Endnotes

' Mitra Toossi, Projections of the Labor Force to 2050: A Visual Essay. U.S. Bureau of Labor
Statistics. Washington, DC, October 2012, www.bls.gov/opub/mlr/2012/10/art | full. pdf
(accessed May 2015).

? Nari Rhee, Race and Retirement Insecurity in the United States (Washington, DC: National
Institute on Retirement Security, 2013), 1,
www.nirsonline.org/storage/nirs/documents/Race%20and%20Retirement%20Insecurity/race_an
d_retirement_insecurity_final.pdf (accessed May 2015). For previous work on this issue, see
Leticia Miranda, /nsecure Retirements: Latino Participation in 401(k) Plans (Washington, DC:
NCLR, 2009),
www.nclr.org/images/uploads/publications/file_Latinos_and_401K_plans_Final.pdf (accessed
May 2015).

* Tid.

* Ibid. For more information on Latino employer-sponsored retirement plan participation in
California, see Catherine Singley Harvey, Enhancing Latino Retirement Readiness in California
(Washington, DC: NCLR, 2015),
www.nclr.org/images/uploads/publications/LatinoRetirementReadiness2015.pdf (accessed May
2015).

° Nari Rhee, Race and Retirement, 3.

® April Yanyuan Wu, Matthew Rutledge, and Jacob Penglase, Why Don't Lower-Income
Individuals Have Pensions?, Issue Brief 14-8 (Chestnut Hill, MA: Center for Retirement
Research at Boston College, 2014), http://crr.bc.edu/briefs/why-don%E2%80%99t-lower-
income-individuals-have-pensions (accessed May 2015).

7 Lawrence Mishel et al., “Latinos,” in The State of Working America, 12th Edition (Ithaca, NY:
Cornell University Press, forthcoming), http://stateofworkingamerica.org/fact-sheets/latinos
(accessed May 2015).

* Sarah Holden and Daniel Schrass, “The Role of IRAs in U.S. Households’ Saving for
Retirement, 2014,” ICI Research Perspective 21, no. 2 (January 2015): 30,

http://www. ici.org/pdf/per21-01.pdf (accessed June 2015).

° Michael Brien and Constantijn Panis, Financial Asset Holdings of Households in the United
States: 2014 Update (Washington, DC: Analytic Consulting Group and Deloitte, 2014), 47,
www.dol.gov/ebsa/pdf/conflictsofinterestreport3.pdf (accessed May 2015).

© John Turner, Retirement Savings Flows and Financial Advice: Should You Roll Over Your
401(k) Plan? (Washington, DC: Pension Policy Center),
http://pensionpolicycenter.com/?page_id=310 (accessed May 2015).

"' Sarah Holden and Steven Bass, The IRA Investor Profile: Traditional IRA Investors’ Activity,
2007-2012 (Washington, DC: Investment Company Institute, March 2014), 37,

www ici.org/pdf/rpt_14_ira_traditional.pdf (accessed May 2015).

” Ariel Education Initiative and Aon Hewitt, 401(k) Plans in Living Color: A Study of 401(k)
Savings Disparities Across Racial and Ethnic Groups (Chicago, IL: Ariel/Aon Hewitt, 2012), 14,
www.arielinvestments.com/images/stories/PDF/ariel-aonhewitt-2012.pdf (accessed June 2015).
6 Secretary William Galvin for the Commonwealth of Massachusetts, Statement of Secretary of
the Commonwealth William F. Galvin, Commonwealth of Massachusetts, Middle Class
Prosperity Project Forum, 114th Cong., 1st sess., March 24, 2015.


Proposed Rule Is a Positive Step Toward Reducing Barriers to Saving

A holistic approach to achieving financial security must include adequate savings for retirement,
but too many households are not saving enough. Strong protections against unscrupulous
investment advice are necessary to protect consumers and their assets from the adverse
consequences of conflicts of interest. Even though Latinos use financial advisers and planners at
relatively low rates, they receive high-stakes advice because they already face structural barriers
to saving and investing. The proposed rule by the Department of Labor to redefine which
retirement investment advisers must act in the best interest of their clients would provide
consumers with a mechanism to hold their advisers to a high standard, clarifying the fiduciary
relationship and transparently outlining cost and compensation structures. These protections and
others in the rule are essential to ensuring that retirement advice is in the best interest of those
saving for retirement.

Thank you for this opportunity to comment on the proposed revisions to regulations regarding
retirement investment advice. Should you have any questions on these comments, please contact
Amelia Collins at acollins@nelr.org or (202) 776-1578.

Sincerely,

rH
(. Rodriquez

Vice President,
Office of Research, Advocacy, and Legislation


“4 John Manganaro, “ICI Measures Retirement Assets at $24.7 Trillion,” PLANSPONSOR,
March 25, 2015, www.plansponsor.com/ICI-Measures-Retirement-Assets-at-Nearly-25-Trillion
(accessed June 2015).

*5 Council of Economic Advisers, The Effects of Conflicted Investment Advice on Retirement
Savings. The White House. Washington, DC, 2015, 3,

www.whitehouse. gov/sites/default/files/docs/cea_coi_report_final.pdf (accessed May 2015).

