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HEARING 

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GOVERNMENT SPONSORED ENTERPRISES 

OF THE

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U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SEPTEMBER 13, 2011 

Printed for the use of the Committee on Financial Services 

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(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES

SCOTT GARRETT, New Jersey, Chairman 

DAVID SCHWEIKERT, Arizona, Vice 

Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

JUDY BIGGERT, Illinois 

JEB HENSARLING, Texas 

RANDY NEUGEBAUER, Texas 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

NAN A. S. HAYWORTH, New York 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

ROBERT J. DOLD, Illinois 

MAXINE WATERS, California, Ranking 

Member 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

RUBE ́ N HINOJOSA, Texas 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 13, 2011 .......................................................................................... 1 

Appendix: 

September 13, 2011 .......................................................................................... 47 

WITNESSES 

TUESDAY, SEPTEMBER 13, 2011 

Dwyer, William E. III, Chairman, Financial Services Institute (FSI) ................ 10 

Ehinger, Ken, President and Chief Executive Officer, M Holdings Securities, 

Inc., on behalf of the Association for Advanced Life Underwriting (AALU) ... 12 

Headley, Terry, President, National Association of Insurance and Financial 

Advisors (NAIFA) ................................................................................................. 13 

Irwin, Steven D., Pennsylvania Securities Commissioner, on behalf of the 

North American Securities Administrators Association, Inc. (NASAA) .......... 15 

Ketchum, Richard G., Chairman and Chief Executive Officer, Financial Industry Regulatory Authority (FINRA) ............................................................... 17 

Roper, Barbara, Director of Investor Protection, Consumer Federation of 

America (CFA) ...................................................................................................... 19 

Taft, John, Chairman, the Securities Industry and Financial Markets Association (SIFMA) ......................................................................................................... 21 

Tittsworth, David G., Executive Director and Executive Vice President, Investment Adviser Association (IAA) ................................................................... 23 

APPENDIX 

Prepared statements: 

Hinojosa, Hon. Ruben ....................................................................................... 48 

Luetkemeyer, Hon. Blaine ............................................................................... 49 

Dwyer, William E. III ....................................................................................... 51 

Ehinger, Ken ..................................................................................................... 67 

Headley, Terry .................................................................................................. 80 

Irwin, Steven D. ................................................................................................ 89 

Ketchum, Richard G. ........................................................................................ 101 

Roper, Barbara ................................................................................................. 109 

Taft, John .......................................................................................................... 139 

Tittsworth, David G. ........................................................................................ 229 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Garrett, Hon. Scott: 

Written statement of The American College .................................................. 265 

Written statement of the American Council of Life Insurers ....................... 268 

Written statement of the Association of Institutional INVESTORS ............ 297 

Written statement of The Bond Dealers of America ..................................... 306 

Written statement of The Financial Services Roundtable ............................ 312 

Written statement of the Independent Insurance Agents & Brokers of 

America .......................................................................................................... 321 

Written statement of the Investment Company Institute ............................ 324 

Written statement of the Managed Funds Association ................................. 333 

Written statement of the National Association of Independent Broker/ 

Dealers ........................................................................................................... 344 

Hensarling, Hon. Jeb: 

Written responses to questions submitted to Ken Ehinger .......................... 346 

Page

VI 

Hensarling, Hon. Jeb—Continued 

Written responses to questions submitted to Terry Headley ........................ 350 

Written responses to questions submitted to Steven D. Irwin ..................... 355 

Written responses to questions submitted to Richard G. Ketchum ............. 356 

Written responses to questions submitted to Barbara Roper ....................... 359 

Written responses to questions submitted to John Taft ............................... 361 

Written responses to questions submitted to David G. Tittsworth .............. 363 

Written statement of the Association of Institutional INVESTORS ............ 364 

Hinojosa, Hon. Ruben: 

Written statement of the Financial Planning Coalition ................................ 373 

Schweikert, Hon. David: 

Written responses to questions submitted to Barbara Roper ....................... 492 

Waters, Hon. Maxine: 

Written statement of Mercer Bullard, AARP Public Policy Institute .......... 494 

Written statement of the Financial Planning Coalition ................................ 531 

Letter to Representative Carolyn McCarthy from the North American 

Securities Administrators Association, Inc. ................................................ 546 

Letter to Labor Secretary Hilda Solis, CFTC Chairman Gary Gensler, 

and SEC Chairman Mary L. Schapiro from the New Democrat Coalition ................................................................................................................. 555 

Written statement of the Project on Government Oversight ........................ 559 

(1) 

ENSURING APPROPRIATE REGULATORY 

OVERSIGHT OF BROKER-DEALERS 

AND LEGISLATIVE PROPOSALS TO IMPROVE 

INVESTMENT ADVISER OVERSIGHT 

Tuesday, September 13, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CAPITAL MARKETS AND

GOVERNMENT SPONSORED ENTERPRISES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:03 a.m., in room 

2128, Rayburn House Office Building, Hon. Scott Garrett [chairman of the subcommittee] presiding. 

Members present: Representatives Garrett, Schweikert, Royce, 

Biggert, Neugebauer, Campbell, Pearce, Posey, Fitzpatrick, 

Hayworth, Hurt, Grimm, Stivers, Dold; Waters, Sherman, Hinojosa, Lynch, Miller of North Carolina, Maloney, Perlmutter, Donnelly, Carson, Himes, Peters, Green, and Ellison. 

Ex officio present: Representative Bachus. 

Also present: Representative McCarthy of New York. 

Chairman GARRETT. Good morning. The Subcommittee on Capital Markets and Government Sponsored Enterprises is called to 

order. 

I would like to seek unanimous consent for the gentlelady from 

New York, who is not on this subcommittee, to be able to participate in today’s hearing. Seeing no objections, we welcome the 

gentlelady with us to the subcommittee. 

We have a fairly large panel. We managed to do it somehow 

without the extra kiddie table at the end, so you are all squeezed 

in there. Sorry about that. But welcome to all of you. 

We are going to begin the process. I understand the ranking 

member is on her way, but we will begin with opening statements 

and then proceed from there to the panel. With that, I yield myself 

3 minutes for an opening statement. 

The SEC, I think most people here will agree, has a lot on its 

plate to deal with. Some would argue that it has too much on its 

plate. This is one of the reasons we see a legislative proposal such 

as the one from Chairman Bachus, who is with us here today, 

which would shift oversight of retail investment advisers from the 

SEC to an SRO. 

