1

COMMENT TO THE DEPARTMENT OF LABOR ON A  

PROPOSED RULE REGARDING FIDUCIARY STATUS UNDER ERISA

Daniel R. Fischel and Todd D. Kendall

April 12, 2011  
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I. INTRODUCTION AND SUMMARY

1. I, Daniel R. Fischel, am President of Compass Lexecon, a consulting firm that specializes

in the application of economics to a variety of legal and regulatory issues.  I am also Professor of Law

and Business at Northwestern University School of Law and Kellogg School of Management, as well as

the Lee and Brena Freeman Professor of Law and Business Emeritus at The University of Chicago Law

School.  I served previously as Dean of The University of Chicago Law School, as Director of the Law and

Economics Program at The University of Chicago Law School, and as Professor of Law and Business at

The University of Chicago Graduate School of Business.

2. In the past, I have served as a consultant or adviser on economic issues to, among

others, the United States Department of Labor, the United States Securities and Exchange Commission,

the United States Department of Justice, the National Association of Securities Dealers, the New York

Stock Exchange, the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile

Exchange, the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, and the Federal

Trade Commission.

3. Much of my research and teaching have addressed the law and economics of financial

markets, including the proper role of pension plan fiduciaries.1

  I have published approximately fifty

articles in leading legal and economics journals and am coauthor, with Judge Frank Easterbrook of the

Seventh Circuit Court of Appeals, of the book The Economic Structure of Corporate Law (Harvard

University Press).  Courts of all levels, including the Supreme Court of the United States, have cited my

articles as authoritative.

4. I am a member of the American Economic Association and the American Finance

Association.  I am also a former member of the Board of Directors of the Center for the Study of the

                                                           

1. See, e.g., Daniel Fischel and John H. Langbein (1988) “ERISA’s Fundamental Contradiction: The Exclusive

Benefit Rule”, U. Chi. L. Rev. 55:1105‐60, and Frank H. Easterbrook and Daniel R. Fischel (1993) “Contract and

Fiduciary Duty”, Journal of Law & Economics 36:425‐46.
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Economy and the State at The University of Chicago, and former Chairman of the American Association

of Law Schools’ Section on Law and Economics.

5. I, Todd D. Kendall, am a Senior Economist at the aforementioned firm, Compass

Lexecon.  Previously, I served on the faculty of the economics department at Clemson University.  I have

published approximately a dozen articles in academic economics journals and collected volumes on the

topic of applied economic theory, and which employ statistical and econometric methods.  I have been

employed at Compass Lexecon since 2008, during which time I have consulted on a wide range of

regulatory, litigation, merger and other business matters involving brokerage services, banks, securities

exchanges, and other industries.  I am a member of the American Economic Association and the

Econometric Society.

6. We understand that the Department of Labor (the “DOL”) is currently considering a rule

(the “Proposed Rule”) that would broaden the circumstances under which a person is considered to be a

“fiduciary” under the Employee Retirement Income Security Act and the Internal Revenue Code.

7. For the purposes of our analysis, we have been asked by counsel for Primerica to

consider the consequences if the Proposed Rule led to fiduciary status where none currently exists for

certain companies and their representatives (“commission‐based brokers”) who provide brokerage and

other services to investors regarding individual retirement accounts (“IRAs”), and who receive certain

types of compensation paid by third parties providing financial products in connection with IRAs.2

  We

have also been asked to assume that, if these commission‐based brokers were deemed to be fiduciaries,

they would significantly limit their receipt of this compensation.

8. We have been asked by counsel for Primerica to (a) identify any significant costs or

benefits of the Proposed Rule other than those presented in the cost‐benefit analysis presented by the

                                                           

2. Throughout this report, we focus on financial services provided for IRA investors, although we understand

that the Proposed Rule may also impact service providers with respect to other investment products, such as

Coverdell education savings accounts.  
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DOL in this matter3

; and (b) evaluate whether the evidence provided by the DOL, or other available

evidence, is sufficient to conclude that the benefits of the Proposed Rule outweigh the costs.

9. Our main conclusions are as follows:

• There are several important costs not quantified in the DOL cost‐benefit analysis that would

likely result from the Proposed Rule, leading to significantly higher costs than estimated by the

DOL.

• The evidence presented by the DOL supporting alleged benefits from the Proposed Rule does

not provide a sufficient basis to conclude that these benefits would be large enough to outweigh

the costs.

• A review of economic theory and available evidence regarding the IRA investment services

industry does not support a conclusion that the Proposed Rule would generate benefits large

enough to outweigh the costs.

We explain the basis on which we came to these conclusions in the following three sections of this

Comment.

10. We understand that Oliver Wyman has also performed a separate analysis of the

Proposed Rule, based on proprietary data from 12 IRA brokerage firms, and came to similar

conclusions.4

II. THERE ARE SEVERAL IMPORTANT COSTS NOT QUANTIFIED IN THE DOL COST‐BENEFIT

ANALYSIS THAT WOULD LIKELY RESULT FROM THE PROPOSED RULE, LEADING TO SIGNIFICANTLY

HIGHER COSTS THAN ESTIMATED BY THE DOL.

11. The DOL cost‐benefit analysis estimates the monetized costs of the Proposed Rule at

between $15.6 million and $16.7 million.5

  This figure is based on an estimate of the legal costs that

financial service providers would incur for a compliance review of their books of business under the

Proposed Rule.  Undoubtedly, financial service providers and their representatives would incur

significant compliance costs in complying with new regulations.  We have not attempted to fully

                                                           

3. 75 Fed. Reg. 62570‐8 (2010‐10‐22) (hereafter, “DOL cost‐benefit analysis”).

4. Oliver Wyman (2011) “Assessment of the Impact of the Department of Labor’s Proposed ‘Fiduciary’

Definition Rule on IRA Consumers”, April 12, 2011.

5. DOL cost‐benefit analysis, supra, at 65274, Table 2.
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evaluate the accuracy of the monetized cost estimate provided by the DOL with respect to legal

compliance costs; however, we believe it may be understated for at least two reasons.  First, this

estimate does not appear to incorporate the potentially very large additional legal costs financial

services firms would likely incur to defend against litigation associated with their new status as

fiduciaries, even after a full review of their books of business, or to purchase fiduciary liability insurance.  