'6 Michael Brien and Constantijn Panis, Financial Asset, 31.

"” Ihid., 32.

'8 Mark Schoeff Jr., (DOL Secretary Perez Touts Wealthfront as Paragon of Low-Cost,
Fiduciary Advice,” Investment News, June 19, 2015,

www. investmentnews.com/article/20150619/FREE/150619892/dol-secretary-perez-touts-
wealthfront-as-paragon-of-low-cost (accessed May 2015).

9 Secretary Thomas Perez for the Department of Labor, Statement of Thomas E. Perez,
Secretary of Labor, Before the Health, Employment, Labor and Pensions Subcommittee,
Committee on Education and the Workforce, U.S. House of Representatives, 114th Cong., 1st
sess., 2015, www.dol.gov/ebsa/newsroom/ty061715.html (accessed July 2015).

2° Matt DiGennaro, “An Inside Look at DOL Chief Thomas Perez Making the Case for the
Fiduciary Rule,” Investment News, May 14, 2015,

www. investmentnews.com/article/201505 14/BLOG09/1505 1994 1/an-inside-look-at-dol-chief-
thomas-perez-making-the-case-for-the (accessed June 2015).

21 James Comtois and Rick Baert, “For Vanguard, These Are the Best of Times,” Pensions and
Investments, January 26, 2015, www.pionline.com/article/20150126/PRINT/301269982/for-
vanguard-these-are-the-best-of-times (accessed July 2015).


Headquarters

Raul Yzaquirre Building

1126 16th Street NW, Suite 600
Washington, DC 20036-4845,

NATIONAL COUNCIL OF LA RAZA

TeL 202.785.1670
FAX 202.776.1792
July 20, 2015 www.nclrorg

SUBMITTED BY ELECTRONIC DOCKET

U.S. Department of Labor

Employee Benefits Security Administration
Office of Regulations and Interpretations
200 Constitution Avenue, NW

Room N-5655

Washington, DC 20210

Re: Comments on RIN 1210-AB32: Definition of the Term “Fiduciary”; Conflict of Interest
Rule — Retirement Investment Advice

To Whom It May Concern:

The National Council of La Raza (NCLR)—the largest national Hispanic’ civil rights and
advocacy organization in the United States—submits to the Employee Benefits Security
Administration (EBSA) the following comments in support of the proposed regulatory changes
to the definition of the term “fiduciary” for employee benefit plans under the Employee
Retirement Income Security Act of 1974 (ERISA).

NCLR has a strong history of advancing consumer protections and retirement security through
policy and practice. We have supported public policies to protect Latino and low-income
consumers from harmful financial products, including mortgages with usury terms and short-
term loans with exorbitant interest rates. One in four NCLR Affiliates—community-based
organizations that serve millions of Hispanic Americans throughout the country—provides
financial coaching and mortgage counseling. NCLR is also a leading voice for strengthening
retirement savings among Latinos. Latinos are projected to account for a majority of the growth
in the American workforce between 2010 and 2050; therefore, avoiding a national retirement
crisis hinges on Latinos’ ability to save for retirement. Protecting consumers who are making
retirement investment decisions is vital to ensuring that those who have spent their lifetimes
working to support their families have adequate savings.

The proposed rule would strengthen the financial security of Hispanics, who are already
disadvantaged in the retirement space. Structural factors inhibit Latinos from saving enough for
retirement, making it all the more imperative that the advice they receive helps them improve
savings and bolster account balances. Further, as Latinos tend to have lower balances in their
retirement accounts, higher fees represent a higher proportion of their retirement savings
absorbed by advisers and financial institutions. This makes Latinos even more vulnerable to

* The terms “Hispanic” and “Latino” are used interchangeably by the U.S. Census Bureau and throughout this
document to refer to persons of Mexican, Puerto Rican, Cuban, Central and South American, Dominican, Spanish,
and other Hispanic descent; they may be of any race.

Regional Offices: Chicago, Illinois + Los Angeles, California
Miami,Florida + New York,New York + Phoenix,Arizona + San Antonio, Texas


financial instability. Instituting quality standards for advice provided for a fee is especially
important to Latino and other low-income consumers to ensure that the advice they receive is
truly in their best interest.

Retirement Savings Are Already in Jeopardy

Too many Americans have difficulty saving for retirement. The retirement savings deficit is
exacerbated for communities of color, with 62% of Black and 69% of Hispanic households
lacking any assets in a retirement account.” For those who do save, their account balances are
disproportionately low: three in four Black households and four in five Latino households aged
25-64 have less than $10,000 in retirement savings, compared to one in two White households.’

The difficulty in saving for retirement is the result of a variety of factors, including low access to
employer-sponsored retirement plans and lower rates of participation in those plans. Workers of
color have less access to retirement savings vehicles compared to Whites: 38% of Latino
employees, 54% of Black employees, and 54% of Asian employees aged 25-64 work for an
employer that sponsors a retirement plan, compared to 62% of White employees.‘ Of those
workers who have access to an employer-sponsored plan, not all participate, and the 29.7%
Latino participation rate falls well below the 53.8% rate for Whites.

