Submitted via: e-ORI@dol.gov

August 21, 2015

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

Re: Conflict of Interest Rule – RIN 1210-ZA25

I write in support of the DOL’s proposed Conflict of Interest Rule. It’s time for a 

healthy update!

A lot has changed in the 40 years since the current rules were written. Individuals 

are now responsible for their own retirement security and most are not prepared to 

take on that responsibility without professional guidance.

The investment options and strategies have sky-rocketed since the current law was 

enacted. We now have retirement plans/accounts and investment strategies and 

options that weren’t available a few years or decades ago. The financial services 

industry responded and helped give birth to the personal finance boom and the 

development of the financial planning profession – out of a need to more 

holistically advise to middle-Americans. Personal finance journalism, discount 

brokerage firms, no-load mutual funds, ETF/ETNs, fiduciary investment advice 

and planning advisory firms and organizations focusing on the middle-market, (e.g. 

Financial Engines, IRA Rebal, Betterment, Wealthfront, XY Planning Network, 

and the Garrett Planning Network), have come into the marketplace to fill this need 

and the options are going rapidly. 
However, due to the current regulations, most Americans are receiving advice, 

which is considered “incidental” to a sales transaction, and therefore not subject to 

the fiduciary standard of care.

Unfortunately most Americans are unaware of the inherent conflicts of interest 

built into these “advisory” relationships. The proposed rule will close major loopholes in the definition of advice and what duties financial advisors owe their 

clients. 

This is what the public wants, needs and expects when they seek out a financial 

professional. In a survey conducted by the Financial Planning Coalition, 

Consumer Federation of America and NASAA, 97% of investors agree that “when 

you receive investment advice from a financial professional, the person providing 

the advice should put your interests ahead of theirs”.

Segments of our industry have stated that if this rule is enacted middle-Americans 

will be shut-off from receiving advice, and/or that is will cause middle-Americans 

to pay substantially more for advice from a fiduciary. However, the 2015 fi360 

Fiduciary Standard Survey once again flatly refutes industry myths that imply it 

costs more to work with an adviser who puts the investor first, or that holders of 

smaller accounts would be shut out of the market for fiduciary advice. The survey 

went on to confirm that nearly 91% of advisors surveyed said that it does not cost 

more to work with a fiduciary advisor than a broker.

Americans pay a heavy price – amounting to ten to hundreds of thousands of 

dollars in lost retirement income – as a consequence of the status quo, which 

permits so called “advisors” to profit unfairly at their client’s expense. Cerulli 

Associates released a survey a few years ago which concluded that approximately 

one quarter of those surveyed didn’t know they paid for advice and another quarter 

didn’t have any idea of how much they paid. How can the fact that about half of 

the investors surveyed didn’t know how much they paid for advice not be a 

conflict of interest? How can a person make an educated decision if all of the 

material facts are not revealed and understood?

The advice industry has changed radically over the last few decades, much more so 

over the last few years. I’ve been in the industry for 28 years, and I’ve witnessed 

hundreds of instances where retirement savers made poor decisions on their own, 
but what is most egregious are those instances where a financial professional was 

involved. Sales professional would be a much more appropriate term. 

I’ve worked on a series of lawsuits over the last ten years as an expert witness 

and/or consultant, in which middle-income pensioners became eligible for early 

retirement from a major publically traded company. These retirement savers had a 

solid company pension and most also had healthy 401(k) plan balances. But, they 

were only in their late 40s to early 50s. They were eligible to retirement, however 

nearly all of them could not afford to quit working and live off their nest-egg they 

had accumulated by that age. 

Faced with a big decision, limited time, and likely a lot of questions, dozens of 

employees sought of the advice of a couple registered representatives. The 

claimants testified that the advisors held themselves out as experts in the 

employer’s retirement plans and ensured them that they were “set for life”. Many 

financial professionals can’t get paid, or won’t be paid as much, if they can’t get 

their hands on these retirement assets. 

Most of these claimants should have turned down the early retirement offer, or at 

least they should have been informed that their retirement nest-egg would not 

support them for life, if they did elect to stop working. These were hard-working 

people who saved well and they should be enjoying a very comfortable financial 

position. Instead, most are nearly broke and have long since returned to the 

workforce, in nearly every case, at a much reduced income.

There was no law requiring the “advisor” to consider the pros and cons of taking a 

lump sum distribution from pension plan, before encouraging, supporting or 

downright advising these people to take the lump sum distribution. The advisors 

completed all the necessary paperwork to transfer each claimant’s qualified plan 

accounts to IRAs where they were subsequently placed in variable annuities. 

FINRA has issued guidance to members discussing the appropriate use of variable 

annuities, and these rollovers didn’t qualify in my opinion. The rollovers resulted 

in at least an extra 2.4% average mortality and expense fee, which is in addition to 

the subaccount management fees. The rollovers were inappropriate, and the 

variable annuity sale was inappropriate. 

Due to the fact that all of these individuals were under 59 1⁄2 and no longer 

receiving a paycheck, they needed income from their nest-eggs immediately. The 
variable annuities imposed a 7% surrender penalty on each monthly distribution. 

These penalties decreased by one percent a year. The advisors calculated the 

claimants’ withdrawals in accordance with the Section 72(t), which resulted in the 

most modest initial withdrawal rate of just over 8% per year, in addition to the 

2.4% M&E and the underlying subaccount management fees. Never in the history 

of financial markets has a withdrawal rate in excess of 10% been sustainable for 

any length of time! These retirement savers had a right to know this fact. 