Second, the DOL estimate is based on an assumption that affected firms would require a certain number

of hours of legal professional time, valued at $119 per hour.6

  We understand that this rate is

substantially lower than the rate assumed by other government agencies.  For instance, using a rate

consistent with that assumed by the Securities and Exchange Commission (“SEC”), which recently valued

legal professional time at $354 per hour7 would increase the DOL’s estimate of the monetized costs of

the Proposed Rule to between $46.5 million and $49.7 million, using the same discount rates employed

by DOL.

12. In any case, the DOL cost estimate does not incorporate several important costs besides

legal services that would likely result as a consequence of the Proposed Rule.  Specifically, the DOL cost‐

benefit analysis does not quantify likely potential costs of the Proposed Rule due to (a) higher

certification requirements for IRA service providers, (b) increased expenses paid by IRA investors, and (c)

lower returns on investors’ retirement funds.  As we discuss below, the potential size of these effects is

large.  In addition, there may be other costs besides those that we describe here; however, we believe

these three illustrate the potential for costs associated with the Proposed Rule significantly higher than

estimated by the DOL.

                                                           

6. DOL cost‐benefit analysis, supra, at 65274.

7. 76 Fed. Reg. 15003.
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A. Costs Due to Higher Certification Requirements for IRA Service Providers Would Likely Rise

Significantly Due to the Proposed Rule.

13. We understand that many representatives of broker‐dealer firms that currently provide

services to IRA investors do not currently hold the certifications necessary to operate as fee‐based

investment advisers, and that if the Proposed Rule were implemented, these representatives would

need to gain additional certification in order to continue to serve their clients or attract new clients.  The

DOL cost‐benefit analysis does not appear to take into account the significant costs that would be

incurred by investment professionals in studying for and passing the certifying exam.   

14. To illustrate the potential size of these costs, we understand that Primerica currently

has 233 agents who hold a Series 65 license that would qualify them to provide advisory services if the

Proposed Rule was implemented, in comparison with approximately 16,000 agents who do not currently

hold that license.  Based on what we believe is a conservative estimate of 50 hours of study and

preparation time that would be required on average for an individual to prepare for the Series 65 exam,

and valuing that time at the 2009 median hourly wage for personal financial advisers, $32.79,8 if 60% of

Primerica’s agents chose to become investment advisers after the implementation of the Proposed Rule,

the additional cost incurred would be $15.7 million ( = 16,000 X 60% X 50 X $32.79).  Of course, this

calculation is necessarily a rough approximation, but it does indicate that the cost of additional

certifications alone could easily double, if not more than double, the DOL’s estimate of the costs

associated with the Proposed Rule, especially considering that this figure is based on the representatives

of only one company among many in the industry.  Industry‐wide, we understand that there are more

than 300,000 registered representatives in the U.S. which are not licensed to provide advisory services;

                                                           

8. Bureau of Labor Statistics May 2009 National Occupational Employment and Wage Estimates, available

online at http://www.bls.gov/oes/current/oes_nat.htm#13‐0000.
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therefore, the costs calculated above, extrapolated to the entire industry, would reach over $295

million.9

   

15. This estimate also does not include other potentially large economic losses associated

with the higher certification requirements.  First, faced with the costs of new certification, many

brokerage representatives would likely choose not to acquire the necessary certification and therefore

potentially leave the industry.  Moreover, we understand that brokerage representatives are one of the

only sources of financial information some investors encounter, so even aside from the other effects we

discuss below, fewer professionals employed in the industry could lead to lower levels of retirement

savings and lower (or even no) returns experienced by these investors.

B. Expenses Paid By IRA Investors Would Likely Rise Significantly Due to the Proposed Rule.

16. More importantly, the Proposed Rule would likely significantly increase the expenses

paid by IRA investors for several reasons.  First, under the Proposed Rule, firms that currently do not

have fiduciary status with respect to their IRA customers would become fiduciaries.  This would create

additional costs for these firms to acquire and maintain new client accounts, due to the increased

compliance costs associated with fiduciary status, and more importantly, the heightened risk of litigation

faced by fiduciaries.  Economic principles indicate that at least some of these costs would be passed on

to investors in the form of higher prices to open and/or maintain IRA accounts.  A basic principle of

economics is that prices charged by firms in an industry will rise if firms face an increase in per‐unit or

per‐client costs, such as that the increased costs associated with compliance and litigation risks.10  

                                                           

9. 300,000 X 60% X 50 X $32.79 = $295.1 million.

10. See, e.g., Robert E. Hall and Marc Lieberman, Economics: Principles and Applications, 4th ed., at 251.  The

key exception to this principle would be in an industry in which consumer demand is infinitely elastic, for instance,

if there is a perfect substitute for the good, such as black pens for blue pens.  It is unlikely consumers perceive any

perfect substitutes for financial services.
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Therefore, it is likely that IRA investors will incur higher expenses under the Proposed Rule than they do

now.

17. In addition, in the current regulatory environment, commission‐based broker‐dealer

firms share the costs of opening and servicing IRA accounts with third‐party providers of financial

products.  In practice, the way this sharing of costs occurs is that broker‐dealer firms incur all of the

costs up front, and then are partially recompensed by third‐party product providers through

commissions and other payments.  We understand that this cost‐sharing constitutes an important part

of brokerage firms’ business model.

18. Under the Proposed Rule, we understand that broker‐dealers handling IRA accounts

may be substantially restricted from receiving many forms of compensation from third‐party product

providers; in other words, they would no longer be able to share costs, and so would incur all of the

costs of opening and servicing accounts themselves.  Commission‐based brokers would, in essence, face

an increase in the cost of providing IRA investor services.  As noted above, economic principles indicate

that this increase in costs would likely cause prices to rise.  At the same time, it is possible that, in the

absence of commission payments, third‐party product providers would reduce prices charged directly to

investors, potentially offsetting to some degree the higher prices charged by brokers.12  In connection

with the Proposed Rule, the DOL has not presented any study of the overall impact that the elimination

of this form of cost‐sharing would have on total expenses paid by investors (nor are we aware of any

conclusive evidence on this question from other sources), which is a key parameter necessary in order

                                                           

12. While in theory, the decrease in costs faced by third‐party product providers could be fully passed on to

IRA investors, there are several industry‐specific reasons why this effect would be unlikely to fully offset the

increase in fees charged by financial services firms.  First, investors who purchase through commission‐based

services represent only a fraction of total demand for these products, and costs faced by product providers from

other distribution channels would not fall due to the Proposed Rule; in other words, to the extent that product

providers experience decreases in costs due to the Proposed Rule, those savings would be spread out across all

purchasers of the product, not only those who buy through commission‐based services.  Second, in the absence of

payments to brokers, product providers may invest more in direct‐to‐consumer advertising or other methods of

marketing.   
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to assess the full costs of the Proposed Rule.  Nevertheless, this effect provides an additional reason,

besides those mentioned above, why investors would likely face higher expenses in opening and/or

maintaining IRA accounts under the Proposed Rule.

