From: marshall cobb [mailto:mcobb@cobb-retirement.com] 

Sent: Thursday, June 30, 2011 10:06 AM 

To: EBSA, E-ORI - EBSA 

Subject: Public Hearing on Definition of Fiduciary

Greetings,

I’m not sure if the commentary period is shut – I suspect it is – but I hope that some of the

practices that are listed below make your radar screen.  The full article from where this excerpt

was pulled is attached to this e‐mail.

Regards,

Marshall

Undisclosed Practices of Many Who Claim to be Fiduciaries:

 Investment houses offer free assistance to advisors for the development of high quality

marketing materials that are specific and customized for each advisory firm (videos, hard

copy materials, etc.).

 Investment houses “sponsor” access to fiduciary evaluation services provided by known

third parties (the advisor gives the name of a prospect to the investment house, who then

coordinates the processing of the reports by the fiduciary service, delivering the finished

product to the advisor free of charge so that they can demonstrate their unbiased acumen).

 Advisory firms require recordkeeping vendors to pay hundreds of thousands of dollars a

year (in return for these payments, which the advisory firms claim is needed for their due

diligence work, the advisors working for the advisory firm are allowed or encouraged to use

that recordkeeper’s services).

 Brokerage firms receive additional payment each year from certain mutual fund companies

(this payment isn’t disclosed to plan sponsors or participants and is only disclosed by the

fund family within the statement of additional information).
 Brokerage firms have special revenue sharing arrangements with particular fund families

(usage of those special funds/fund families dramatically increases revenue sharing available

to underwrite their bid and the recordkeeping costs of the plan).

 Insurance brokers who work in the health and welfare and retirement space receive

significant overrides from insurance companies that offer products on the health and

welfare and retirement sides (the overrides are additional commissions that reward

brokers/agents for utilizing the insurance company on both sides of the employee benefit

world but are not reported on the required disclosures).

Regards,

Marshall

Marshall Cobb, CRSP

Cobb Retirement Solutions, LLC

1035 Dairy Ashford, Suite 340

Houston, TX  77079

713‐660‐9605 Ext. 201

877‐660‐9605 Toll Free

281‐920‐9920 Fax

mcobb@cobb‐retirement.com

A Registered Investment Advisor
Fiduciary Politics

By Marshall Cobb

A great deal of time and money has recently gone to the fiduciary debate. Are you or aren’t you? Are

you a 3(21) or a 3(38)?   

The entire debate reminds me of another painful, seemingly never‐ending topic: campaign finance

reform. On one side are those in office who do the accepting of contributions. Their side of the

argument is captured in comments recently given by a Massassachussets state official, “I have accepted

and will continue to accept lawful contributions that pose no conflict of interest. No contribution has or

ever will affect my decision making.”

We’d all like to believe it’s possible to serve in a public office and accept money from private interests

without any impact on our decision‐making or, quite frankly, our ethics. The reality, and the other side

of the campaign finance reform debate, is that many elected officials do take money that directly

impacts their decisions.  In many cases, it also ends with the incarceration of the lawmaker.

Are we going to solve this debate today? Not likely. Will new rules emerge at some point to attempt to

address the issue? Absolutely. Will those involved spend considerable time and money working around

these new rules to attain the same goals via a different route? Absolutely. When will it stop? When we

elect incorruptible politicians. I would bet against this outcome.

Returning to the fiduciary debate: we are currently undergoing a rebranding and realignment in the

retirement industry thanks to the much anticipated disclosure regulations from the Department of

Labor. The regs are designed to bring clarity to the process by identifying, at long last, who is getting

paid what (and by whom)?

While I applaud the effort, it’s become apparent that the industry has already reconfigured its

mechanisms such that two outcomes will occur: 1) the influences and related payments will take place

in a format that the new disclosure rules didn’t anticipate and won’t capture, and 2) the disclosure of

outside influence and payments will be front‐and‐center for the recipient, but will be accompanied with

the statement that all involved should rest assured that the acceptance of these payments had no

influence on the decisions that were made on behalf of the plan.   