With too much on the plate over at the SEC, some of the basics 

arguably are not getting done. For instance, the SEC in recent history has been examining investment advisers approximately once 

2 

every decade. Because of this, we know that there have been crooks 

out there such as Bernie Madoff and others who have had a greater 

chance to defraud the innocent investors. The frequency of examinations, of course, is not the only consideration. There are other 

things we can go into here. FINRA, for instance, also examined 

Madoff’s broker-dealer unit more frequently than the SEC did, but 

unfortunately still missed the fraud that was there. 

Nevertheless, I look forward to a robust discussion this morning 

on Chairman Bachus’ bill and what are the—it is in draft form, 

which means that today is a good opportunity to discuss the merits 

of it and any changes that might be necessary. 

Another concept the Commission should be mindful of, especially 

with its crowded agenda, is the appropriate use of their resources, 

which you often hear that they need more of. The Dodd-Frank Act 

requires an unprecedented avalanche of new rulemakings by the 

SEC. People can agree, or people can disagree with how many of 

them are needed or addressing actual problems, you have heard 

that discussion in the past, but they are required in Dodd-Frank 

and will require a large amount of the Commission’s resources to 

get them all done and to get them all done right. 

Furthermore, the SEC has a history of having rulemakings, unfortunately, overturned in the courts. Just recently, for instance, 

the SEC had its proxy access rule basically vacated. Unfortunately, 

the rule was vacated after the SEC spent a lot of its resources, over 

23,000 staff hours, on the rulemaking and subsequent litigation at 

a cost of around $2 million or $2.5 million. When a potential rulemaking on a uniform fiduciary standard is considered, the Commission, we believe, needs to thoughtfully and thoroughly consider the 

most prudent course of action that it should be taking. 

First, this would be undertaking a discretionary rulemaking at 

a time when the SEC is required to do so many other tasks. And 

remember, this is at the same time that they are only examining 

investment advisers, as I said, once about every 10 years, every 

decade. Many would argue that more attention needs to be paid to 

get this done and other core tasks than additional discretionary 

tasks that they have been doing. 

Second, no one needs to be reminded here about the Federal Government’s serious spending problems that fortunately, the Congress 

is now finally beginning to address. Additional resources for an 

agency that has tripled its budget in recent years basically is not 

an option. 

Finally, the SEC has already wasted, we would say, millions of 

dollars pursuing rules without doing the proper economic and costbenefit analysis before the rules go out. 

So, until the SEC comes forward with a reason backed by credible and real data that a uniform fiduciary standard is necessary 

to address an actual problem, which is not produced in the study 

required by Dodd-Frank Section 913, I am not sure why such a 

rulemaking would be under consideration now or at any point. 

I thank the panel for coming today before this committee, and I 

look forward to what should be an interesting discussion and diverse opinion from this panel. 

With that, I yield to Mrs. Maloney for 3 minutes. 

3 

Mrs. MALONEY. Thank you, Mr. Chairman, and welcome to all 

eight witnesses today. I don’t think we have ever had such a large 

panel, and it speaks to the importance of the oversight of investment advisers and broker-dealers. It is a very important part of 

this committee’s work, and I am pleased that we are exploring this 

today. 

The committee has looked at scams or schemes in the past, especially in the wake of Madoff, and today we are looking at two specific issues that have emerged. The first issue is whether brokerdealers should be held to a higher standard of care than they currently are held to, and whether that standard should be harmonized with what investment advisers are held to. 

As it stands now, broker-dealers are required to suggest products 

that are suitable to their clients. Investment advisers, on the other 

hand, are required to suggest products that are in the best interests of their clients. The question is whether consumers will be better served if the standard for broker-dealers is elevated. 

The second issue is whether broker-dealers and investment advisers are adequately examined and supervised. We are all wondering on this committee how it is that Bernie Madoff was able to 

operate fraudulently for so long without anyone realizing it, with 

so many whistleblowers reporting it. Will more rigorous oversight 

and examination either on the part of the SEC, a new SRO or another entity prevent another Bernie Madoff? Who should be conducting these examinations, and how often should they be done? 

These are some of the questions that we are hoping to obtain answers to today. 

Last year’s Dodd-Frank bill authorized studies on these important issues to be conducted by the SEC, both of which were completed in January, and the study recommended that the standard 

for broker-dealers be elevated to something akin to the standard 

for investment advisers, and the SEC has indicated that it will go 

forward with such a rule. While I do not oppose the SEC moving 

forward, I do want to make sure that sufficient economic impact 

analysis is done to ensure that consumers will benefit in the end, 

and I hope we will explore that today. 

The study also suggested three ways that Congress may move 

forward to address the issue of examinations: first, imposing user 

fees on SEC-registered investment advisers; second, authorizing 

one or more self-regulatory organizations, or SROs, to examine; 

and third, authorizing FINRA to examine dual registrants for compliance with the Advisers Act. 

Chairman Bachus, I understand, has put forward legislation that 

would codify the second of these three suggestions and would authorize an SRO to supplement the SEC’s oversight of investment 

advisers. 

I think we can all agree that something needs to change, and 

that the status quo is not acceptable. So I hope the witnesses today 

will be able to comment on the various proposals and shed light on 

whether they think it is preferable to the other suggestions and the 

suggestions that the SEC made in their study. 

We have a lot of ground to cover today, Mr. Chairman, and 

thank you for calling this hearing. I yield back. 

Chairman GARRETT. I thank the gentlelady. 

4 

The chairman of the full Financial Services Committee, the gentleman from Alabama, is recognized for 4 minutes. 

Chairman BACHUS. Thank you, Chairman Garrett, for convening 

this important hearing to examine Sections 913 and 914 of the 

Dodd-Frank Act. Section 913 of the Act gave authority to, but did 

not require, the SEC to create a new standard of care for brokerdealers. Even though the SEC has yet to provide Congress with 

any empirical data or economic analysis to justify a rulemaking on 

the standard of care for broker-dealers, the SEC’s apparent plan is 

to push forward with rulemaking by recalling examiners and reassigning them to write these optional rules. 

It is questionable whether the SEC should undertake rulemaking 

for a new standard of care for broker-dealers at the expense of 

other statutory mandated rulemaking. If the SEC decides, however, 

to issue a proposal to implement Section 913, it must carefully act 

and comprehensively act to avoid disrupting an investor’s relationship with his or her chosen investment professional. Furthermore, 

the Administration must coordinate disparate and potentially conflicting rulemaking efforts regarding the standard of care for investment professionals. 