Further, low wages make investing for retirement especially challenging as costs for housing,
health care, and education rise—even as wages stagnate. According to a 2014 analysis, among
lower-income individuals (below 300% of the federal poverty level), 22% reported that they
participated in a pension plan at their current job between 1992 and 2010, compared to 59% of
higher-income individuals (over 300% of the federal poverty level).® In 2011, 43.3% of
employed Latinos earned poverty-level wages, compared to 23.4% of the White labor force.’

Consumers Rely on Financial Advice to Navigate Complex Options

Consumers capable of saving for retirement face an environment of complex investment options.
Many Americans are unable to chart the course alone and rely on professional advisers to
provide guidance. Overall, a recent survey found that 58% of households with traditional IRAs
relied primarily on a professional financial adviser when crafting a retirement strategy.*
Hispanics also rely on professionals for financial advice, with one survey finding that 6% seek
advice from brokers and 17% seek advice from financial planners.” While this is relatively small
compared to the 26.8% of non-Hispanic Americans who use financial planners, 17% is still a
significant share, and any contact with an adviser is important to an individual’s financial
security.

One of the most common decisions in which advisers play a role occurs when an investor
changes jobs. Investors must choose whether to cash out their existing defined-contribution
retirement account or roll it over into an IRA. Given that Latino workers are more mobile
relative to their peers, they face this financial decision more frequently. Rollovers are the
primary source of funding for IRAs,'° and one survey found that over a five-year period 40.2%
of traditional IRA investors made a rollover transaction.'' However, Latino workers tend to cash
out their 401(k) balances at higher rates than other Americans. A study revealed that 57% of
Hispanics who left an employer in 2010 cashed out their retirement plan compared to 39% of
White workers.’? The decision to cash out a savings plan is often not in the best interest of the


consumer. Ensuring sound investment advice at this point in financial decision-making is critical
to prevent the loss of savings.’

Protecting Consumers from Conflicted Advice Is Essential for Financial Stability

ERISA was enacted in 1974, before the creation of 401(k) plans and investment rollovers, to
protect workers and their retirement investments. As the retirement savings market has evolved,
the regulations protecting savers must evolve as well. In the current environment, 80% of
financial advisers do not meet the criteria threshold to be considered a “fiduciary,”"* allowing
them to receive compensation through fees and commission based on the products their client
selects after receiving advice. This breeds conflicts of interest where the best advice for the
investor’s retirement savings might not maximize profit for the adviser. The proposed
regulations would help prevent the negative consequences of conflicted advice by ensuring that
those acting as a fiduciary make recommendations that are in the best interest of the investor.

Mitigating these conflicts of interest would result in greater financial security for consumers and
the economy at large. IRAs and 401(k) plans together hold the greatest portion of retirement
assets, estimated at almost $12 trillion,'* demonstrating the potential economic impact of
conflicted advice on investors. A report by the White House Council of Economic Advisers
found that conflicted advice regarding IRA accounts alone results in billions in lost savings.
Specifically, the report found that conflicted advice leads to lower investment returns of about
one percentage point per year, translating to $17 billion in lost returns annually.'° In 2014, more
than 34 million households owned IRAs,'* with over 21% of those households having an annual
income under $50,000.'” Lower returns as a result of conflicted advice translate to less money
upon retirement for a population already struggling to save enough.

Contrary to the assertion by some stakeholders in the financial services industry, the revised
definition of fiduciary will not unduly restrict financial advisers from serving low- to middle-
income savers. Numerous companies already serve this population as fiduciaries with a low-fee
model, including Wealthfront, Vanguard, and Seabridge Wealth Management.'*!*° These firms
offer low-fee services and have emerged as leaders in the industry: Vanguard is the second-
largest exchange-traded fund (ETF) provider, with over $430 billion in ETF assets, composing
roughly 22% of market share.” NCLR considers it a missed opportunity that mainstream plan
sponsors tend not to target lower-income consumers, and we support the efforts of companies
that are venturing into this space with innovative products. When businesses are willing, they can
successfully adapt their products and policies to serve low-balance accounts and savers with
lower income streams.

' Age is likely a major factor in Latinos” higher rate of cashing out. Analysis by Fidelity found that younger workers
are more likely to cash out their 401(k) retirement plans entirely when switching employers, with 43% of those aged
20-29 doing so. Fidelity Viewpoints, “Beware of Cashing Out,” March 15, 2015,

www. fidelity.com/viewpoints/retirement/cashing-out (accessed June 2015). As the Hispanic population’s median
age is 10 years less than that of the general U.S. population (27 vs. 37), ill-advised decisions to withdraw retirement
savings could have a greater impact on young Latino workers. Seth Motel and Eileen Patten, The 10 Largest
Hispanic Origin Groups: Characteristics, Rankings, Top Countries (Washington, DC: Pew Research Center),
www.pewhispanic.org/2012/06/27/i-demographics-3 (accessed June 2015).