TAMMY BALDWIN
WISCONSIN

Wnited States Senate

WASHINGTON, DC 20510

September 24, 2015

The Honorable Thomas E. Perez
Secretary of Labor

United States Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Dear Secretary Perez:

COMMITTEES:
APPROPRIATIONS

BUDGET

HEALTH, EDUCATION,
LABOR, AND PENSIONS

HOMELAND SECURITY
AND GOVERNMENTAL AFFAIRS,

As you work to finalize your proposed “Conflict of Interest” rule regarding retirement
investment advice, I urge you to consider the questions of one of my constituents, Mr. Robert
‘Bob’ Chernow. Mr. Chernow has more than thirty years’ experience managing retirement
investments in Milwaukee, WI. A decorated Vietnam War veteran, he is also a community leader

working to combat veteran homelessness and mental illness.

Mr. Chernow’s questions are attached. I urge you to consider his questions as you finalize this

tule.

Sincerely,

2 Buse:

Tag Baldxin



Robert Chernow

Vice President-Investment Officer
RBC Wealth Management LLC
1000 N. Water Street #1500
Milwaukee, Wisconsin 53202

RE: Employee Benefits Security Administration’s “Conflict of Interest” rule, Docket ID: EBSA-
2010-0050

1.

Fixed Income, especially corporate bonds and preferred stock, but including mortgage
backed bonds and pass~- through securities, government securities and taxable muni bonds
have markets created by individual market makers. Under the “fiduciary” rules, clients
cannot buy from the inventory created by the firm they are using.

What will be the incentive for firms to risk their capital to make markets in fixed income?
Will spreads on bonds of 3 to 4 points occur (as they did in the 2008 crash when market
makers went out of business or had less capital to risk?) There is already much discussion
about the lack of liquidity in the fixed income markets due to some of the Dodd Frank
rules being implemented.

Clients ask advice from their brokers but often keep large amounts of capital liquid. The
Fiduciary standards require that clients be “fully invested”, that is with only 10 to 12% in
cash. Will this standard be changed?

Other clients want to use passive investments strategies such as laddered bonds. Should
they be charged a yearly fee that presents no value to them?

Many clients are not paying a yearly fee (or any commissions) because their investment
is good or because they can exchange at no cost within their family of mutual funds. Why
should they pay a yearly fee?

Many large accounts pay very low commissions. How will the DOL handle those
accounts being shifted into fee based accounts where their fees might four fold?

How does the DOL plan to monitor exempt accounts where some trades are solicited and
others are not?

Exchange Traded Funds (ETF)’s and index funds increase volatility by matching massive
buys and sells. We saw what this can do with volatility when the Dow Jones Industrial
plummeted 1000 points. If the DOL forces investors into these types of funds, will
volatility be increased?


8. Some investors believe that individual stock choices with small companies are excellent
investments, yet these companies are not usually found in indexes or most mutual funds.
Why should clients be excluded from investing with these companies?

9. How is the question of freedom to choose by client investors being addressed? Wili the
government be regulating fees, commissions, what investments can be bought or sold?

10. Some investors use annuities in their retirement accounts. How will the DOL address the
use of these vehicles? (Note: many variable annuities guarantee a return on investments if
annuitized.)

11. Has the DOL calculated the increase of cost to the public with the use of fee, rather than
commission business?

12. With fee business, an investment professional needs to make or change investments to
justify the fee. Has the DOL considered that this will lead to unnecessary transactions
instead of long term investing?