The Labor Department’s proposed rule to modify the existing definition of fiduciary status under ERISA appears to be moving forward even though it creates conflicting standards between advisers 

for investment accounts and advisers for retirement accounts and 

would make it illegal for swap dealers to enter into swaps with retirement plans. The SEC, the CFTC, and the Department of Labor 

must coordinate their efforts to minimize harm to investors. The 

last thing our economy needs is additional disruption or elimination of financial products and services currently available to 

American investors. 

Investment advisers and broker-dealers often provide indistinguishable services to retail customers, yet only 9 percent of investment advisers are examined by the SEC or were examined by the 

SEC in 2010, compared to 44 percent of broker-dealers. The DoddFrank Act did not fix this serious examination disparity. Rather, 

Section 914 merely requires the SEC to study how to improve investment adviser oversight. 

The SEC staff proposed three options to address oversight. One 

option, imposing user fees, is unworkable and essentially amounts 

to an expansion of the SEC, which is in desperate need of fundamental reform, not increased responsibility. 

A second alternative, allowing FINRA to examine duly registered 

entities, would be a partial solution, however, stand-alone retail investment advisers’ examination rates would not improve. 

In my view, the SEC staff’s third option, authorizing one or more 

self-regulatory organizations or SROs to examine SEC-registered 

investment advisers would provide the most comprehensive and 

streamlined approach to increase investment adviser examination 

rates. Therefore, I have prepared draft legislation that would authorize the creation of national investment adviser associations to 

register, examine, and discipline investment advisers to retail customers. The chairman of the subcommittee provided industry 

groups and other special interest groups and consumer groups with 

a draft last week. 

5 

Regardless of the standard of care, bad actors will naturally flow 

to a regime where they are least likely to be examined, therefore, 

it is essential that we augment and supplement the SEC’s oversight to dramatically increase the examination rate for investment 

advisers with retail customers. 

In conclusion, customers may not understand the different titles 

that investment professionals use, but they do believe that someone 

is looking out for them and their investments. For broker-dealers, 

that is true. For investment advisers, it all too often is not true, 

as was the case with the Bernie Madoff Ponzi scheme. That must 

change. I hope my colleagues will support this legislation and that 

all interested parties will join the committee’s efforts to improve investor adviser oversight and enhance investor protection to avoid 

another Bernie Madoff experience. 

Thank you, Chairman Garrett. I yield back. 

Chairman GARRETT. I thank the gentleman for yielding back. 

And I also thank the gentleman for the work he has done on the 

draft legislation that we are considering today. 

The gentleman from Massachusetts is recognized for 3 minutes. 

Mr. Lynch? 

Mr. LYNCH. Thank you, Mr. Chairman. 

I would like to welcome all the witnesses gathered here today 

and thank them for their time and effort in helping this committee 

with its work, especially Bill Dwyer, who is here today as the 

chairman of the Financial Services Institute, but he is also a resident of Massachusetts. He runs a company called LPL Financial in 

Massachusetts. He is a graduate of Boston College, which at least 

puts him in good stead with this Congressman. 

Investment advisers and broker-dealers are important stewards 

of the wealth of American families, whether by helping middleclass families with their retirement savings or advising small businesses on raising capital. Businesses that give financial advice provide much needed growth in job creation, and they are a vital part 

of the economy not only in my district, but across the country. 

It is important that we foster an environment in which investment advisers and broker-dealers can continue to help investors 

grow their money wisely. It is also incumbent upon this Congress 

and this committee to ensure that American families and small 

businesses that entrust their savings to financial advisers can be 

confident that trust is not misplaced. That is why we must also remain vigilant to ensure that regulators, whomever they may be, 

have the resources they need to keep investors well-informed and 

their money safe. 

I am very interested in hearing the witnesses’ testimony today 

about the proposals contained in the SEC studies required under 

Dodd-Frank as well as any constructive ideas to improve investor 

confidence in financial advisers. I hope that we can have a productive discussion here today about improving this important industry, 

and I yield back. 

Chairman GARRETT. Thank you. 

The gentleman yields back. 

The gentleman from Arizona is recognized for 1 minute. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

6 

Mr. Chairman, looking up and seeing the new cracks on the 

walls, I hope those aren’t a message from above. 

Mr. Chairman, with so many panelists here today, for someone 

like myself, what I am looking for is your insight into the law of 

unintended consequences. With the way the regulatory environment is moving, the promulgation of future rules that are maybe 

being drafted, are we heading towards that unintended consequence of making it harder, making it more difficult, taking away 

choices both on advice and in product; and by doing so, do we ultimately damage through that unintended consequence the financial 

futures of our citizens? 

Thank you, Mr. Chairman. 

Chairman GARRETT. The ranking member is recognized for 2 

minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. Thank you 

for holding this hearing today. 

Improving the regulation of brokers, investment advisers, and 

other financial professionals was a central goal of Dodd-Frank and 

is crucial to ensuring that families are protected as they save for 

retirement and their children’s education or to buy a home. Research indicates that the average unsophisticated retail investor 

often does not understand the differences between investment advisers and broker-dealers. In fact, investors, unsurprisingly, expect 

their financial advisers to act in their best interests, regardless of 

the technical legal standard they may be held to. As the lines between broker-dealers and investment advisers have blurred in recent decades, improving consumer protection has become increasingly important. 

For this reason, I applaud the SEC for recommending in their 

Section 913 study that broker-dealers and investment advisers 

should both be subject to a fiduciary duty standard when they 

render investment advice to retail customers, and I am pleased 

that many of the industry witnesses here today agree with me, the 

SEC, and the investor advocates that this is the appropriate approach. 

Given the widespread agreement on this point, I think that differences in approaches can be worked out during the rulemaking 

process, and there is no need to stop rulemaking in its tracks, as 

some of my colleagues have suggested. 

Finally, I would caution against delegating more responsibilities 

to a self-regulatory organization when it comes to investment advisers. I would agree with today’s witness from the Consumer Federation of America saying that, as a general principle, I believe in 

funding government agencies to do their jobs rather than farming 

out those responsibilities to private entities. It is essential that we 

provide the SEC, our cop on the beat for Wall Street, with the 

funding it needs to do its job, but with that said, I am interested 

to hear the witnesses’ comments on Chairman Bachus’ bill and how 

an investment adviser SRO might work. 

I yield back the balance of my time. 

