Submitted Electronically

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule, Room N-5655

U.S. Department of Labor, 200 Constitution Avenue NW

Washington, DC 20210.

Re: Comments on Department of Labor Conflict of Interest Rule

Testimony (RIN 1210-AB32).

Dear Sir or Madam:

Over the past decade I have worked as a Professor of Financial Planning at The 

American College of Financial Services1. I have taught financial service 

professionals about financial planning, investment strategies, and retirement 

income techniques. In my role I have had the privilege to work with students 

from diverse backgrounds. While their business and compensation models often 

vary, they share a common goal; helping families achieve financial security. 

I am writing from a unique perspective as a Professor of Financial Planning at 

The American College and Director of The Northwestern Mutual Granum Center 

for Financial Security. As a professor, I have written content for educational 

courses leading to a number of recognized professional certifications in the 

financial service industry (ChFC®, RICP®, CLU, AICPA/PFS and CFP® 

certification). My classroom experience coupled with directing The Granum

Center (a research center dedicated to strengthening consumer financial security 

by strengthening the financial service profession)

2 has compelled me to share my 

perspectives with you. 

I have extensively reviewed testimony presented to the Department of Labor 

between August 10th to the 13th regarding the proposed conflict of interest rule 

and believe harm may come to consumers and financial advisers alike if the rule 

is implemented in its current form. Please consider my comments and questions 

as you move forward in the rulemaking process. 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 http://www.theamericancollege.edu

2 http://granum.theamericancollege.edu
The Possibility of Disenfranchising Millions of American Investors is 

Real if Certain Precautions are not Taken

Testimony from rule advocates and adversaries acknowledged that moving from 

a current rules-based suitability relationship standard (between financial 

professionals and IRA owners) to a principal/agency fiduciary relationship will 

increase costs. On a per-client basis every dollar of new costs incurred by a 

financial service professional will serve as a disincentive to fostering lowerrevenue relationships. 

Assume a family is investing $200 per month, or $2,400 annually, and is working 

with a commission-based financial professional to make ongoing contributions to 

an IRA. The investor was charged front-end sales loads (5.3%)3; which passed 

to the advisor as a commission. The professional received $127.20 from this 

relationship over the first year. The family had the benefit of working with a 

trained and potentially certified agent or broker, who understood asset allocation 

and risk tolerance. 

If adviser costs increase by more than $127.70 per client, they would not have 

an incentive to continue working with this family Agents, brokers and financial 

advisers will set their sights on larger investors and leave those investing nominal 

monthly amounts behind. Alternatively, increased costs may be passed on to 

consumers, resulting in reduced affordability of services for the Americans who 

most need financial planning help.

Enforcement costs are one cost component that stands to increase using a 

principal-based regulation model rather than a rules based one. 

Typically, the agreements investment advisers enter into with their customers 

contain pre-dispute arbitration clauses that provide for private arbitration 

through the American Arbitration Association (AAA) and the Judicial Arbitration 

and Mediation Services, Inc. (JAMS), or resolution through litigation in court.

According to the American Bar Association4, the FINRA arbitration process is 

generally cheaper than AAA, JAMS or litigation. The costs associated with AAA 

and JAMS can begin as high as $600 per hour and could cost upwards of 

$100,000. FINRA charges a flat fee per hearing session at a maximum of only 

$475 per day. Financial service professionals will be less likely to work with lower 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 https://www.ici.org/pressroom/news/13_news_trends_expenses

4 http://www.americanbar.org/content/dam/aba/images/dispute_resolution/marchenews.PDF

http://www.americanbar.org/content/dam/aba/publications/dispute_resolution_magazine/Gana_L

ufrano_TheInconsistentDisputeResolutionProcessforInvestmentAdvisers.authcheckdam.pdf
revenue customers as arbitration costs (and in turn liability insurance premiums)

begin to soar. 

FINRA’s suitability rule is relatively straightforward in terms of application and is

derived directly from federal and state securities laws, SEC rules and regulations, 

as well as the FINRA rules and notices to members, which makes rule 

enforcement more cost efficient.

The fiduciary obligation applied in AAA, JAMS and court for investment adviser 

and investor disputes with respect to breach of fiduciary duty claims is less 

straightforward and is derived from a myriad of sources of law, including the 

Investment Advisers Act of 1940, judicial interpretation of the Advisers Act, as 

well as SEC rules and regulations. 

This fiduciary duty is not easily defined, and includes duties of loyalty and care. 

Unlike the FINRA rules-based approach, there is no detailed list of prescribed 

actions to be taken or avoided. As a result, arbitrators in AAA and JAMS are often 

confused as to the contours of the investment adviser’s fiduciary duty or look 

towards the FINRA rules as guidance for breach of fiduciary duty claims 

grounded in suitability, communications with customers or supervision.

Some might argue that small-dollar investors could be better served by “robo 

advice” or by doing their own asset allocation through internet research, but 

current scholarship does not support this view. In fact, the value of working with 

a financial advisor significantly reduces costly behavioral finance errors. Roboadvisers do not address the emotional tendency of consumers to make poor 

decisions about their money, the subjective nature of most input data or use of 

heuristic techniques (HDSM) to uncover financial goals and dreams.

Qualified, Personal Financial Advice Has Quantifiable Benefits 

Academic research consistently supports the value financial planners bring to 

investment management, goal setting and building client wealth.5 Financial 

service professionals provide more than access to products; they also help coach 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5 Blanchett, D. (2015). The Value of Goals-Based Financial Planning. Journal Of Financial 

Planning, 28(6), 42-50.