19. Available evidence is consistent with the premise that prices will be higher under the

Proposed Rule.  In the current regulatory environment, IRA investors can choose between broker‐dealer

firms offering commission‐based service and certain other firms that provide “fee‐only” service, in which

advisers act as fiduciaries and forego most or all third‐party commissions.  While the fees any given

investor pays usually depend somewhat on the details of his investments, as a general matter, a

comparison of typical fees charged by the two types of service providers suggests that most IRA

investors would incur higher expenses at fee‐only firms than at commission‐based firms, consistent with

the notion that fiduciary status and the absence of third‐party compensation result in higher expenses

to investors.13   

20. Primerica’s fee structure, which we understand is typical for commission‐based firms,

charges investors a front load that is a percentage of assets purchased, with 5.5% being a typical rate,

and then a custodial fee of $20 each year the account remains open.14  By comparison, we understand

that a typical fee‐only adviser charges investors an annual fee calculated as a percentage of assets under

management, with 1.5% being a typical rate, as well as an additional custodial fee similar to that

charged by commission‐based firms.  While investors who make frequent trades or who have very short

investment horizons may save through the use of fee‐only services, investors who buy and hold

                                                           

13. We understand that fee‐based advisors typically provide additional services to investors not provided by

commission‐based brokers, and a full analysis would account for added value received by investors from these

additional services; however, IRA investors, who primarily employ “buy‐and‐hold” strategies, typically have

relatively few ongoing needs and so would be unlikely to benefit greatly from these services.  Moreover, it is

presumably the case that the additional benefits most commission‐based account holders would receive with fee‐

based service would be lower than the additional expenses they would pay; otherwise, they would be employing

fee‐based advisers currently.

14. We understand that the size of the front load often declines when accounts reach a certain size.
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investment assets for long periods, as IRA investors generally do, will typically pay lower fees with a

commission‐based service.16  This is because, on a continuing basis, they pay only a low custodial fee

every year instead of a percentage of an account which continues to grow in value (along with a similar‐

sized custodial fee).   

21. For instance, consider an investor who opens a $2,000 IRA account invested in a typical

balanced equity and mutual fund, and adds $100 per month to the account.  Attachment 1 shows how

the value of this investment, made in March 1991, would have grown over the following 20 years, with

(a) a typical commission‐based brokerage service charging a 5.5% front‐load, and (b) a typical fee‐only

advisory service charging 1.5% annual fees.17  In this example, the value of the investment would be

higher under the commission‐based service by June 1996, or in other words, so long as the investor held

the IRA for more than five years and two months.  As shown in the bottom panel of Attachment 1, by

March 2011, the value of the investment under the commission‐based expense schedule would be

$10,931 higher than under the fee‐only expense schedule.

22. Consistent with this analysis, a 2010 Oliver Wyman analysis performed for SIFMA found

that, based on actual fees charged by 17 retail brokerage firms, typical investors would pay between 23

and 37 basis points more with fee‐only accounts than with commission‐based accounts under the

current fee structure annually.18   

                                                           

16. The findings of the SEC’s recent study of investment advisers and broker‐dealers is consistent with this

argument.  See Securities Exchange Commission, “Study on Investment Advisers and Broker‐Dealers”, January

2011, at 152 (stating “[i]f, in response to the elimination of the broker‐dealer exclusion, broker‐dealers elected to

convert their brokerage accounts from commission‐based accounts to fee‐based accounts, certain retail customers

might face increased costs, and consequently the profitability of their investment decisions could be eroded,

especially accounts that are not actively traded”).

17. The underlying data from Morningstar used in this summary table is also attached.  This analysis is based

on an investment in Invesco Van Kampen Equity and Income Fund, Class A shares, and assumes all dividends and

capital gains are re‐invested in the fund.  Since annual custodial fees are typically similar between commission‐

based and fee‐only services, we ignore these here.

18. Oliver Wyman (2010), “Standard of Care Harmonization: Impact Assessment for SEC”, October 2010.
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23. The comparison between investor expenses under a commission‐based brokerage

service and expenses under a fee‐only adviser service is analogous to a widely‐accepted difference

between investor expenses associated with the purchase of “class A” and “class C” mutual fund shares.  

Many funds offer multiple classes of shares, which differ only in the structure of the fund’s expenses

charged to investors.  Typically, with “class A” shares, funds charge investors a front load fee, but then

low annual fees on a continuing basis, while with “class C” shares, funds charge little or no front load,

but higher annual expenses while holding the fund.  It is widely noted that long‐term “buy‐and‐hold”

investors, which includes most IRA investors, pay lower fees by purchasing class A shares than they

would with class C shares.20  Analogously, most IRA investors pay lower fees with commission‐based

brokerage services than with fee‐based advisory services.

24. Since IRAs are one of the primary means by which Americans save for retirement (38%

of those saving for retirement hold IRAs)21, even a small increase in fees on these accounts would impact

a significant number of investors and lead to a large increase in costs in aggregate.  In 2009, there was

$4.2 trillion held in IRAs.22  We understand that, based on the industry data analyzed by Oliver Wyman,

they concluded that 66% of even the largest IRAs (those with more than $250,000 in assets) are held in

accounts with commission‐based brokerages, with this share much higher for smaller IRAs.23  Even

applying the low 66% figure to all IRA assets, if the Proposed Rule led to even a 1 basis point increase in

annual costs relative to assets for these investors, it would generate $277 million ( = 4.2 trillion X 66% X

0.01%) in additional expenses for investors annually, or over $2 billion over 10 years in current dollars,

                                                           

20. See, e.g., FINRA, “Investor Alert: Understanding Mutual Fund Classes”, Oct. 6, 2008, available at

http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/MutualFunds/p006022 (stating that for purchasers

of class C shares, “in most cases, your total cost would be higher than with Class A shares, and even class B shares,

if you hold for a long time”).  See also Brian K. Reid and John D. Rea, “Mutual Fund Distribution Channels and

Distribution Costs”, Perspective 9(3), July 2003, at 13 (stating, “... investors subject to the maximum front‐end sales

load would prefer C shares for short and intermediate holding periods. Investors with a long investment horizon

would choose A shares”).