Chairman GARRETT. The gentlelady yields back. 

Mr. Royce is recognized for 11⁄2 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

7 

I would urge the Members to take a look at the arguments made 

by two of the SEC Commissioners, Kathleen Casey and Troy 

Paredes, as they go forward here. I think that when you look at 

their arguments about the study, they say that at the end of the 

day, investors may have fewer broker-dealers and investment advisers to choose from, they may have access to fewer products and 

services, they may have to pay more for the services and advice 

they do receive. Any such results are not in the best interests of 

investors, nor do they serve to protect them. 

The argument they are making is that this is a flawed study, and 

they are suggesting that this aspect be studied. They say regulation based on poorly supported recommendations runs the risk of 

restricting retail investors’ access to affordable, personalized investment advice and the range of products and services that they currently enjoy. They are arguing that without consideration of that, 

this is a step back. They say that there is a need for that particular 

research and analysis going into this report, and frankly, grasping 

potential costs and implications has escaped the SEC in the past. 

That is one of our concerns here, with the corporate culture at 

the SEC and other regulatory agencies, and that is a concerning 

trend. I think it should be. I think it should be, for us, a reason 

to ask that the advice of these two Commissioners be deployed here 

in this study. Given the sorry state of our economy and the continued slide in the competitiveness of this country and of the competitiveness of our capital markets, I don’t think now is the time to 

issue rules without fully understanding the ramifications, and 

when two Commissioners say, let us put that into the analysis, I 

think it is time to do it. That is the recommendation that I would 

certainly have, Mr. Chairman. Thank you. 

Chairman GARRETT. I thank the gentleman. 

Mr. Carson is recognized for 11⁄2 minutes. 

Mr. CARSON. Thank you, Mr. Chairman. 

Mr. Chairman, as we discuss another study the SEC was mandated to do through Dodd-Frank, I would like to use this opportunity to again voice my support to increase funding at the SEC. 

My friends, my good friends on the other side of the aisle have not 

hidden their desire to slow down or undo parts of the Dodd-Frank 

Act by suffocating funds to agencies charged with enforcing the 

new law. The Dodd-Frank Act requires the SEC to implement over 

100 new regulations, create 5 new offices, and undertake about 20 

studies. This is a significant undertaking that needs our support. 

The SEC needs funds to carry out new powers to police large hedge 

funds, derivatives dealers, and credit raters that it was tasked with 

by the Dodd-Frank law. Government watchdogs on Wall Street 

have long been outnumbered and outspent by the companies that 

are opposed to policing. With the current funding recommendation, 

Republican leaders look to continue this imbalance and limit protections. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

Chairman GARRETT. The gentleman yields back. 

Mrs. Biggert is recognized for 2 minutes. 

Mrs. BIGGERT. I thank the chairman, and good morning to all of 

you and thank you for being here. 

8 

As you are all well aware, Section 13 of the Dodd-Frank Act required the SEC to report to the House Financial Services Committee and the Senate Banking Committee on the standard of care 

applicable to broker-dealers and investment advisers. This section 

permits, but does not require, the SEC to issue rules to address inadequacies in the standard of care. Also, under Dodd-Frank, Section 914 has a mandate which specifically requires the SEC to 

study the authorization of one or more self-regulatory organizations 

to supplement the oversight and investigation of investment advisers. 

Despite the congressional mandate for the SEC to extensively 

study the fiduciary standard, the Department of Labor unilaterally 

decided to preempt the SEC and propose a rule to overhaul the 

standard without allowing the SEC to finish its study. Unfortunately, this is another example of the Administration imposing duplicative, overreaching, and burdensome regulations on the wrong 

folks at the wrong time. 

I am deeply concerned that just as Americans are worried about 

how much is left in their 401(k)s, the DOL proposal could reduce 

the number of options that the middle class rely on for retirement. 

Now that the SEC has concluded its study and the DOL has released its proposal, I am interested to hear from all of you particularly your opinions on whether the SEC has the resources to examine all investment advisers and how self-regulatory organizations 

could help. Most importantly, I would like to hear how we can ensure the industry is efficiently regulated without disseminating the 

investment options so vital to millions of Americans. 

Thank you all for being here today, and I look forward to your 

testimony. I yield back. 

Chairman GARRETT. The gentlelady yields back. 

Mr. Peters is recognized for 1 minute. 

Mr. PETERS. Thank you, Mr. Chairman, and thanks to the witnesses for being here today in support of the hearing. 

As a former investment adviser who is also a registered brokerdealer, I understand how important the issues we are discussing 

today are to industry professionals and consumers. I think we can 

all agree that what is most important is making sure that consumers are getting good advice. Consumers don’t understand the 

difference between a broker-dealer and an investment adviser, and 

quite frankly, they shouldn’t have to, but when they are given personalized investment advice, they have the right to expect that advice is in their best interests. 

That said, consumers are not being served if they have diminished access to quality advice or the full range of products and 

services. I will be interested in hearing from the witnesses how 

these two very important goals can be accommodated. 

I would also be interested in hearing more about the Department 

of Labor’s proposed business conduct standards, which I believe 

run the risk of severely limiting small individual investors’ access 

to quality advice. 

Consumers also have the right to expect that investment advisers they rely on are being properly policed. As a former investment 

adviser, I know firsthand that the best regulator is an informed 

9 

and educated consumer, but unfortunately we have seen instances 

where even savvy investors have been taken advantage of. 

Whatever entity is going to regulate investment advisers in the 

future, it is critical they are given the resources they need to do 

their job. I firmly believe that consumers and industry both benefit 

from the investor confidence that comes from a strong regulator 

that has the capacity to keep bad actors out of the system, but that 

kind of regulator requires resources which the Republican leadership seems unwilling to provide. 

I look forward to your testimony. 

Chairman GARRETT. And the gentleman yields back. 

We were looking for Mr. Grimm. Unless he is not right there, 

then Mr. Stivers is recognized for 1 minute. 

Mr. STIVERS. Thank you, Mr. Chairman. 

I appreciate the witnesses being here today, and with regard to 

the three issues we are going to talk about today, I wanted to sort 

of have you focus your comments to help us on a few things. 

With regard to the uniform fiduciary standard for broker-dealers 

and investment advisers, I have really four questions: one, what 

are the substantial problems that this regulation attempts to address; two, what kind of cost-benefit analysis has occurred; three, 

what does the cost-benefit analysis tell us; and four, what is the 

impact on consumers? 