Albright, R., & McDermott, J. B. (2015). Time Perspective and the Practice of Financial Planning. 

Journal Of Financial Planning, 28(1), 46-52.

Hanna, S. D., & Lindamood, S. (2010). Quantifying the economic benefits of personal financial 

planning. Financial Services Review, 19(2), 111-127. 

Martin Jr., T. K., & Finke, M. (2014). A comparison of retirement strategies and financial planner 

value. Journal of Financial Planning, 27(11), 46-53.
and manage client expectations, risk tolerance and behaviors6

. Financial 

professionals help keep investors calm when markets dip and rational when they 

rise. In 2015 the Dow Jones Industrial Average (DJIA) hit a high of 18,300 and 

to date a low of 15,800, a 13.6% spread. How will disenfranchised IRA owners 

manage risk and volatility?7 Will they sell when markets are at their lowest? Will

disenfranchised customers act rationally, or trade on emotional impulse?8

Financial professionals can provide wisdom and answers when the market is on a 

roller coaster. 

Robo-advisers were often suggested as replacements to traditional advisers 

during testimony, but automated advice does not address client behaviors, risk 

tolerance, longevity risk, or other significant financial planning challenges. An 

algorithm managing asset allocation does not keep a consumer from making an 

impulse purchase or selling when the market is at its worst9. The potential to 

eliminate human advisers for lower- and middle-income families is a risk that 

cannot be ignored. 

Important Questions need to be answered before rules are put in place

The following questions are crucial to both consumers and financial 

professionals. Their answers will dramatically shape the landscape of financial 

services for decades to come. 

1. Is the fiduciary standard a proxy for product fees and expenses? Will 

preference be given to exchange traded funds and passive investment 

vehicles over actively managed funds, and if so, is that the desired 

outcome? 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 6 Suplee, I. Z., & Dzubow, S. R. (2008). Using Multiple-Criteria Decision Analysis to Simplify the 

Financial Planning Process. Journal Of Financial Planning, 21(3), 66-75.

7 Kent Baker, H., & Ricciardi, V. (2015). Understanding Behavioral Aspects of Financial Planning 

and Investing. Journal Of Financial Planning, 28(3), 22-26.

8 Barber, B and Oden, T. (2000). Trading stocks is hazardous for your wealth: The common stock 

investment performance of individual investors. Journal of Finance, 55(2), 773-806

9 Moisand, D. (2014). Why robo-advisers are a problem for the profession. Journal of Financial 

Planning, 27(7), 32-33. 

Advisers + Technology: better than either alone? (2015). Journal of Financial Planning, 28(1), 

22-31. 
2. Does the Department of Labor consider investment and insurance 

products with lower fees superior to those with higher fees? Are other 

factors (performance, experience, financial strength, management) 

considered in meeting a fiduciary standard?

3. What is the relationship between insured retirement income products 

(such as fixed and deferred annuities, mutual funds and money market 

instruments) and underlying financial strength of the offering company? 

Assume a retiree is in good health and requires guaranteed income. Their 

primary source of investable assets is an IRA. If a AAA rated insurer can 

generate an annual guaranteed inflation adjusted income stream of $40 

for every $1,000 invested and a B- rated insurer can generate $60 for 

every $1,000 invested, would both meet a fiduciary standard of care? 

4. Surrender charges provide disincentives for consumers to liquidate an 

investment or insurance product within a short time frame. These 

disincentives can increase performance by allowing an insurer or 

Investment Company to choose less liquid products and increase yields. 

Will products with surrender charges be permitted under the best interest 

contract exemption? Will a preference be given to investment and 

insurance products without surrender charges? 

5. Has a rigorous rules-based standard (similar FINRA rule 2111) been 

evaluated as a mechanism of reducing excessive IRA costs and fees? 

6. Where will arbitration occur between advisers and consumers? Who will 

bear the cost of this type of arbitration? Will arbitrating an 

agency/principal standard be cost prohibitive for financial service firms

and their advisors who work mostly with middle and low-income 

consumers, resulting in potential lack of affordability of advice? 

7. Raising the cost of doing business may disenfranchise some IRA owners 

from working with financial service professionals. Are robo-advisors --

automated tools that do not provide behavioral finance counseling or 

holistic advice -- better positioned to help low- and middle-income 

Americans than financial service professionals currently operating under a

suitability standard of care? 

8. How will lower- and middle-income Americans learn to use automated 

tools if they are not working with financial service professionals? 
These questions illuminate how discerning a fiduciary act isn’t as simple as 

comparing prices. The implementation of a fiduciary standard will hurt low and 

middle-income investors and result in unknown, expensive and dramatic changes 

to financial service providers, creating the potential for a significant disservice for 

American consumers.

Thank you for your consideration. I am happy to discuss this letter in more depth 

at any time. 

Sincerely, 

Craig Lemoine, PhD, CFP® 

Director: American College Northwestern Mutual Granum Center for Financial 

Security

Associate Professor of Financial Planning

Jarrett L. Davis Professor of Financial Planning Technology 

Craig.lemoine@theamericancollege.edu

Cc: Linda S. Need, FSA, CFP, CFA, CAP, Chair of the Board of Trustees, The 

American College

Robert R. Johnson, PhD, CFA, CAIA, President & CEO, The American 

College