These two outcomes will likely both occur in some combination in retirement plan sales involving large

brokerage or advisory firms (just as donations will continue to pour in to politicians). These brokerage

and advisory firms will, ironically enough, also tout their unwavering commitment as fiduciaries to the

plan.

I don’t believe anything can be done about the second outcome for retirement plans or politics. If you

believe that someone who represents you can accept large amounts of money and assistance from a

third, interested party yet remain unbiased in their decision making then... well...  I would say you are an

optimist.  

  
I know I can’t take cash and prizes from investment houses and vendors without its impacting my

decisions. If someone gives me something, I’m going to feel obliged to give them something in return. I

suspect that’s why the gift is being made in the first place. There will be others within the industry who,

like politicians, will attest that the contributions have no affect on them or their decisions.

What is more worrisome to me are the new wrinkles and outside‐the‐lines thinking that allow significant

dollars to change hands with little, if any, disclosure to plan sponsors and participants. Here is a snippet

of some of the many angles that are currently being worked by players within the retirement industry:

 Investment houses offer free assistance to advisors for the development of high quality

marketing materials that are specific and customized for each advisory firm (videos, hard copy

materials, etc.).

 Investment houses “sponsor” access to fiduciary evaluation services provided by known third

parties (the advisor gives the name of a prospect to the investment house, who then

coordinates the processing of the reports by the fiduciary service, delivering the finished

product to the advisor free of charge so that they can demonstrate their unbiased acumen).

 Advisory firms require recordkeeping vendors to pay hundreds of thousands of dollars a year (in

return for these payments, which the advisory firms claim is needed for their due diligence

work, the advisors working for the advisory firm are allowed or encouraged to use that

recordkeeper’s services).

 Brokerage firms receive additional payment each year from certain mutual fund companies (this

payment isn’t disclosed to plan sponsors or participants and is only disclosed by the fund family

within the statement of additional information).

 Brokerage firms have special revenue sharing arrangements with particular fund families (usage

of those special funds/fund families dramatically increases revenue sharing available to

underwrite their bid and the recordkeeping costs of the plan).

 Insurance brokers who work in the health and welfare and retirement space receive significant

overrides from insurance companies that offer products on the health and welfare and

retirement sides (the overrides are additional commissions that reward brokers/agents for

utilizing the insurance company on both sides of the employee benefit world but are not

reported on the required disclosures).

As I mentioned, I’m not particularly perturbed by those that take money or gifts but then turn around

and share the details with the assurance that it does not affect their objectivity. This is the way the

world has worked and will continue to work. The DOL’s efforts will indeed make much of the previously

fuzzy financial details public knowledge.

What does worry me is that many shops are touting their expertise and their better, different, elevated

fiduciary status while actively engaged in the practices detailed above. I don’t engage in these practices,

so I can’t tell you the stage of the sales process where these practices are disclosed (if they are indeed

ever disclosed). I do know that they are taking place. I’ve received the offers from the investment

houses, and I’ve learned of the practices of the brokerage and advisory firms from my past life as a

vendor and, most recently, from brokerage and advisory shops that have attempted to purchase Cobb

Retirement Solutions.

If these practices bother you, there’s a very easy way that we can begin to affect at least a little reform

on the retirement industry: ask your broker/advisor to address these issues and their potential
involvement. In writing. If they aren’t participating in these practices, then it will take less than five

minutes to know the results.   

It may come to pass that the DOL will one day also include a requirement for the disclosure of these

rather murky practices. If it does, you should expect that the industry will adapt and shift to other

methods. We’ll still be here, and our answer to all of this will still be no.

Marshall J. Cobb, CRSP, is president and founder of Cobb Retirement Solutions, LLC., an independent, fee‐

only firm offering qualified plan analysis and oversight exclusively to corporations and organizations.

Cobb’s first‐hand knowledge as a veteran representative of retirement plan vendors beginning in 1990

gives him a unique perspective as he advises his clients.  Cobb runs his office ‐‐ based in Houston, Texas ‐‐ 

with employees and clients across the country.