Even if the claimants chose to retire because they believed they had enough 

money, a fiduciary advisor would be obligated to inform the individual that they 

were not “set for life”...unless they didn’t plan on living long. Opponents may say 

that this level of analysis is inappropriate for their salesforce...I mean 

“advisors”...or not possible with middle-Americans. However, this is not a 

complex concept to a qualified financial advisor. 

I’ve shared these stories with hundreds of financial advisors, and regardless of their 

distribution or compensation model, they are appalled. They’ve also shared 

instances of abuse they’ve witnessed, and this abuse ranges from mild to very 

extreme.

The most common conflicts I’ve heard involve the blatant misuse and extremely 

common overuse of variable annuities. These are complex investment and 

insurance products, which compensate the sales organization and salesperson (aka 

advisor) significantly more than any other commonly used investment vehicle. 

An advisor in Oregon shared with me that a client she began working with had had 

their defined benefit plan converted into a cash balance plan in order to take a lump 

sum distribution place it in a variable annuity, which was then immediately 

annuitized by their former advisor. Why wouldn’t the defined benefit plan be the 

better option? 

Another advisor in Tennessee shared the story of a recent widow who walked into 

her local bank where she had a long-term relationship and they sold her a $225,000 

variable annuity when she only had $250,000 in total investment assets. 

Another advisor in Maryland shared a story of a retiree who had nearly $1,000,000

to invest. The representative sold this person three separate annuity contracts. 

Presuming the annuity was in the best interest of the client, this sale failed to meet 
the best interest standards because they missed out on the breakpoints available

that would have saved them almost $10,000 in excess fees.

Another advisor in Oregon shared a story regarding a broker who had the customer 

“rollover” (aka exchange) existing IRA annuity contracts from an old policy to a 

new policy. There was an error on the switch and the client ended up with an IRA 

distribution. End result – client paid taxes on a $68,000+ IRA withdrawal and now 

has an annuity with a new surrender schedule.

Private Placements are another area of complexity and therefore a huge potential 

conflict of interest. Direct investments are typically very concentrated, often 

leveraged, illiquid, and a purchaser is really relying on what the salesperson or 

advisor has to say because these are so complex that no one is going to read and 

understand every work of the prospectus – yet that is all they have to rely on in 

reality under the current rules. An investor with a complaint against an advisor 

who’s not regulated as a fiduciary cannot rely upon the “advisor’s” explanation, 

answers to questions or anything they say, only the offering document and account 

application apply are to be relied upon. It doesn’t work that way in the real world.

Retirees in California needed income and shared that with their advisor. The 

advisor sells them an illiquid, income producing real estate private placement. The 

monthly statements show that the value is remaining stable at $10 per unit, month 

after month. The retirees had no reason to be concerned, until the income 

payments changed drastically. Shortly thereafter they receive a solicitation from a 

third-party offering to buy their interests for a fraction of the price listed on the 

account statement. The solicitation letter also revealed significant problems with 

the investment and the company behind it. This was the last $100,000 this couple 

had to their name.

An advisor in the Chicago area has run into a number of cases where “advisors” 

recommended that retirement savers mortgage their homes, take lump sum 

distributions, and even do a reverse mortgage to raise money to invest with them. 

One of these individuals requested more yield than C.D.s but wanted safety. They 

were sold a residential real estate lending scheme for Accredited Investors. Loans 

were all concentrated in high priced real estate markets and when real estate 

plummeted the fund went belly up and the investors lost $250,000.

An advisor in Ohio shared a story of clients whose broker recommended that they 

take a distribution from their IRA account (supposed to be an indirect transfer) and 
use these funds as a 10% down payment and borrow money at a very high rate to 

buy 3 stocks.

Advisor in California shared the story of a retiring couple whose broker convinced 

them to take a lump sum distribution from a defined benefit plan and invested

100% of the proceeds in tech stocks. The couple lost every penny in the Internet 

crash of 2000.

Advisor in Virginia shared the story of a husband who was already retired, 

financial secure but in poor health. Wife retired from federal government and was 

advised to rollover her Thrift Savings Plan to an annuity contract with a joint and 

survivor benefit. Husband died and her income stream from the annuity dropped 

in half. This was a poor execution of duty of inquiry or to know your client.

When giving investment advice it’s critical to know from where the money to 

purchase an investment comes and if they are more appropriate uses for these 

funds. Fiduciary duty fills this void.

I could go on and on with the stories I’ve heard over the years from fellow 

financial advisors and planners. Many in the opposition to this rule have asked 

why retirement savers and investors haven’t spoken up much more frequently if 

these abuses are so commonplace. I can only share what I’ve been told by 

claimants and other victims of financial abuse. They feel stupid or embarrassed, 

and often say “I should have known better”. I argue that they sought out the advice 

of a professional and they should have every right to rely up and trust that advice. 

Not one of them was told “I’m a salesperson and if you don’t rollover your 

retirement plan assets I can’t get paid, and by the way, I’m going to recommend 

products that are in my best interest, which most likely won’t be the same as 

yours”.

A witness in one of the lawsuits mentioned lost over $500,000, but refused to file 

suit. When asked why she refused she replied that she didn’t want to relive that 

painful event. It sounded to me like what a rape victim must confront if they report 

sexual abuse to the police. The victim has to relive the event over and over again, 

with police, medical professionals, lawyers, then face the accused in court, 

presuming the perpetrator is caught, and the outcome is unknown. 
So the bottom line is – If you’re giving advice regarding people’s financial lives, 

putting their best interest first should be your only interest.

Sincerely,

Sheryl Garrett