With regard to the Department of Labor regulation, their fiduciary rule through ERISA, I am curious what the impact will be on 

IRA holders, what the costs will be, and what it will mean to their 

options of investments. 

And, finally, with regard to examinations, I am a fan of Chairman Bachus’ approach, but I am curious to hear from the witnesses 

what they think of Chairman Bachus’ approach with SROs. 

I am looking forward to hearing the witnesses’ testimony today. 

I want to thank you for being with us today. 

Mr. Chairman, thank you for allowing me some time. I yield 

back. 

Chairman GARRETT. I thank you for your comments. 

Mr. Perlmutter is recognized for 2 minutes. 

Mr. PERLMUTTER. Thank you, Mr. Chairman, and I look forward 

to the testimony this morning. I think this is an important subject, 

whether regulation should be extended to various individuals for 

various products or not. All of this came from—in my opinion—the 

frauds that we saw conducted by Bernie Madoff as well as Stanford 

and some others. Whether these regulations really resolve those 

kinds of frauds or not is something I would like to hear about. 

But as to my friends in the Republican Majority, when the chairman says maybe the SEC has too much on its plate, when you take 

the plate and you shrink it from what you have for the main course 

and you make it a dessert plate, yes, there probably is too much 

on that plate. But whether or not we need that regulation, I think 

is what is important. Between Madoff and Stanford, about $50 billion to $60 billion 

was stolen, and the question is, do you want to take the cops off 

the beat? Whether these regulations that are being discussed today 

are appropriate or warranted, that is one question, but to take the 

cops off the beat to allow investor confidence to erode as it did in 

10 

the fall of 2008, I think is just the wrong way to go. We need to 

be focusing on more investor confidence, not less, and we need to 

be focusing on jobs, and I would ask the Republican Majority to 

turn their attention to those things. 

I yield back. 

Mr. SCHWEIKERT. [presiding]. Thank you. 

Mr. SCHWEIKERT. Mr. Dold, for 1 minute. 

Mr. DOLD. Thank you, Mr. Chairman. 

I certainly want to thank the witnesses for being here today. 

As you all know, approximately 11,000 SEC-registered investment advisers manage over $38 trillion for more than 14 million 

customers, and over 5,000 broker-dealers manage over 100 million 

accounts. With so many millions of Americans trusting so much 

wealth to investment advisers and broker-dealers, it is critical that 

we create a strong, modern, rational, and balanced regulatory 

framework that provides meaningful investor protections, while 

avoiding unnecessarily high costs that investors will ultimately 

pay. 

For this hearing, I am particularly interested in four specific 

areas: first, have bifurcated duty standards created undue investor 

risk, and would a uniform fiduciary duty standard effectively enhance investor protection; second, what are the likely costs, benefits, and risks of a uniform fiduciary duty standard for broker-dealers and investment advisers, and how likely and quantifiable are 

those costs, benefits, and risks; third, what is the best way to finance necessary investment adviser examinations, and who can 

most cost-effectively conduct those necessary examinations; and 

fourth, will the Labor Department’s ERISA fiduciary rulemaking 

proposal lead to inconsistency and affirmative conflicts with other 

statutes and regulations? 

And again, I thank the witnesses for being here. I look forward 

to your testimony. 

Thank you, Mr. Chairman. 

Mr. SCHWEIKERT. Thank you, Mr. Dold. 

Mr. Dwyer, you are our first witness. Thank you for joining us. 

Mr. DWYER. Thank you, Mr. Chairman. 

STATEMENT OF WILLIAM E. DWYER III, CHAIRMAN, 

FINANCIAL SERVICES INSTITUTE (FSI) 

Mr. DWYER. My name is Bill Dwyer, and I am president of national sales and marketing for LPL Financial. By way of background, LPL is the Nation’s 4th largest broker-dealer, with 12,600 

FINRA-registered advisers, approximately 95 percent of whom are 

also registered under our RIA, making LPL one of the largest registered investment advisers in the Nation. I am pleased to testify 

today on behalf of the Financial Services Institute, which represents firms supporting over 200,000 independent financial advisers. 

As dual registrants that work almost exclusively with retail investors, FSI members live under both broker-dealer and investment adviser oversight. This gives us the flexibility to support clients across the spectrum of wealth, whether they are small-town 

investors opening their first IRA or affluent clients with more comVerDate Nov 24 2008 17:07 May 16, 2012 Jkt 072599 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\72599.TXT TERRIE
11 

plex wealth management needs. We bring a unique perspective on 

the issues being considered here today. 

Congress should take two critical steps to improve regulation for 

hard-working Americans who rely on investment advice. First, 

Congress should vigorously oversee the SEC’s work on a new uniform fiduciary standard of care for broker-dealers. Second, Congress should quickly pass legislation proposed by Chairman Bachus 

authorizing the SEC to approve an SRO for retail investment advisers. 

The SEC study found that a uniform fiduciary standard of care 

would be in the best interests of the client. We agree. This new 

standard should preserve investor access to personalized investment advice from a broad range of service providers. The SEC 

should create core principles of fiduciary conduct. These will serve 

as the basis for regulatory requirements specific to RIAs and 

broker-dealers. This will enhance investor protection while preserving investor choice. 

Congress should aggressively oversee the SEC’s efforts to develop 

and implement this new uniform fiduciary standard. In addition, 

Congress should insist that the Department of Labor withdraw and 

repropose its flawed fiduciary duty rule, which is in blatant conflict 

with Congress’ stated intent under 913. As drafted, the DOL rule 

would limit access to affordable advice for those who need it most. 

Also, adoption of the DOL rule is likely to result in confusing and 

conflicting fiduciary standards. 

These measures must be paired with effective regulatory supervision to truly improve investor protection. That is why we strongly 

support closing a significant regulatory gap by increasing examinations of investment advisers. The simple fact is the SEC does not 

have sufficient resources to examine investment advisers. State examination programs are also inadequate. 

To close this gap, Congress should authorize the SEC to approve 

an SRO for investment advisers. We believe that FINRA is in the 

best position to serve as this SRO. FSI’s endorsement of FINRA is 

based upon practicality. FINRA has the flexibility to set user fees 

and hire staff as needed. FINRA already has more than 1,000 examiners on its staff. Its private funding structure is a model for increasing RIA examinations at no additional cost to the taxpayer. 

FSI’s support of FINRA as the SRO is also based on precedent. The 

SEC has more than 70 years of experience with the SRO model 

that can be adapted to ensure a transparent and publicly accountable regulatory structure over both RIAs and broker-dealers. 

