July 21, 2015

Secretary Thomas Perez

c/o 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

Dear Secretary Perez:

Consumers Union, the advocacy division of Consumer Reports,1

 is pleased to submit 

comments on the Department of Labor’s (DOL’s) proposed conflict of interest rule. 

Where appropriate we have also included comments from consumers who have written to 

us about problems they have experienced when seeking investment advice. The proposed 

rule would significantly strengthen protections for consumers who are saving for 

retirement and those who want to retire with dignity knowing that their retirement income 

is secure. It would require financial advisers and their firms to provide retirement 

investment advice that is in the best interests of their clients rather than for their own 

financial gains. We urge the DOL to finalize and implement this rule as soon as possible.

Background

When consumers decide to leave a job or retire, they must decide what to do with the 

savings they have accumulated in their retirement plans. It is often at this point that 

many consumers realize they do not have the necessary financial expertise or tools to 

make important life changing decisions about how and where to invest their retirement 

savings. Many consumers turn to financial professionals for help in navigating the 

complex and often confusing world of financial investments. While many of these 

professionals commit to serving their clients’ best interests, others may not. Because of 

gaps in current law governing retirement accounts, financial advisers are not required to 

make recommendations that are in their client’s best interests. Advisers are allowed to 

 1 Consumers Union is the public policy and advocacy division of Consumer Reports. Consumers Union 

works for a fair, just, and safe marketplace for all consumers and to empower consumers to protect 

themselves, focusing on the areas of telecommunications, health care, food and product safety, energy, 

and financial services, among others. Consumer Reports is the world’s largest independent producttesting organization. Using its more than 50 labs, auto test center, and survey research center, the 

nonprofit organization rates thousands of products and services annually. Founded in 1936, Consumer 

Reports has over 8 million subscribers to its magazine, website, and other publications. 
give imprudent and disloyal advice, steer plans and Individual Retirement Account (IRA) 

owners to investments based on their own, rather than their customers’ financial interests, 

and to ignore conflicts of interest in ways that would be prohibited if the same people 

were held to the standard of fiduciaries. 

The cost to retirement saving of conflicted advice is staggering. Based on the best data 

available, the DOL estimates that investors will lose somewhere between $210 billion 

and $430 billion over 10 years and between $500 billion and $1 trillion over 20 years as a 

result of conflicted advice with respect to mutual fund investments in IRAs. In addition, 

a retirement saver who moves money out of a 401(k) plan into an IRA based on 

conflicted advice can expect to lose 12 to 24 percent of the value of his or her savings 

over 30 years.

The proposed investor protection rule would update the fiduciary standard under our 

pension rules. It covers advice to traditional and defined contribution pension plans, 

such as 401(k) plans, as well as advice to plan participants and to those who save through 

IRAs. It clarifies and expands who, as a result of giving investment advice, is a fiduciary 

of an employee benefit plan under the Employee Retirement Income Security Act 

(ERISA). It would require financial advisers to be held to a fiduciary standard of putting 

their clients’ interests first and foremost, free of conflict and subject to liability for harm 

resulting from conflicted advice they may provide. Advisers would no longer be allowed 

to profit from the advice they give, while their clients lose millions from unnecessary fees 

and low returns. 

We support many of the provisions in the rule, most notably: 

• Updating current retirement rules to reflect the modern financial marketplace 

where financially unsophisticated consumers are required to manage their own 

retirement savings;

• Protecting consumers from conflicted advice when they are steered into 

inappropriate investments that benefit the adviser but not the consumer;

• Requiring best interest contracts that would hold advisers and their firms liable for 

any losses that result from a breach of contract; 

• Requiring advisers to provide important point-of-sale and on-going disclosures 

showing the true costs consumers pay for investment advice upfront and over 

time; and

• However, while the rule would give consumers much needed protections when 

seeking retirement advice, it is not perfect. We strongly oppose the inclusion of 

pre-dispute mandatory arbitration clauses in the consumer contracts. We urge 
DOL to strengthen the protections against use of these clauses and against forced 

waivers of class action rights.

I. Current rules need to be updated to reflect the modern financial marketplace 

where unsophisticated consumers are required to manage their own 

retirement accounts.

When the fiduciary rule under ERISA was first promulgated in 1975, the retirement 

landscape looked very different from today’s ever evolving financial marketplace. At that 

time, most consumers invested their retirement savings in defined-benefit plans or 

traditional pension plans. IRAs had just been created, and 401(k)’s didn’t even exist. 

Consumers didn’t need personalized investment advice, because their retirement savings 

were already being professionally managed for them through their employers. Regulators 

didn’t take into account how the rule would affect financially unsophisticated individual 

consumers responsible for making their own decisions about how to invest their 

retirement savings. 

Gaps in the rule do not require advisers to act in the best interest of the client when onetime or periodic advice is given. The current rule only applies when there’s a “mutual 

agreement” that the advice will be the “primary basis” for the investment decision. This 

requirement can easily be circumvented with fine print and legalese. In addition, the 

current rule does not apply to recommendations to roll over from a defined benefits plan 

into a self-directed IRA, one of the most important financial decisions many people will 

ever make. 