21. AARP, “AARP Bulletin Survey on Retirement Savings: Executive Summary”, April 2009, at 4.

22. Investment Company Institute, “The U.S. Retirement Market, 2009”, at 2.

23. Oliver Wyman (2011), supra, at 11.
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using a discount rate of 7%.  This illustrative calculation clearly indicates the potential for much higher

costs from the Proposed Rule than estimated by DOL.

C. Returns on Investors’ Retirement Funds Would Likely Decline Due to the Proposed Rule.

25. For several reasons, under the Proposed Rule, investors would likely reduce their usage

of IRAs, as well as brokerage services associated with IRAs.  First, because, as described above, prices for

financial services would likely rise, the Proposed Rule would be likely to cause some individuals to

choose not to open IRA accounts or to invest less in them.  In addition, under the Proposed Rule,

investors would likely face higher minimum account balance requirements to open an IRA.  Firms

impose minimum account balance requirements because for relatively small accounts, the cost incurred

by a firm in opening or servicing the account may be higher than the revenue received.  As discussed

above, under the Proposed Rule, per‐account costs incurred by commission‐based brokerage firms

would likely increase.  Because the revenue generated by low balance accounts is small, an increase in

costs would likely mean that these firms would increase minimum account balance requirements for IRA

investors.

26. Available evidence is consistent with increases in minimum required account balances

under the Proposed Rule.  Minimum account sizes generally appear to be substantially higher among

fee‐based advisers, who incur the expense of fiduciary status and forego most third‐party

compensation, than among commission‐based advisers.  Primerica, for instance, allows investors to

open IRA accounts with as little as $250, while we understand that minimum account sizes for fee‐based

advisers are typically more than $10,000, and often $50,000 or more.  We have been informed that

Primerica believes it would need to raise its minimum IRA account size to around $25,000 if it were

forced by the Proposed Rule to forego third‐party commissions.
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27. Small investors constitute the bulk of IRA investors.  We understand that, based on the

industry data analyzed by Oliver Wyman they concluded that 51% of IRA accounts include less than

$25,000 in assets, and more than 30% of IRA accounts have asset values below the current minimum

balance requirement for fee‐based advisory services at any of the firms providing data for their

sample.24  Unless advisory firms substantially reduced these minimum requirements, investors would

need to either move their funds to self‐directed brokerage accounts and forego the services they

currently receive, or else move their funds out of IRAs altogether.  In some cases, investors could add

funds to their accounts to reach the new, higher, minimum account balances, although because the IRS

limits annual contributions to IRAs, only investors who hold amounts relatively close the new minimum

account balance requirements would have this option.25  Therefore, the Proposed Rule could lead to a

reduction in the rate at which individuals invest in IRAs and receive financial services in connection with

IRAs.

28. Besides forcing changes for some current IRA investors, increases in minimum account

balances would also impact investors seeking to open new IRAs, particularly since new accounts often

start with low balances.  Because, in the absence of the Proposed Rule, these accounts would be

expected to grow over time, the long‐run impact in reducing the amount of funds held in IRAs could be

even larger than the immediate impact.

29. Consistent with the implications of higher prices and lower investment participation

from the Proposed Rule, analysts predict that a similar regulation reducing sales commissions paid to

investment advisers in the United Kingdom will raise fees to investors and lead to a dramatic reduction

in the size of the financial adviser industry.  As reported by analysts at Ernst & Young, under the new

                                                           

24. Oliver Wyman (2011), supra, at 10 and 17 (showing 22 million total accounts analyzed and 7.2 million

accounts with insufficient assets to access the advisory channel at any firm).

25. For 2010, the IRS limits IRA contributions below $5,000 for individuals under age 50, and $6,000 for

individuals above age 50.  See Internal Revenue Service, Publication 590: Individual Retirement Accounts (IRAs), at

6.
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rules, “[f]irst, it seems likely that the mass market and the typical bank customer will not be enthusiastic

about paying the sort of fees that make offering the advice attractive.  Second, simplified advice

becomes a major economic challenge, requiring a radically reduced cost base if it is to present a solution

for the mass market ... There is a real possibility that the independent advisory sector, as we know it, will

shrink significantly.”28  

30. As individuals reduce their holdings of assets in IRAs, they may choose to invest in other,

less tax‐privileged vehicles, they may choose to invest without the financial services they previously

employed, or they may simply choose to invest less overall.  Any of these effects would lead to lower

investment returns to individual investors, exacerbating the prevailing retirement savings shortages in

the U.S.29   

31. As noted above, IRA investments in the U.S. totaled $4.2 trillion in 2009, constituting

26% of all retirement assets.30  If, because of the effects described above, the Proposed Rule led even

1% of investment assets to be withdrawn from IRA accounts, and if those assets therefore generated 25

basis points lower annual returns (due, e.g., to disadvantaged tax treatment of non‐IRA funds or

because of the absence of broker services), then the Proposed Rule would generate losses of nearly

$790 million in current dollars over ten years using a 7% discount rate.  This would dramatically increase

the costs of the Proposed Rule far beyond the level anticipated by the DOL.  In addition, investors who

withdraw funds from IRAs typically pay tax penalties for early withdrawal, further adding to the costs of

the Proposed Rule.   

                                                           

28. Ernst & Young, “RaDaR: Life and Pensions Outlook for 2011”, January 2011, at 7 and 9.

29. According to a 2009 study, the average American family faces a 37% shortfall in the income they will need

for retirement.  (See McKinsey & Co., “Restoring Americans’ Retirement Security: A Shared Responsibility”, 2009,

at 2.)

30. Investment Company Institute, “The U.S. Retirement Market, 2009”, at 2.
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III. THE EVIDENCE PRESENTED BY THE DOL SUPPORTING ALLEGED BENEFITS FROM THE

PROPOSED RULE DOES NOT PROVIDE A SUFFICIENT BASIS TO CONCLUDE THAT THESE BENEFITS

WOULD BE LARGE ENOUGH TO OUTWEIGH THE COSTS.