In conclusion, this approach to the fiduciary standard and advisory examination will provide a consistent level of protections to all 

investors, level the playing field for industry participants and boost 

investor confidence. 

Mr. Chairman, Main Street Americans deserve a smarter system 

that ensures true investor protection coupled with access to the 

best independent financial advice possible. We deeply appreciate 

the leadership Chairman Bachus has provided on these critical 

issues. 

Thank you for your time this morning, and I would be happy to 

answer any questions. 

12 

[The prepared statement of Mr. Dwyer can be found on page 51 

of the appendix.] 

Mr. SCHWEIKERT. Thank you. 

Next, Mr. Ken Ehinger, president and chief executive officer of 

M Holdings Securities. 

STATEMENT OF KEN EHINGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, M HOLDINGS SECURITIES, INC., ON BEHALF 

OF THE ASSOCIATION FOR ADVANCED LIFE UNDERWRITING 

(AALU) 

Mr. EHINGER. Thank you, Mr. Chairman. Mr. Chairman, Ranking Member Waters, and members of the subcommittee, I am Ken 

Ehinger, president and chief executive officer of M Holdings Securities. I am testifying today on behalf of the Association for Advanced 

Life Underwriting. AALU appreciates the opportunity you have 

given us to testify on the important issues raised by the DoddFrank 913 and 914 studies. 

Based upon my experience and more than 3 decades in the securities and insurance business, I can tell you that a standard of care 

for financial professionals that sounds good in theory may fail in 

practice if it is vague and amorphous and provides no guideposts 

for compliance. And a fiduciary duty offers little protection if regulators do not have the tools and resources to effectively oversee the 

financial professionals who are subject to it. 

AALU does not support the SEC staff recommendation in the 913 

study that broker-dealers be subject to the legal standard of care 

under the Investment Advisers Act. We believe SEC Commissioners Casey and Paredes got it right when they said that the 

study provided no empirical evidence or data that such a change 

would improve investor protection. We also agree with their conclusion that the study failed to assess the costs and impact of a 

change as required by Dodd-Frank, including the risk that such a 

change would reduce investor access to products and services and 

increase costs. 

The need for empirical basis and rigorous cost-benefit analysis in 

SEC rulemaking is critical, particularly in view of the SEC’s recent 

experiences with rulemaking challenges in the D.C. Court of Appeals. It is in the interests of all of us who are regulated by the 

Commission to have a strong and respected regulator to police our 

markets and to instill and enhance investor confidence. The full 

committee will be holding a hearing on these broader issues 2 days 

from now. We want to add our voice to those who are saying that 

the Commission, with its limited resources, simply has to focus on 

the most critical issues at hand. 

With respect to the SEC’s priorities, let me say that Chairman 

Bachus, Chairman Garrett, and members of this committee are 

performing an important service for investors in focusing on the 

need to substantially increase SEC inspections of investment advisers potentially through a self-regulatory organization such as 

FINRA. 

AALU members are licensed life insurance professionals. Many 

are licensed in multiple States. Most AALU members are registered representatives of SEC- and FINRA-registered broker-dealers and/or investment adviser representatives of SEC-registered 

13 

advisers. Our members are subject to multiple layers of Federal 

and State regulation. 

The variable insurance products our members sell give customers 

investment choices and an insurance guarantee, which has been 

recognized as even more important in recent years of volatility. It 

is the sale of these products that triggers broker-dealer registration 

and SEC, FINRA, and State securities regulation and oversight for 

insurance producers. In fact, the regulatory requirements for variable insurance products are far more detailed and rigorous than 

anything that exists in the regulation of investment advisers. 

Although AALU’s submission to the SEC on the 913 study explained the regulation of variable insurance products in great detail, the SEC staff did not acknowledge this anywhere in its study. 

This concerns us because the range and features of products such 

as variable life and variable annuities make it difficult to determine which product is best, and a best interest standard almost 

certainly would lead to increased litigation. Determining what is 

best would be highly subjective, opening up producers to secondguessing, often years after the sale of a product. 

The SEC staff’s recommendation for a uniform fiduciary duty 

rests almost entirely on a 2008 RAND Report finding investor confusion over the legal duties that apply to financial professionals. 

That same report also found that investors were satisfied with 

their own financial service providers. This points to the need for 

more effective disclosures and investor education, not the need for 

wholesale changes in the legal standards. 

The regulatory and oversight regime for broker-dealers is superior to the regulation of investment advisers. If any changes are to 

be made to enhance investor protection, priority should be given to 

bringing adviser regulation up to the level for broker-dealers. 

Let me close by saying that life insurance enables individuals 

and families from all economic brackets to maintain independence 

in the face of financial catastrophe. The life insurance industry, 

through permanent life insurance and annuities, provides 20 percent of America’s long-term savings. Two out of three families, that 

is 75 million families, count on the important financial security 

that life insurance products provide. Therefore, any proposed 

change in regulation that could limit consumer choices and access 

to these critical protection and savings vehicles should meet a high 

burden with respect to the need for the changes. 

Thank you for the opportunity to testify in this important hearing. AALU looks forward to continuing to work with you on these 

critical issues. 

[The prepared statement of Mr. Ehinger can be found on page 67 

of the appendix.] 

Mr. SCHWEIKERT. Thank you. 

Terry Headley, president of National Association of Financial 

and Insurance Advisors. 

STATEMENT OF TERRY HEADLEY, PRESIDENT, NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS 

(NAIFA) 

Mr. HEADLEY. Thank you, and good morning, Mr. Chairman, 

Ranking Member Waters, and members of the subcommittee. My 

14 

name is Terry Headley, and I am the president of the National Association of Insurance and Financial Advisors. For 38 years, I have 

been an insurance licensed agent, financial adviser, registered representative, and an investment adviser representative. I greatly appreciate the opportunity to share with you NAIFA’s views on the 

regulation and oversight of broker-dealers and investment advisers. 

I will focus on two issues. First, the imposition of a fiduciary 

standard of care on broker-dealers, and secondly, the creation of an 

SRO for investment advisers. 

Like most of my NAIFA colleagues, I have spent my career helping Main Street investors achieve their financial goals by providing 

affordable financial services for middle-class investors. Virtually all 

NAIFA members sell life insurance. Two-thirds of us are also 

broker-dealer registered representatives, selling primarily mutual 

funds and annuities, and, like me, about 40 percent of the registered representatives are also investment adviser representatives. 