We support the DOL’s updates to the ERISA rule. Under the proposed rule, anyone 

(including brokers, registered investment advisers, insurance agents, or other type of 

adviser) who provides individualized investment advice to retirement savers whether they 

are saving through a traditional or defined contribution plan such as an IRA or 401(k),

would be a fiduciary and required to provide best interest advice. Being a fiduciary 

creates a legal relationship of trust and requires the adviser to provide impartial advice 

and, with carefully specified exceptions, not accept any payments for that advice that 

would create a conflict of interest. The rule allows for conflicted compensation but

requires that advisers who receive conflicted compensation to enter into a contract with 

their customers in which they acknowledge their fiduciary status and commit to giving 

advice that is in the customer’s best interest despite the conflicted compensation.

The rule would specifically eliminate the outdated “regular basis” loophole that allows

advisers to provide one-time or episodic advice without being subject to a fiduciary 

standard. It also would close the “mutual agreement” and “primary basis” loopholes that 

allow advisers and their firms to evade the fiduciary standard. These updates are long 

overdue and will go a long way in securing the nest eggs consumers have spent a lifetime building up.
Finally, the rule appropriately carves out education from its definition of retirement 

advice. This would allow firms and financial advisers to provide general educational 

information and materials to consumers without being subject to a fiduciary duty -- as 

long as that information does not contain any specific investment recommendations that 

consumers can reasonably be expected to act upon. 

II. The rule would protect consumers from conflicted advice where they are steered 

into inappropriate investments that benefit the adviser but not the consumer.

Jeanne, Dudley, MA

“I invested a large part of a $70,000 inheritance with a private financial advisor 

recommended by a family friend. I know absolutely nothing about investments. 

He constantly changed the investment each time paying himself a fee, I too late 

realized. When I finally learned that he had moved from the Massachusetts area 

to Florida, he had earned more money than I had.”

Being personally responsible for one’s own retirement investments comes with a lot of 

challenges. Consumers are faced with a multitude of complex and confusing decisions. 

They must decide how much to save, what types of retirement accounts they should use, 

and which products are best for them depending on their unique features, costs, benefits, 

and risks. Consumers often do not have the information, expertise or tools to make

informed investment decisions about what is best for them. Many are forced to rely on 

the advice of professional advisers.

Because some advisers do not put their clients’ interests first, they can freely steer those 

clients into excessively high- cost, and low-performing investments that drain their hardearned savings while at the same time, increasing the advisers’ profits. The compensation 

advisers receive for giving such advice, works against consumers. If an adviser is paid 

based on the products the adviser sells, and selling one product makes the adviser an 8 

percent commission instead of another product that makes the adviser a 3 percent 

commission, the adviser may rationalize recommending the product with the 8 percent 

commission. And, if the adviser’s firm is pressuring the adviser to hit specific sales 

quotas for selling the product with the 8 percent commission, and bases the adviser’s 

compensation and bonus on hitting certain sales goals for that product, it creates conflicts

that even the most ethical adviser would have difficulty avoiding. Many consumers may 

not know that their retirement savings are being slowly and deliberately drained because 

of these conflicts. The conflicts can be well hidden and are likely to result in excessive 

fees and low performing investments. Without adequate safeguards, retirement savers 

will remain at risk of being harmed by conflicted advice that is a direct result of skewed 

incentives and, sometimes, just plain greed.
III.Consumer Contracts – If the firm or adviser breaches any of the terms of the 

Best Interest Contract Exemption (BICE), the retiree can hold them liable 

for any losses that resulted from the breach.

Arthur, Charlestown, WV

“The issue I have is that there is no recourse, no accountability for bad 

advice/recommendations in this field. ...They [financial advisers] should have to 

forfeit their fees if they lose for their clients.”

Perhaps the most important feature of the proposed rule is the Best Interest Contract 

Exemption (BICE), which would provide important protections for consumers from 

conflicted advice in a manner that would allow advisers and their firms to collect 

commissions and other sales-related compensation. The broker-dealer business model 

would be preserved. To qualify for the BICE, advisers and firms would be required to 

contractually agree that any recommendations that they provide are in their client’s best 

interest, without regard to their own financial or other interests. This would mean 

providing advice that a prudent and impartial expert would provide under the same 

circumstances. In addition, the fees that firms and advisers charge must be reasonable in 

light of the services that they provide. 

We also support the proposed rule’s requirement that firms adopt policies that are 

reasonably designed to minimize the harmful impact of any conflicts of interest. Firms 

would remain free to recommend proprietary or in-house products but could no longer set 

quotas for the sale of such products and base bonuses on their success in meeting those 

quotas. Similarly, while firms would be free to pay their advisers more to sell certain 

investments, those differential payments would have to be based on neutral and objective 

factors, such as the amount of time necessary to research and implement the investment 

strategy.

If firms or advisers breach any of the contractual provisions, the consumers would be 

able to hold them liable for any losses that resulted from the breach. We believe that 

having a mechanism to hold firms and advisers accountable will induce advisers and 

firms to compete better on cost and quality rather than focus on how much they stand to 

profit from their advice. 