32. The DOL cost‐benefit analysis claims three specific benefits would follow from

implementation of the Proposed Rule: (a) discouraging harmful conflicts of interest in which “... service

providers  strike deals that profit one another at the plan’s expense or subordinate the plan’s interest to

someone else”31

;  (b) providing pension plans with “better value for the service fees they pay”, along

with “the ancillary benefit of improved returns on plan assets”32

;  and (c) enhancing “the Department’s

ability to redress service provider abuses that currently exist in the market”33.

33. We understand that IRAs are outside the scope of the DOL’s enforcement authority.  

Therefore, the potential benefit from the Proposed Rule in enhancing the effectiveness of DOL’s

enforcement initiatives, while potentially relevant in other segments of the financial services industry,

would not by itself provide a basis for supporting an extension of fiduciary status to broker‐dealers

providing services to IRA investors.  For that reason, we will focus our attention on evaluating the

evidence presented by the DOL to support the other two claimed benefits.

34. The only quantification of benefits provided in the DOL cost‐benefit analysis is the

following statement: “If just 10 percent of plans realize a one basis point (0.01 percent of plan assets)

service value improvement, it would be worth approximately $399 million over ten years ...”34.  In

preparing this Comment, we reviewed the literature cited by the DOL, as well as the broader economic

and financial literature related to these issues, and did not find any statistical study which concludes

that the Proposed Rule or any similar regulation would generate a one basis point improvement (or any

size improvement) in pension plan service value.

                                                           

31. DOL cost‐benefit analysis, supra, at 65272, section 5(a).

32. DOL cost‐benefit analysis, supra, at 65273, section 5(b).

33. DOL cost‐benefit analysis, supra, at 65273, section 5(c).

34. DOL cost‐benefit analysis, supra, at 65273, section 5(b).
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A. The Cited Studies Do Not Provide a Basis to Conclude that Benefits from the Proposed Rule

Would Be Large Enough to Outweigh the Costs.

35. The DOL argues, qualitatively, that benefits of some size may accrue from the Proposed

Rule by citing four statistical studies that the DOL claims support the hypothesis that potential conflicts

of interest faced by financial service providers harm investors.  Specifically, the DOL cites a study

performed by the U.S. Government Accountability Office (“GAO”) and three other studies presented in

unpublished academic manuscripts.  A review of these four studies indicates that none of them focus

specifically on IRA investments, nor does any claim to provide direct evidence regarding the Proposed

Rule or any similar rule.

36. As we discussed above, the Proposed Rule would likely change the market for IRA

investment services significantly.  However, each of the studies cited by the DOL analyze investor

behavior in the current regulatory environment and under the current industry structure.  Therefore,

even interpreting the findings of these studies in ways favorable to the DOL’s claims, these findings

would not be sufficient to conclude that a major change in the regulatory environment, as under the

Proposed Rule, would lead to significant benefits because the Proposed Rule could change the structure

of the industry in a variety of ways not considered by these studies.  In order to understand the full

impact of the Proposed Rule, the DOL would need to study carefully how the Proposed Rule would

impact investor behavior under the significantly changed industry that the Proposed Rule would impose.

37. In any case, the cited studies do not in fact provide strong evidence that potential

conflicts of interest faced by investment advisers lead to significant reductions in investor value, as some

of the authors of the studies themselves indicate.  Moreover, the results of these studies are consistent

with significant benefits received by investors from financial service providers in the current regulatory

environment.  We first discuss the referenced GAO study and then the three referenced academic

studies.
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(i)   The cited GAO study does not provide a basis to conclude that the benefits from the

Proposed Rule would be large enough to outweigh the costs.

38. According to the DOL, the GAO study “links undisclosed conflicts with 130 basis points of

underperformance in defined benefit pension plans”.35  Clearly, then, this study’s results would not

directly apply to IRA investment advisers, since IRAs are not defined benefit plans.36  Defined benefit

plans typically cover aggregate retirement benefits for most or all employees of a large corporation or

other institution, while defined contribution plans like IRAs are held by individual investors saving for

their own retirement.  The advisory needs of defined benefit plan managers are therefore very different

from those of IRA investors.  Moreover, as recognized in the referenced quote from the DOL, the GAO

study would only show, at most, that disclosure of potential conflicts of interest could lead to the

claimed benefits, not that eliminating the source of these potential conflicts is necessary to achieve such

benefits.

39. Moreover, the authors of the GAO study, as well as the individuals who collected the

data employed in the GAO study, clearly indicate that their results cannot support a conclusion that

conflicts of interest generate investor harms.  The first paragraph of the GAO study indicates, “[b]ecause

many factors can affect returns, and data as well as modeling limitations limit the ability to generalize

and interpret the results, this finding should not be considered proof of causality between conflicts and

                                                           

35. DOL cost‐benefit analysis, supra, at 65272, section 5(a).  The GAO study is described in two separate

documents, which we will refer to interchangeably as “the GAO study”, but separately as “GAO (2009)” and ”GAO

(2007)”: (1) congressional testimony summarizing the study (GAO, “Conflicts of Interest Can Affect Defined Benefit

and Defined Contribution Plans”, GAO‐09‐503T, March 24, 2009); and (2) the details of the statistical analysis

performed by GAO (GAO, “Conflicts of Interest Involving High Risk or Terminated Plans Pose Enforcement

Challenges”, GAO‐07‐703, June 2007).

36. In congressional testimony summarizing the study (GAO 2009), the GAO’s Acting Director discussed the

possibility that conflicts of interest could also affect defined contribution plans, and cited some evidence that

defined contribution plan sponsors and participants may not be fully aware of potential conflicts of interest faced

by their pension consultants, but he nevertheless emphasized that the GAO only specifically studied the impact of

conflicts of interest on defined benefit plans, noting “[o]ur study focused exclusively on DB [defined benefit] plans

and less information exists on the extent of nature of conflicts of interest in the DC [defined contribution] plan

environment” (GAO 2009, supra, at summary page).
18

lower rates of return”.37  The GAO also recognizes that, even if harm due to conflicts of interest could be

shown with respect to the specific pension plan consultants they studied, such results would not imply

harm to retirement investors generally: “... these results cannot be generalized to the population of

pension consultants since the consultants examined by the SEC were not selected randomly”,38 and “the

plans included in the analysis should not be considered as representative of the population of defined

benefit pension plans”.39

40. As suggested by the quotation above, the sample of pension plan service providers

studied by the GAO was collected, and potential conflicts of interest identified, in an earlier analysis by

the Securities and Exchange Commission (“SEC”) in 2002 and 2003.  In their analysis of these providers’

behavior, however, the SEC did not conclude that any of them actually acted on undisclosed potential

conflicts of interest to the detriment of clients, in fact stating that “[w]e could not fully analyze whether

pension consultants ‘skewed’ their recommendations to favor certain money managers”40.  As noted

above, nothing in the SEC’s study showed that firms providing financial services to IRA investors had, or

acted on, conflicts of interest, because none of the plans analyzed by the SEC were IRAs, or defined

contribution plans of any sort.