Many of us provide retirement planning services as well. NAIFA 

members are largely small business owners serving the middle 

class. The majority of our clients have household incomes under 

$100,000, and a sizable percentage have less than $50,000 invested 

in the financial markets. 

The SEC has said they will oppose a single uniform fiduciary 

standard of care on broker-dealers and investment advisers. At the 

same time, the Department of Labor is promulgating its own rule, 

expanding the fiduciary standard. The DOL’s rule, however, is different from the approach required under Dodd-Frank. As a result, 

we can see two different agencies with two different fiduciary 

standards serving two different purposes. 

We are deeply concerned about the impact these rules could have 

on our ability to serve middle-market clients. If, as the SEC study 

concludes, consumers are indeed confused, I can guarantee you 

that the confusion will only multiply if the rules are not properly 

constructed. NAIFA supports clarification to address client confusion, to ensure that clients understand the different rules and business models of investment advisers and broker-dealers, but simply 

applying the 1940 Investment Advisers Act standard to brokerdealers in a one-size-fits-all manner would negatively impact product access, product choice, and affordability of services for consumers who need them the most. 

NAIFA has collected industry data over the past year showing 

that if compliance costs and liabilities increase, many NAIFA members would be forced to discontinue providing services to middleclass clients. Middle-class investors must be able to obtain personalized financial advice so they can plan adequately for their futures. 

The SEC study unduly discounts the risk that additional regulatory burdens could result in middle-class investors having fewer 

financial advisers from which to choose. 

If the Commission imposes a uniform fiduciary duty, it must: 

one, incorporate the Dodd-Frank exceptions providing that brokerdealer commission compensation and the sale of proprietary products would not inherently violate a possible uniform standard; two, 

account for the unique attributes of the broker-dealer business 

model; three, provide new guidance documents for the industry; 

15 

and four, be sufficiently clear and comprehensible so broker-dealers 

can adjust their business practices with minimal disruption. 

Finally, I would like to mention our belief and official policy decision that FINRA should serve as the self-regulatory organization to 

conduct periodic examinations of SEC-registered investment advisers. It is clear to us that would be the most efficient and cost-effective approach to regulating the examination of investment advisers. 

Although we have not had time to fully analyze the bill, we believe that the draft legislation that would establish an application 

and registration process for national investment adviser associations moves in the right direction and provides a useful basis for 

further discussion and consideration. We look forward to working 

with the subcommittee on this important matter. 

In conclusion, thank you for the opportunity to share our views 

with you today that we deem critical to ensuring all investors are 

both protected and have access to competent financial advice and 

services. We welcome the opportunity to assist you in any way that 

we can. Thank you. 

[The prepared statement of Mr. Headley can be found on page 80 

of the appendix.] 

Mr. SCHWEIKERT. Thank you. 

Steven D. Irwin, commissioner, Pennsylvania Securities Commission, on behalf of the North American Securities Administrators 

Association. 

STATEMENT OF STEVEN D. IRWIN, PENNSYLVANIA SECURITIES COMMISSIONER, ON BEHALF OF THE NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. 

(NASAA) 

Mr. IRWIN. Congressman Schweikert, Ranking Member Waters, 

and members of the subcommittee, I am Steve Irwin, chairman of 

the Federal Legislative Committee of the North American Securities Administrators Association, or NASAA. 

At this moment, securities regulators from nearly all 50 States 

are in Kansas celebrating the 100th anniversary of our Nation’s 

first Blue Sky Law. For a century, State securities regulators have 

combated fraud against mainstream investors, especially those less 

able to protect their own interests. In 2010 alone, State securities 

regulators conducted more than 7,000 investigations, leading to 

nearly 3,500 enforcement actions, including 1,100 criminal actions. 

Last year, 3,200 licenses of brokers and investment advisers were 

withdrawn, denied, revoked, suspended or conditioned by the 

States. Since 2004, State regulators have secured convictions with 

prison sentences of nearly 6,000 years. 

Traditionally, State securities regulators have pursued perpetrators trying to defraud mom-and-pop investors locally, but this does 

not mean that States do not also play a vital role in shutting down 

many more complex schemes involving national markets. State investigation of violations on a national level have forced, for example, Wall Street to correct rampant conflicts of interest among stock 

analysts, illegal late trading, and market timing in mutual funds. 

Most recently, State regulators returned to investors $61 billion 

stuck in illiquid auction rate securities. 

16 

Today’s hearing is intended to review the Dodd-Frank Section 

914 study and consider steps to improve the oversight of SEC-registered investment advisers. Mr. Chairman, it is important to note 

that the Section 914 study considered only the question of federally 

regulated investment advisers. The study did not consider or make 

any recommendations regarding State-regulated IAs. Currently, 

the States are the sole regulators of investment advisers with less 

than $25 million in assets under management. In mid-2012, this 

will increase to $200 million. NASAA would vigorously oppose the 

creation of any self-regulatory organization for these State-regulated investment advisers and their associated persons. 

Oversight of investment advisers should remain a government 

responsibility. Investment adviser regulations should continue to 

reside with State and Federal Governments, which must zealously 

carry out their mandates. Government regulators bring to the table 

decades of unmatched experience. We see little benefit in constructing a new layer of bureaucracy with its incumbent expense. 

If the goal is strengthening investor protection through improved 

oversight of SEC regulated investment advisers, then the fastest 

route is to ensure that Federal regulators have the resources that 

they need. 

Numerous issues must be resolved before establishing an SRO 

for SEC-registered investment advisers. The discussion draft would 

require small and midsized firms to register with a new investment 

adviser SRO. Such advisers usually operate in a single State. Shifting such regulation to a central office would subject these small 

businesses to redundant regulation and add unnecessary costs to 

support the new organization. As the local cops on the beat, the 

States are best positioned to be the primary regulator for small and 

midsized firms. When it restored State authority over these firms 

last year, Congress recognized we are more likely to visit their offices across America than the SEC or an organization 

headquartered in New York or Washington. 

The current securities industry SRO model is replete with conflicts of interest. Industry representatives serve on the SRO’s board 

and occupy other positions of prominence within the organization. 

Premised on self-rule, they are primarily accountable to their members, not the investing public. As the 914 study observed, any SRO 

that depends on its members for funding is highly susceptible to industry capture. 

