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July 21, 2015

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Washington, D.C. 20210

Re: Conflict of Interest Rule, RIN 1210-AB32

Proposed Best Interest Contract Exemption, ZRIN: 1210-ZA25

Ladies and Gentlemen:

I am writing on behalf of the Center for Global Policy Solutions to express our strong 

support for the Department of Labor’s (DOL’s) conflict of interest rule proposal. In a nation facing 

a retirement crisis, people of color are among those who can least afford to have their retirement 

savings drained because of conflicted advice. This rule would provide necessary protections for all 

Americans, including people of color, who are saving for retirement by guaranteeing that any 

retirement investment advice that they receive is in their best interests and free from harmful 

conflicts of interest. 

The DOL conflict of interest rule comprises one part of the larger framework toward 

addressing the retirement security crisis that people of color face

Our nation is facing a retirement crisis, and people of color face particularly severe 

challenges in preparing for retirement. According to a National Institute on Retirement Security 

Race and Retirement Insecurity Report:1

• Households of color are more likely than white workers to work in jobs that do not offer

retirement benefits. Only 54 percent of Black and Asian employees and 38 percent of 

Latino employees age 25-64 work for an employer that sponsors a retirement plan, 

compared with 62 percent of white employees. These racial disparities are much more 

pronounced in the private sector than in the public sector. 

• Households of color are far less likely to have dedicated retirement savings than white 

households of the same age. A large majority of Black and Latino working-age 

households—62 percent and 69 percent, respectively—do not have any retirement 

																																																												 1 Nari Rhee, Race and Retirement Insecurity in the United States, National Institute on Retirement Security, December 

2013, http://bit.ly/1cmSEtk. 
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savings, compared with 37 percent of white households. The racial gap in retirement 

account ownership persists across age groups and income levels. 

• Households of color have substantially lower retirement savings than white households, 

even after controlling for age and income. 74 percent of Black households and 80 

percent of Latino households age 25-64 have less than $10,000 in retirement savings, 

compared with 49 percent of white households. Among near-retirees, the per-household 

average retirement savings balance among households of color ($30,000) is one-fourth 

that of white households ($120,000). 

These findings are reinforced by research by Ariel Investments and Aon/Hewitt,2 which 

found that across all ages and income levels, African-Americans and Hispanics have lower average 

401(k) account balances than similarly situated Whites. For example, in 2010:

• Within the salary bracket capturing median income between $30,000 and $59,999: 

African-Americans had accumulated on average about $24,500 in 401(k) savings, while 

Hispanics in the same salary bracket had accumulated on average about $28,000. Both 

demographic groups had substantially less than Whites, who had accumulated on 

average more than $42,000.

• Within the salary bracket capturing median income between $60,000 and $89,999: 

African-Americans had accumulated on average about $68,000 in 401(k) savings, while 

Hispanics in the same salary bracket had accumulated on average about $76,000. Again, 

both demographic groups had accumulated substantially less than Whites, who had 

accumulated more than $98,000.

Due to the lack of access to workplace retirement accounts and, by extension, lower 

retirement account balances, all too many members of these communities reach retirement without 

any significant savings to supplement Social Security. To remedy these problems, efforts must be 

made to improve pay for lower income workers, promote middle income job growth, increase both 

the availability of workplace retirement plans and the participation in those plans, and preserve and 

strengthen Social Security to ensure that that the significant shortfall in retirement security is 

covered and that people of color are able to meet basic expenses.

Making every dollar count

For those who do manage to set aside a retirement nest egg, they need to make every dollar 

count by investing in products that perform well and have the lowest costs. However, like other 

																																																												 2 401(k) Plans in Living Color, A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups The Ariel/Aon 

Hewitt Study 2012, http://bit.ly/1Ii08lV. 
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savers with low account balances, African-American and Hispanic workers who receive retirement 

investment advice are more likely to receive recommendations that result in their investing in 

products with inferior performance and excessive fees that deplete their account balances over time. 