IV. Advisers would be required to make important point-of-sale and on-going 

disclosures showing the costs that retirement investors are paying

Joe, Memphis, TN

“Retirement money should be saved not gambled. And the hidden fees should not 

be hidden only for you to find out later that you owe half or more to the adviser.”
We also support the point-of-sale and on-going disclosures required by the rule. These 

disclosures will give consumers vital information about the long-term costs they are 

likely to pay for the advice received. This will give them the information needed to more 

effectively compare costs and services. Conflicts of interests like hidden fees that are 

often buried in the fine print, or kickbacks for selling certain investments, must be clearly 

and prominently disclosed -- and in some instances may be strictly forbidden. 

Consumers will also be able to see and understand the impact that costs can have on their 

retirement portfolios over the long-term. If firms or advisers breach any of these

contractual provisions, retirement savers can hold them liable for any losses that resulted 

from the breach. 

V. We strongly oppose the inclusion of pre-dispute mandatory arbitration clauses 

in the consumer contracts.

Under the proposed rule, contracts between investment advisers and consumers can 

require that individual disputes be handled through arbitration. We oppose this practice. 

A fundamental protection for consumers is the right to hold wrongdoers accountable 

under the law. This right is undermined when consumers are forced to give up their right 

to take their complaint to court and instead are required to go through forced arbitration. 

The arbitration process is often set up by the financial firm. It lacks many of the 

fundamental protections of an established legal process, and can be unfairly skewed 

against consumers in favor of the financial firm. Pre-dispute mandatory arbitration 

clauses should not be allowed in these consumer contracts. Consumers should have the 

right to bring their complaints to court.

Forced arbitration clauses also often restrict consumers from joining together with others 

who have been mistreated in the same way, by the same company, to bring a class action 

against the company. Without the ability to bring a class action, the cost of pursuing an 

individual claim is too high and often results in the wrongdoer being let off the hook. 

The proposed rule would require that contracts between retirement investment advisers 

and consumers preserve the right of consumers, who have been harmed by a breach of the 

fiduciary standard, to bring a class action in court. We fully agree that in situations 

where the adviser is committing the same kind of breach of duty against multiple 

consumers, allowing those consumers to join together in a class action is important. It 

makes the legal system a more effective means for consumers to recover damages and a 

more effective deterrent against an adviser’s carelessness and misconduct. We strongly 

support this goal and the inclusion of this requirement in the rule. However, as the DOL 

notes, this requirement is modeled after FINRA rules. The FINRA requirement has been 

challenged in court, and the Second Circuit ruled just last month that the FINRA 

requirement does not prevent forced class action waivers from being inserted in contracts 

and being enforced. Cohen v. UBS Financial Services, Inc., Docket No. 14–781–cv. (2d 

Cir. June 30, 2015).
Moreover, there is substantial evidence that consumers may “win” FINRA arbitrations 

but receive significantly less than they deserve. For example, a study analyzing 14,000 

FINRA arbitration awards over a ten-year period found that investors with significant 

claims suing major brokerage firms could expect to recover only 12 percent of the 

amount claimed.2 There is also evidence that brokers are easily able to expunge their 

records of consumer complaints, as if they never occurred.3 In addition, arbitrators are 

not required to explain their decisions and their decisions are virtually impossible to 

appeal. The result is an opaque, unfair process that benefits the brokerage industry, not

consumers.

We continue to support legislation to protect consumers' right to bring claims in court 

rather than being forced to rely on binding private arbitration, and their right to bring a 

class action in accordance with long-established procedures. We urge the DOL to look 

for a more effective way to safeguard these rights for consumers in its rule and to avoid 

including any provisions or statement that could be used to reinforce or acquiesce in any 

restriction on these important rights.

Conclusion

We appreciate the DOL’s hard work and thoughtful approach in developing a proposed 

rule that would require financial advisers to put their clients’ interests first rather than 

their own when providing retirement investment advice. The harm that consumers suffer 

as a result of conflicts of interest can profoundly impact their quality of life during 

retirement, including where someone will live, whether they will be able to afford the 

necessities of life, and whether they can remain independent. Once their retirement funds 

are gone, they may not have the time, ability or opportunity to rebuild. They deserve 

more. They have worked a lifetime for more.

We urge the DOL to finalize and implement this rule as soon as possible.

Sincerely,

Pamela Banks

Senior Policy Counsel

Consumers Union

 2 Edward S. O’Neal, Ph.D. and Daniel R. Solin, Mandatory Arbitration of Securities Disputes — by 

Edward S. O’Neal, Ph.D. and Daniel R. Solin1 A Statistical Analysis of How Claimants Fare, Securities 

and Litigation and Consulting Group, June 2007, http://bit.ly/1LtUCgU. 3 Susan Antilla, A Murky Process Yields Cleaner Professional Records for Stockbrokers, NEW YORK TIMES 

DEALBOOK, September 25, 2014, http://nyti.ms/1uqiwyn.