From: Peter Chepucavage [mailto:pchepucavage@plexusconsulting.com] 

Sent: Thursday, May 14, 2015 11:35 AM

To: EBSA, E-ORI - EBSA

Subject: RIN 1210-AB32-DEPARTMENT OF LABOR DEFINITION OF THE TERM FIDUCIARY

 

 

I write as an experienced securities lawyer, regulator and investor to suggest that the proposal is 

not clear with respect to the added costs to the investor. DOL'S proposal needs to be very clear 

that there are costs associated with extending the fiduciary duty requirement to those who prefer 

to pay only commissions because they both trust their broker or realize that the transactions cost 

for a few mutual funds are considerably less then the adviser's fees. The DOL'S cost analysis for 

the customer seems to be as follows:

1) Commissions are still allowed so no cost increase:

2) If you switch to an advisor fee you get more advice.

Respectfully this is a simplistic stance as commissions and fees will surely rise as the industry 

has noted and indeed promised. Furthermore getting more advice for an extra fee is fine but only 

if you want or need it.

Anyone who has purchased stocks or funds recently would realize that Fiduciary duty is not the 

real issue for most Americans. The real issue is finding a personal advisor when you have less 

then $100,000 to invest. Go into any large bank or broker today and be prepared for an 

immediate referral to the call center cemetery if you don't have at least that much and even more. 

Surely it is not being suggested that these investors are required to pay an advisory fee when they 

just need 3-5 good mutual funds? Surely when a bank has a superior performing fund they 

should be allowed to recommend it to their small customers? A customer with $100,000 who 

pays a 1% annual fee over 10 years can actually lose money beyond the $10,000 in fees. The call 

center discussion on costs really begs the question as to whether call centers are the best the 

industry can do and the best for older retirees who desperately need personal attention.

Call centers have a role in non-retirement funds where they can provide economical nonpersonal advice. But to suggest that older retirees can rely on call centers where they get a 
different employee on each call is impractical and dangerous. Yet when such an investor enters a 

big bank they are immediately referred to the call center, when many commission brokers would 

sit with them even though they realize conflicts are possible.

If DOL is trying to protect customers who need the protection why not require the Fiduciary duty 

only when they are less then accredited or sophisticated and make clear the transaction costs 

involved.The White House memo on billions lost must include those with much more then 

$200,000 in their accounts. But those with $200,000 are considered sophisticated for private 

placements and can easily afford advisory fees. Do they need more then a straight forward 

document that says you can pay for an IA or you can pay commissions but there may be conflicts 

and probably will be, as recommended by N.Y. City Comptroller Scott Stringer. The proposal 

from Stringer is exactly correct for sophisticated investors. That client can then say please 

explain those conflicts to me and review them with an attorney and/or accountant.

This distinction would focus attention on what the real issue is here helping those who cannot 

afford IA advice and only need a few good mutual funds. As SIFMA noted, if they do not want 

to use the call center and do not wish to pay the advisory fee, they are left helpless? Those 

advocating the duty seem not to believe or at least not discuss the added transaction costs for a 

small investor. You can keep your broker if you like him? As previously noted if you pay an 

advisory fee on $100,000 over 10 years you have paid 10% EVEN IF YOU LOSE MONEY. If 

you buy 3-5 mutual funds or index funds and hold them your transaction costs are less. Buying 

one share of Berkshire Hathaway allows you to invest that $10,000 rather then pay it in fees.

Thus the real issue is providing good personal advice to the unsophisticated investor without 

increasing their costs. The government could do this by offering a tax credit for retirement 

investment advice up to a maximum of $2000 per year for those with limited retirement funds. 

This credit would offset any added costs the duty might add. A credit for the unsophisticated 

investor and required disclosure for the accredited investor would be an ideal compromise if the 

goal is to help those who need it and cannot afford it.If the goal is to help retirees, then their 

costs ought to be limited instead of increased. At the very least the rule ought to require 

disclosure of increased commission costs so that a fair assessment can be made. The issue here is 

insuring that retirement funds get the best personal advice at the best cost. Fiduciary duty is only 

one element of this challenge

Peter J.Chepucavage

General Counsel

Plexus Consulting Group,LLC

1620 I St.N.W.

Washington,D.C.20016

pchepucavage@plexusconsulting.com

202-785-8940