This is because they are disproportionately likely to receive retirement advice from a financial 

professional who has financial incentives to steer them into high-cost investments and who is not 

legally required to put their financial interests first. According to the industry’s own estimates, 98 

percent of accounts of investors with $25,000 or less in their Individual Retirement Accounts 

(IRAs) were in brokerage accounts.3 Brokerage accounts are subject to a suitability standard, which 

allows financial advisers to recommend the least suitable of all the suitable options rather than the 

options that are in the client’s best interest.

African-American and Hispanic workers are at particular risk when it comes to saving for 

retirement for one additional reason. They change jobs somewhat more often than Whites, and they 

are much more likely to cash out their retirement plan when they do. According to the Ariel and 

Aon Hewitt study discussed above, 63 percent of African-Americans and 57 percent of Hispanics 

who left their employer in 2010 chose to cash out their balances rather than leave them where they 

were or roll them over.4 Cashing out is generally considered to be a worker’s worst possible option, 

both because it depletes retirement savings and because it can trigger taxes and penalties. While it is 

understandable that individuals facing tough financial choices would make this decision, it 

contributes to the risk that people of color will be unable to afford a secure and independent 

retirement. 

The best option for workers changing jobs is often either to keep the money in the existing 

plan or transfer it into a new employer’s plan. That is because 401(k) plans have lower costs on 

average than IRAs and employers are required by law to manage their plans in the best interest of 

their plan participants. However, financial firms’ have a strong incentive to capture employer 

retirement assets because it increases their revenues. As a result, they often encourage workers to 

roll over their retirement accounts into IRAs, regardless of whether doing so is in the worker’s best 

interest. Any investment advice that is provided to a worker should consider all the facts and 

circumstances and make a recommendation that is genuinely in the best interests of the worker. 

That is particularly important for those with limited retirement savings, including many people of 

color, who need to make every dollar count.

However, as discussed above, financial firms have a profit-motive to capture assets and 

recommend rollovers. Under current law, firms and their advisers are allowed to make 

recommendations to roll over, regardless of whether those recommendations are in the best interests 

of their customers. Financial advisers can also take advantage of loopholes in the antiquated 

																																																												 3 Letter from Kent Mason, Partner at Davis and Harman, citing Oliver Wyman’s “Assessment of the impact of the 

Department of Labor’s proposed ‘fiduciary’ definition rule on IRA consumers,” April 12, 2011, 

http://1.usa.gov/1CyB9V2. 4 401(k) Plans in Living Color, supra note 2. 
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fiduciary investment advice rule to make recommendations that are not in their customer’s best 

interest. For example, so long as they provide advice that is not on a “regular basis,” they can 

provide advice that is in their interests rather than their customer’s. In addition, as long as they don’t 

agree that any advice that they provide will form the “primary basis” for the investment decision, 

they can provide advice that benefits them at their customer’s expense. These rules allow advisers 

to steer their clients into products that provide hefty compensation to them and their firms and 

deplete retirement savers’ retirement security. As explained above, people of color already are 

facing daunting retirement challenges; protecting against conflicts of interest from advisers whom 

they trust for objective, high-quality advice should not be one of them. 

Research shows that investors of all demographics lack the tools to protect themselves 

against harmful advice. According to the SEC’s financial literacy study, many investors “do not 

understand the most elementary financial concepts, such as compound interest and inflation.”5 They 

also do not understand basic ideas, such as diversification or the differences between stocks and 

bonds, and are not fully aware of investment costs and their impact on investment returns. 

Additionally, investors lack critical knowledge about investment fraud. Moreover, certain 

subgroups, including African-Americans and Hispanics have an even greater lack of investment 

knowledge on the average than the general population.6 This lack of financial sophistication makes 

people more dependent on professional financial advisers when saving for retirement and less able 

to detect when the advice they receive does not serve their financial interests.

