34 Act. More importantly for those purposes, advisory accounts are virtually always 

structured as “wrap fee” accounts, while brokerage IRAs are compensated through transaction specific 

commissions. The Wyman Report noted that the vast majority of IRA accounts are commission based 

brokerage accounts, noting that the smaller the account, the more likely it is to be a brokerage account. 

The following chart illustrates this point: 

It is important to note that the DOL proposal does not significantly impact the advisory model. 

Instead, the proposed DOL rules would expand the fiduciary standard of ERISA to self-directed IRA 

brokerage accounts held at firms such as Stifel. However, as outlined in greater detail below, the 

unintended consequence of such expansion will be to force brokerage firms to stop offering selfdirected IRA brokerage accounts in favor of placing such accounts on their advisory platforms. The 

net effect of that will be to eliminate investment advice altogether to many small IRA investors, while 

dramatically increasing the costs to millions of others. This is being done with little or no proven 

tangible benefit to the affected investors. 

 
U.S. Department of Labor 

July 21, 2015 

Page 3 

The unintended consequence of forcing firms like Stifel to abandon offering brokerage accounts to 

basic self-directed IRAs (governed by the ‘34 Act) and instead placing such accounts on an advisory 

platform (governed by the ‘40 Act) will be a dramatic increase in direct and indirect costs to clients 

holding such accounts. With respect to direct costs, Stifel alone has over 300,000 IRA accounts. Over 

80% of these IRAs are non-managed brokerage accounts. It is important to note that Stifel’s nonmanaged IRAs are charged, on average, 47 basis points less than Stifel’s managed IRA accounts. 

Moving these non-managed IRAs to Stifel’s advisory program would cost these investors in excess of 

$150 million annually. In addition, a straw poll of five SIFMA member firms revealed similar results. 

The estimated additional costs to the clients of the five firms surveyed (all regional firms), representing 

1.5 million accounts, is approximately $2 billion annually. Extrapolating from these results, a mass 

movement of brokerage IRAs to advisory programs will be monumental and requires further cost 

benefit analysis. 

With respect to indirect costs, a review of the various studies submitted by SIFMA and other industry 

representatives, including the Wyman Report, the NERA Consulting Report, and the Deloitte Study 

reveal several common themes: 

1. Retirement investors save more when they have the services of a financial advisor. 

2. Those investors are better diversified. 

3. Their performance is not significantly different if advised for a fee or a commission. 

4. The cost of implementing the DOL proposal is significant. 

These studies highlight the need for average retirement investors to have as an option a commission 

based retirement account rather than being forced to “go it alone”, or pay fees for services they don’t 

want or need. With respect to the importance of advice, the DOL estimated in 2011 that consumers 

who invest without professional advice make investment errors that collectively cost them $114 billion 

per year. Under the DOL’s present proposal, when combined with the likelihood that a large number of 

investors will lose access to advice, aggregate costs to investors will be well beyond any benefit that 

could be derived from such proposal. This is in addition to the estimated $4.7 billion start-up costs to 

firms, as well as ongoing costs of over $1 billion a year. 4

 All of these costs will ultimately be borne 

by investors. 

As outlined in greater detail in both the SIFMA and FINRA comment letters, the proposed “Best 

Interest Contract Exception” and “Principal Transaction Exemption” are unworkable for many reasons. 

We would incorporate all of their observations herein by reference. The consequence of this 

unworkable standard will be to force many firms, such as Stifel, to restrict the services they offer to 

basic IRA investors. Doing so will limit the choices investors have as how they choose to pay for 

investment services (i.e. commission-based), and in the case of smaller account holders that don’t meet 

firms’ minimum balance requirements, deny them access to investment services altogether. This is of 

particular concern to such smaller investors, given the fact, that according to the Wyman Report, 98% 

of IRA investors with less than $25,000 invested are in brokerage relationships as opposed to advisory 

relationship. The executive summary of the NERA analysis submitted by SIFMA to the Department 

said it best: “The DOL proposal may effectively make the commission-based brokerage model unworkable for 

                                                            

4 SIFMA Executive Summary submitted July 20, 2015
U.S. Department of Labor 

July 21, 2015 

Page 4 

investment accounts covered by ERISA due to the operational complexity and costs of compliance that would be 

required under the Best Interest Contract Exemption.” 

As a solution to the unworkable rules proposed by the Department, Stifel supports the FINRA Best 

Interest Standard. Specifically, Stifel believes that a universal best interest standard would best serve 

its clients’ interests. However, like FINRA, we believe that a single standard applicable to both 

advisory accounts regulated by the ‘40 Act, and brokerage activities regulated by the ‘34 Act, is the 

only approach that makes sense both for clients and the firms that service them. We believe that a 

universal best interest standard is the only viable approach because at Stifel, as with most brokerage 

firms, our clients maintain different types of accounts, both advisory and brokerage, within the same 

portfolio. These accounts are almost always handled by the same person, who is dually licensed as a 

Registered Investment Advisor and Registered Representative. To have those accounts held to 

different standards, with different limitations on investment choices, is confusing to clients and fails to 

better protect them in any meaningful way. 

Furthermore, the DOL itself recognizes the value of the brokerage model. The preamble of the DOL 

proposal cites the need to “preserve beneficial business models for delivery of investment advice by 

separately proposing new exemptions from ERISA's prohibited transaction rules that would broadly 

permit firms to continue common fee and compensation practices, as long as they are willing to adhere 

to basic standards aimed at ensuring that their advice is in the best interest of their customers”. 

However, those proposed exemptions fail to provide that solution, effectively eliminating the 

commission-based brokerage model. 

The DOL’s proposal is to be commended for highlighting the need to insure that retirement investors 

can obtain financial advice without fear of being subjected to abusive sales practices occasioned by 

inherent conflicts of interest. However, the proposal is so flawed, in conflict with existing rules and 

regulations, burdensome and so expensive to implement that it will have the unintended consequence 

of causing many smaller investors to lose the benefit of the services of an investment advisor 

altogether. IRA brokerage accounts which are moved to advisory accounts will be forced to pay fees 

well in excess of the commissions they currently pay. We would urge you to reconsider the overly 

complex and unworkable DOL proposal. Instead, Stifel supports FINRA’s Best Interest Standard 

which harmonizes the rules pertaining to all brokerage accounts, whether governed by the ‘34 Act or 

the ‘40 Act. This solution will preserve investor choice, eliminate confusion, and provide a cost 

effective means for investors (and in particular smaller investors), to save for their retirement. This 

matter is of utmost importance to investors and as such, I would like an opportunity to testify at your 

upcoming public hearings. 

 Yours truly,