(ii)   Academic studies cited by DOL do not support a conclusion that the alleged benefits

from the Proposed Rule would be large enough to outweigh the costs.

41. Turning next to the academic studies cited in the DOL cost‐benefit analysis, the results

presented in these papers also provide little evidence supporting the DOL’s claimed benefits, and in fact

are generally consistent with significant benefits accruing to investors from financial services in the

current regulatory environment.  The first two of the cited studies are similar.  Bergstresser, et al. (2007)

and Bullard, et al. (2007) both compare returns achieved by “no‐load” mutual funds, which are

                                                           

37. GAO (2009), supra, at summary page.

38. GAO (2007), supra, at 16.

39. GAO (2007), supra, at 43.

40. SEC (2005) “Staff Report Concerning Examinations of Select Pension Consultants”, Office of Compliance

Inspections and Examinations, May 16, 2005, at 5.
19

commonly sold directly to investors, and “load” mutual funds, which are more commonly sold through

brokers or other intermediaries.41   Bergstresser, et al. (2007) argue that load funds underperform, on

average, no‐load funds.  Bullard, et al. (2007) argue that investors in both load and no‐load funds tend to

mis‐time market transactions and so underperform a simple “buy‐and‐hold” strategy, but that investors

in load funds underperform by a greater degree.

42. A key issue in interpreting these results is potential differences between individuals who

make use of financial services and those who do not.  For instance, investors who make use of these

services may make poorer financial decisions than others who do not use these services.  Providing

support and information to individuals who might otherwise make poor decisions is, after all, the

purpose of these services.  If investors who make use of these services have poorer financial decision‐

making skills, a broker or adviser may provide value by supporting better decisions, even if they cannot

fully eliminate investors’ tendencies to make poor financial decisions.  In this case, investors who make

use of financial services may still achieve lower returns than those who do not, yet they would earn

even lower returns in the absence of the broker or adviser’s help.

43. This issue is explicitly recognized by Bullard, et al. (2007), who indicate that their results

could be explained by the “well‐documented psychological tendency of investors to overweight recent

performance.  Although investment professionals presumably are more aware of, and less susceptible

to, a short‐term performance bias, their clients might be more susceptible to this bias than self‐directed

investors.  Those who seek out professional guidance may be less knowledgeable about investing and

more inclined to expect or pressure their advisors to trade on short‐term performance.”42

                                                           

41. Daniel Bergstresser, John Chalmers, and Peter Tufano (2007) “Assessing the Costs and Benefits of Brokers

in the Mutual Fund Industry”, Social Science Research Network Abstract 616981, Sept. 2007; Mercer Bullard, Geoff

Friesen, and Travis Sapp (2007) “Investor Timing and Fund Distribution Channels”, Social Science Research Network

Abstract 1070545, Dec. 2007.  Begstresser, et al. (2007) has since been published in an academic journal (The

Review of Financial Studies) in a form similar to the earlier working paper; because the DOL cost‐benefit analysis

relied on the working paper, we will refer to that version of the manuscript here as well.

42. Bullard, et al. (2007), supra, at 11.
20

44. Bergstresser, et al. (2007) also recognize that their results do not prove that conflicts of

interest cause investor losses, and in fact they state that their results could also be evidence of

significant benefits to investors from investment brokers, writing “[o]ur results are consistent either

with substantial non‐tangible benefits delivered by the broker‐distributed sector or with conflicts of

interest between brokers and their clients.”43   

45. Unlike the two academic studies discussed above, the third study cited in the DOL cost‐

benefit analysis, Zhao (2005), does not examine investment returns, but focuses instead on which funds

investors purchase.44  Specifically, the author compares the inflow of investor dollars into load funds

with different fees, finding that funds with higher fees receive greater inflows of investor dollars on

average.  In the absence of specific information on how fees for the funds studied by Zhao translate into

compensation for brokers or advisers, this result does not provide strong evidence on the specific

impact of conflicts of interest.   

46. Moreover, this result may be equally consistent with the result predicted by basic

economic theory in the absence of conflicts of interest or other market failures.  Specifically, Zhao’s

result that more popular funds, which receive larger inflows, charge higher loads to investors, is not

necessarily surprising, since this is an effect that is common to popular products of all types.  The fact

that more expensive restaurants are often more popular than less expensive restaurants does not

necessarily imply that restaurants are exploiting diner ignorance of meal prices; instead, more popular

restaurants can simply charge higher prices because the demand for their meals is higher.  Zhao’s study

cannot determine whether investors are purchasing certain funds because opportunistic brokers are

pushing investors to buy those funds, or whether investors simply prefer those funds for some other

reason.

                                                           

43. Bergstresser, et al. (2007), supra, at 1.

44. Xinge Zhao (2005) “The Role of Brokers and Financial Advisors Behind Investments into Load Funds”,

China Europe International Business School Working Paper, Dec. 2005.   
21

47. These three academic studies also uncovered evidence that financial services firms

provide significant benefits to investors.  Bergstresser, et al. (2007) found supporting evidence for the

hypothesis that “brokers specialize in unique products, especially ones that individual investors would

have difficulty in evaluating on their own”,45  and they further acknowledge that “[b]rokers may help

their clients save more than they would otherwise save, they may help clients more efficiently use

scarce time, they may help customize portfolios to investors’ risk tolerances, and they may increase

overall investor comfort with their investment decisions”46.  Zhao (2005) similarly found evidence

consistent with the notion that investment advisers provide valuable services to their clients, stating “...

while no load fund investors flock into larger funds with more visibility, load fund investors are more

likely to be directed by brokers and financial advisers into smaller funds, which might experience better

performance than larger funds exceeding their optimal size.”47  These studies do not attempt to quantify

the value of these benefits, which may be large.   