While many people of color currently do not have considerable retirement assets, it does not 

stop them from seeking investment advice. A 2010 survey commissioned by Ariel Investments 

comparing and contrasting middle class African-American and White households in terms of their 

saving and investment attitudes and behaviors found, for example, that 42 percent of AfricanAmericans indicated that they had sought advice from a financial planner or advisor, a mutual fund 

company, or some other financial professional. That represents a significant portion of the 

population and is only slightly less than the 49 percent of White respondents who indicated the 

same.7

Furthermore, the market for providing financial advice to people of color is expanding, and 

people of color are becoming an attractive business target for firms. According to Jesse 

Abercrombie, a financial adviser with Edward Jones, “African-Americans and Hispanics are an 

increasingly large part of our client base...We are seeing more and more minorities moving into the 

																																																												 5 Study Regarding Financial Literacy Among Investors, As Required by Section 917 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Staff of the Office of Investor Education and Advocacy of the U.S. Securities 

and Exchange Commission, at vii-viii, August 2012, http://1.usa.gov/1fMABVZ. 6 Id. 7 Ariel Investments, Black Investor Survey 2010: Saving and Investing Among Higher Income African-American and 

White Americans, July 21, 2010, http://bit.ly/1GxB6ur. 
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upper-middle class.”8 These changes can be positive if the goal is to provide access to products and 

services that help savers of color improve their retirement security. However, there is a risk that 

certain members of the financial industry see an opportunity to profit at people of color’s expense, 

similar to how financial industry participants viewed people of color when they engaged in 

widespread predatory lending in the mortgage and payday loan spaces.

 The best safeguard against these risks is the fiduciary rule that the DOL has proposed. This 

rule seeks to ensure that any retirement investment advice that financial professionals provide is in 

their customers’ best interest. The rule would stop firms and their advisers from taking advantage of 

loopholes in the antiquated fiduciary investment advice rule to make recommendations that are not 

in their customer’s best interest. The “regular basis,” “mutual agreement” and “primary basis” 

loopholes would be removed from the rule, and rollover recommendations would be covered. These 

represent significant improvements over the status quo, particularly for people of color who are 

disproportionately likely today to get advice from a non-fiduciary adviser. 

The proposal also allows for commission-based compensation, subject to certain safeguards 

designed to ensure that sales-related conflicts are mitigated. Under the Best Interest Contract 

Exemption, firms and advisers would have to agree to provide recommendations that are in their 

client’s best interest, without regard to their financial incentives or other interest. The fees that they 

charge would have to be reasonable and clearly disclosed at the time the recommendation is made, 

and annually thereafter. In addition, firms would have to warrant that they have policies and 

procedures in place to address any harmful impact that sales-driven conflicts of interest may have 

on the recommendations they make. These policies and procedures would ensure that advisers are 

not being paid more to recommend products that serve them and their firm, at the investor’s 

expense. If a firm or adviser violates the terms of the contract, they could be held accountable for 

their actions. These required provisions in the contract will provide the necessary safeguards for 

retirement investors while still preserving the broker-dealer compensation model. 

Conclusion

With so much money on the line, it isn’t surprising that financial firms and their industry 

associations are fighting so hard against this proposed rule. In a particularly cynical ploy to protect 

their profits, they have argued that the rules could hurt middle-income families and people of color 

in particular by depriving them of access to advice. What they are really saying is that, if the firms 

can no longer take advantage of these workers and retirees, they may not be willing to advise them 

at all. In reality, however, minority retirement savers are among those with the most to gain from 

new protections for retirement savers precisely because they are most in need of making every 

dollar count. We urge the DOL to finalize these rules to ensure the necessary protections are in 

place for people of color who are saving for retirement.

																																																												 8 Carl O’Donnell, Financial advice business grapples with diversity challenges, INVESTMENT NEWS, January 15, 2014, 

http://bit.ly/1Ja7vdJ.
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Respectfully submitted,

Maya Rockeymoore, Ph.D.

President and CEO

Center for Global Policy Solutions