48. Moreover, these studies do not attempt to calculate other value provided by brokerage

services unrelated to the returns achieved by plan assets, such as the provision of information regarding

the appropriate amount of current investment needed to meet retirement goals or the tax

consequences of taking a distribution from an IRA after a rollover event.

IV. A REVIEW OF ECONOMIC THEORY AND AVAILABLE EVIDENCE REGARDING THE IRA

INVESTMENT SERVICES INDUSTRY DOES NOT SUPPORT A CONCLUSION THAT THE PROPOSED RULE

WOULD GENERATE BENEFITS LARGE ENOUGH TO OUTWEIGH THE COSTS.

49. It may be true that certain brokers providing services to investors face potential conflicts

of interest; nevertheless, there are two key economic factors that economic theory and available

evidence indicate constrain firms from acting on these conflicts to the detriment of customers:

                                                           

45. Bergstresser, et al. (2007), supra, at 13.

46. Bergstresser, et al. (2007), supra, at 2‐3.

47. Zhao (2005), supra, at 32.
22

competition and reputational concerns.  In addition, we understand that broker‐dealers currently face a

range of regulations that further diminish the impact of potential conflicts of interest.  Because these

constraints already exist in the current market environment, we see no basis to conclude that

implementation of the Proposed Rule would produce significant additional benefits beyond what

investors currently receive.  Therefore whatever benefits may result from the Proposed Rule would be

unlikely to be large enough to outweigh the costs we identified above.

50. The revealed preference of investors themselves for commission‐based investment

services with respect to IRAs provides perhaps the most powerful evidence that, even in the presence of

potential incentives for broker‐dealers to behave opportunistically with respect to their clients, market

discipline protects investors.  We understand that, based on the industry data analyzed by Oliver

Wyman, they concluded that 88% of all IRA accounts are held with commission‐based brokerage firms.48  

According to the Investment Company Institute, “80 percent of [households] that owned funds outside a

workplace retirement plan held funds purchased through a professional adviser.”49  Moreover, “[h]alf of

all mutual fund shareholders indicated they had ongoing relationships with financial advisers”,50

illustrating the continuing value investors perceive in their relationships with financial service providers.

51. Basic economic principles indicate that competition among firms places a constraint on

the ability of these firms to behave in ways detrimental to their clients because, to the extent they do

so, their clients will experience low benefits from the services provided and create opportunities for

competing firms, which can earn sales by pointing out the low benefits a customer is currently receiving

and offering to provide higher benefits.  In addition, competition in the market for expert advice creates

opportunities for investors to readily seek “second opinions”, which provide an additional check on

advisers’ ability to exploit informational advantages they may have with respect to their customers.   

                                                           

48. Oliver Wyman (2011),supra, at 11.

49. Investment Company Institute, 2010 Investment Company Fact Book, at 85.

50. Investment Company Institute, 2010 Investment Company Fact Book, at 86.
23

52. In fact, the market for IRA investment services appears to be highly competitive, as a

wide range of evidence indicates.   

• Recent industry reports indicate that there are around 25,000 companies in the U.S. competing

to provide financial planning and investment advice to individuals and businesses.51

• Public financial filings by companies in the industry consistently indicate a high degree of

competition: “We operate in a highly competitive environment with respect to the sale of

financial products” (Primerica)52

; “We operate in a highly competitive industry” (Ameriprise

Financial)53

; “We are subject to competition in all aspects of our business” (LPL)54; “All aspects of

the Partnership’s business are highly competitive” (Edward Jones)55.

• Average fees for mutual funds, one of the major products purchased through commission‐based

brokers, have declined consistently and dramatically over time.  As noted by the Investment

Company Institute in 2010, “[f]ees and expenses incurred by stock and bond mutual fund

investors have declined by half since 1990”.56  Declining prices are typical of competitive

industries, and accordingly, this industry publication attributes the noted decline in fees at least

partially to competition.57    

• Investors are increasingly moving towards lower‐cost mutual funds and other investments,

providing incentives for brokers to keep the fees they charge low in order to remain

competitive.  One way to see investors’ competitive pressure with respect to costs is to compare

the average expense ratio on all mutual funds offered in the marketplace with the average

                                                           

51. First Research “Industry Profile: Financial Planners and Investment Advisors”, Oct. 26, 2009.

52. Primerica Inc. 10‐K for the fiscal year ended December 31, 2010, at 35.

53. Ameriprise Financial, Inc. 10‐K for the fiscal year ended December 31, 2010, at 17.

54. LPL Investment Holdings Inc. 10‐K for the fiscal year ended December 31, 2010, at 19.

55. The Jones Financial Companies LLLP 10‐K for the fiscal year ended December 31, 2010, at 18.

56. Investment Company Institute, 2010 Investment Company Fact Book, at 64.  These findings are broadly

consistent with trends in expense ratios studied previously by the GAO (“Information on Trends in Fees and Their

Related Disclosure”, GAO‐03‐551T, Testimony Before the Subcommittee on Capital Markets, Insurance and

Government Sponsored Enterprises, Committee on Financial Services, House of Representatives, March 12, 2003,

at summary page).

57. Investment Company Institute, 2010 Investment Company Fact Book, at 66.
24

expense ratio actually paid by investors.  To the extent that shareholders invest more in lower‐

cost funds, they will pay lower expenses than charged by the average fund.  In 1995, the average

fund charged an expense ratio of 1.52%, while investors actually paid an average expense ratio

of 1.04%, a difference of 48 basis points.58  By 2009, the average fund charged an expense ratio

of 1.50%, while investors paid an average of 0.86%, a difference of 64 basis points.

53. Several academic studies of markets for expert advice support the hypothesis that

competition is effective in constraining conflicts of interest specifically in the market for expert advisers:

• Bolton, et al. (2005) developed a model of the provision of information by sellers of financial

services to customers, as takes place in the IRA investment broker industry.  They conclude that

“competition both reduces the gains from lying and induces financial institutions to disclose

information”.59  They further write that their results “... directly challenge the conventional

wisdom that information is only credible if it is provided by an independent institution that has

no such conflicts of interest.”60

• Krausz and Paroush (2002) analyze conflicts of interest in financial advising, and argue that “...

competition reduces transactions cost and it is easier for dissatisfied investors to transfer from

one financial advisor to another.  Furthermore, if deception is very severe, competition from

other financial advisors and institutions will erode the financial advisor’s returns, yet again

reducing the incentive to deceive.”61

                                                           

58. Investment Company Institute, 2010 Investment Company Fact Book, at 66.

59. Patrick Bolton, Xavier Freixas, and Joel Shapiro (2007) “Conflicts of Interest, Information Provision, and

Competition in the Financial Services Industry”, Journal of Financial Economics 85(2), at 298.

60. Bolton, et al. (2007), supra, at 298.

61. Miriam Krausz and Jacob Paroush, “Financial Advising in the Presence of Conflict of Interests”, 54 Journal

of Economics and Business, at 57.
25

• Patron and Roskelley (2007) analyze the analogous case of conflicts of interest in markets for

expert real estate advice, and conclude that “agents are less likely to suggest aggressive

bargaining strategies [for their clients] when there is little market competition.”62

As on most topics, there are a wide variety of different opinions expressed by academic authors

depending on the assumptions they make and the methodologies they employ; however, at the very

least these articles indicate that, without further detailed study of the IRA investment brokerage

industry, it is highly premature to conclude that the Proposed Rule will result in significant benefits to

investors or others large enough to outweigh its costs.

54. A second key factor that constrains investment brokers from acting on potential

conflicts of interest to the detriment of their clients is the need to maintain a positive reputation among

clients and potential clients.  Economic principles indicate that if a firm develops a reputation for low‐

quality service, its clients will be less likely to use that firm’s services in the future, and will be less willing

to recommend the firm’s services to others.  In the context of financial services firms, this provides an

incentive for those firms to provide high‐quality service to their clients, even in the presence of potential

conflicts of interest.

55. Reputation as a factor limiting opportunistic behavior by firms has been repeatedly

identified as important in the academic literature.  In an extensive survey, MacLeod (2007) summarizes

the substantial literature on this issue, which he describes as based on the premise that, “in a free

market, sellers of high quality goods treat their reputation as an asset that loses its value should they

choose to supply goods of low quality”,63 and that “reputation is an asset whose value is destroyed  

                                                           

62. Hilde E. Patron and Kenneth D. Roskelley, “The Effect of Reputation and Competition on the Advice of

Real Estate Agents”, 37 Journal of Real Estate Financial Economics, at 387.

63. W. Bentley MacLeod (2007) “Reputations, Relationships, and Contract Enforcement”, Journal of Economic

Literature XLV:595‐628, at 596.
26

when a seller or buyer breaches their obligation.”64  Other standard and well‐cited economic articles

based on this concept are Klein and Leffler (1981)65 and Rogerson (1983)66.

56. Available evidence also indicates that reputation is an important factor specifically in the

market for IRA investment services.

• Public financial filings by companies in the industry indicate that reputation is a key element in

their business success: “Our reputation is one of our most important assets ... Damage to our

reputation could cause significant harm to our business and prospects ... Our reputation is also

dependent on our continued identification of and mitigation against conflicts of interest ... our

reputation could be damaged if we fail, or appear to fail, to deal appropriately with conflicts of

interest” (Ameriprise Financial)67

; “We have spent many years developing our reputation for

integrity and superior client service ... Damage to our reputation could cause significant harm to

our business and prospects” (LPL)68.

• Firms in the IRA investment services industry rely to a significant degree on referrals from clients

to attract new business.69  Referrals are only an effective source of sales leads when a firm holds

a good reputation with its client base.

57. In summary, economic theory and available evidence indicate that factors in the current

market environment likely serve to substantially constrain the ability of IRA investment brokers to act on

                                                           

64. MacLeod (2007), supra, at 603.

65. Benjamin Klein and Keith B. Leffler (1981) “The Role of Market Forces in Assuring Contractual

Performance”, Journal of Political Economy 89(4):615‐41.

66. William P. Rogerson (1983) “Reputation and Product Quality”, Bell Journal of Economics 14(2):508‐16.

67. Ameriprise Financial, Inc. 10‐K for the fiscal year ended December 31, 2010, at 47.

68. LPL Investment Holdings Inc. 10‐K for the fiscal year ended December 31, 2010, at 29.

69. First Research, “Industry Profile: Financial Planners and Investment Advisors”, Oct. 26, 2009

(stating, “[i]nvestment advisers depend heavily on referrals for new customers”); see also Dow Jones News Service,

“Wealth Adviser: Facing the Competition – Whatever it May Be”, June 8, 2010 (stating, “[i]n the end, many

advisers find the most productive approach is to focus on doing the best they can for the clients they have and

counting on that to bring in referrals”).
27

potential conflicts of interest.  Therefore, we see no basis to conclude that the Proposed Rule would

generate benefits large enough to outweigh the costs.

        

$72,791

$61,860

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Mar-1991Mar-1992Mar-1993Mar-1994Mar-1995Mar-1996Mar-1997Mar-1998Mar-1999Mar-2000Mar-2001Mar-2002Mar-2003Mar-2004Mar-2005Mar-2006Mar-2007Mar-2008Mar-2009Mar-2010

Mar-2011

Value of Investment (Contemporaneous $)

Commission-Based Account Fee-Only Account

$10,931

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

$12,000

$13,000

Mar-1991Mar-1992Mar-1993Mar-1994Mar-1995Mar-1996Mar-1997Mar-1998Mar-1999Mar-2000Mar-2001Mar-2002Mar-2003Mar-2004Mar-2005Mar-2006Mar-2007Mar-2008Mar-2009Mar-2010

Mar-2011

Diifference (Contemporaneous $)

Difference in Value of Investment

Value of IRA Mutual Fund Investment 

Under Commission-Based and Fee-Only Expense Schedule 

($2,000 Initial Investment and $100 Monthly Contributions) 

March 31, 1991 through March 31, 2011 

Source: Morningstar analyses of Invesco Van Kampen Equity and Income Fund, Class A shares. 

Notes: Commission-based expense schedule includes 5.5% front load on initial investment and contributions until asset value 

reaches $50,000, when front load on additional contributions declines. 

 Fee-only expense schedule includes 1.5% annual fee charged on assets under management. 

 Investment value assumes all dividends and capital gains are reinvested in the specified fund. 

 Value calculations do not incorporate taxes. 

Difference in Value of Investment