Sharing information among State and Federal regulators is essential to protecting investors, but the State or government actor 

doctrine has become a barrier to collaboration and cooperation 

under the SRO model. Any increased—FINRA has pointed to the 

doctrine as a reason to refuse State regulators’ requests for investigatory cooperation. The present SRO model is flawed, and Congress should not consider expanding it until it is fixed. This may 

require addressing the State actor issue by statute to ensure it no 

longer is an impediment to swift, aggressive, and efficient enforcement. 

An SRO further hobbles investor protection by its lack of transparency. Unlike the States and the SEC, subject to FOIA, FINRA 

can and does filter regulatory records, which may deprive the public of information pertinent to their investment decisions. SROs 

17 

cannot claim the accountability of State regulators answerable to 

the elected officials who appoint them, nor can SROs duplicate 

State regulators’ proximity to their constituents and familiarity 

with the investment advisers they routinely license and examine. 

To the extent an SRO may be federally designated, government 

must check it. 

In view of the SRO’s role in the government and securities markets today, it is critical that the SEC exercise robust oversight. Any 

increased SRO role with respect to federally covered advisers cannot displace State laws. The notion that State law might one day 

be preempted by administrative rules issued by a private corporation is unconscionable. Preemption occurring because of industry 

self-made rules would undermine basic tenets of Federalism and 

the democratic values from which regulation derives legitimacy. 

Thank you, Mr. Chairman. 

Wait, one more thing. The subcommittee also considers today 

whether the SEC should apply the same duty of care to brokerdealers and investment advisers. Financial professionals who provide personalized investment advice to retail investors should be 

held to the fiduciary duty under the Investment Advisers Act of 

1940. Ninety-seven percent of those surveyed believe financial professionals should put the investors’ interests before their own and 

disclose up front any fees, commissions or conflicts of interest. Any 

minimal increase in compliance costs will be outweighed by the direct benefit to investors, who expect and deserve to have their interests come first. 

It is an honor to work beside State securities regulators from 

throughout North America. On a mission to protect investors, they 

stepped up to fill the gap in the regulation of investment advisers. 

Thank you, Mr. Chairman, Ranking Member Waters, and members of the committee for the opportunity to work with you toward 

restoring trust on Main Street in our capital markets. Rest assured 

that we are all innovating, being strategic, and maximizing all 

available resources to get the job done. 

[The prepared statement of Mr. Irwin can be found on page 89 

of the appendix.] 

Mr. SCHWEIKERT. Thank you. 

Richard Ketchum, chairman, chief executive officer, Financial Industry Regulatory Authority. Mr. Ketchum. 

STATEMENT OF RICHARD G. KETCHUM, CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) 

Mr. KETCHUM. Thank you, Mr. Chairman, Ranking Member 

Waters, Chairman Bachus, and members of the subcommittee. As 

you note, I am Richard Ketchum, chairman and CEO of the Financial Industry Regulatory Authority, or FINRA. On behalf of FINRA, 

I would like to thank you for the opportunity to testify today. I will 

just note from the earlier statement, I feel very much today and 

every day as accountable to this subcommittee. 

The issue being discussed today, the oversight of investment advisers and broker-dealers, is a critical one for investors, and I 

strongly believe that significant improvements are needed if investors are to receive the protections that they deserve. Increasing 

18 

numbers of retail investors are seeking the advice of financial professionals, both brokers and investment advisers. At one time, 

these two businesses were distinct and separate, but today in many 

ways they have converged. Nevertheless, the regulation of investment advisers and broker-dealers remains quite different. The two 

industries are subject to different standards of conduct and very 

different levels of oversight and enforcement. 

FINRA believes that the standard of care on both channels 

should be a fiduciary standard for the provision of personalized investment advice to retail customers. We have found under the 

present broker-dealer regime that too often regulators have been 

forced to respond issue by issue or violation by violation rather 

than addressing problems more broadly and prospectively. Extending a fiduciary duty to all professionals providing individualized advice to retail customers should, of course, be done carefully in a 

way that provides interpretive guidance as to the application of 

such a duty to the variety of broker-dealer business models that 

currently exist. 

Harmonization of the standard of care is an important first step; 

however, just as critical is a consistent oversight regime to ensure 

investors of being properly protected. Compliance with the fiduciary standard must be regularly and vigorously examined and enforced to ensure the protection of investors. The SEC study on investment adviser exams concludes that the agency will not have 

sufficient capacity in the near or long term to conduct effective examinations of registered investment advisers with adequate frequency. 

The SEC oversees more than 11,000 investment advisers, but in 

2010 conducted only 1,083 exams of those firms due to the lack of 

resources. As such, the average registered adviser could expect to 

be examined less than once every 11 years. 

While the Commission examines only about 9 percent of investment advisers each year, 55 percent of broker-dealers are examined 

each year by the SEC and FINRA. The SEC has estimated that it 

would need to double the number of examiners to increase the frequency of adviser exams to even 20 percent. 

The gap in investment adviser oversight is a significant void and 

should be addressed as quickly as possible. Providing the SEC authority to designate one or more SROs for investment advisers subject to Commission oversight is the most practical and efficient way 

to address this problem. Chairman Bachus’ draft legislation circulated for this hearing would establish that authority and set a 

framework of requirements for any entities that would be designated as adviser SROs. 

The draft is a thoughtful approach to addressing the critical need 

for increased adviser oversight. The draft ensures that an adviser 

SRO would do regular examinations of members and their associated persons, while not imposing burdens on advisers that are not 

necessary or appropriate. The draft sets out criteria for governance 

that would require a majority of public representatives on any 

SRO’s board, and that members of the investment industry would 

be allocated a number of the remaining seats. 

Another significant issue is the scope of authority of any investment adviser SRO. Any adviser SRO should have authority to exVerDate Nov 24 2008 17:07 May 16, 2012 Jkt 072599 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\72599.TXT TERRIE
19 

amine for and enforce compliance with the Investment Advisers 

Act, the rules under that Act, and its own rules. We believe that 

the primary regulatory structure for advisers should remain the fiduciary standard incorporated in the Advisers Act and related SEC 

rulemaking and interpretations. Adviser SROs should have limited 

rulemaking authority, but the extent of that authority should be a 

matter for Congress and the SEC to determine. 

The discussion draft addresses these issues, establishes a high 

standard for SEC approval of SROs in the adviser area, and a requirement for consultation with the SEC in developing an examination program for investment advisers. We support this approach. 

The SEC and State regulators play vital roles in overseeing both 

broker-dealers and investment advisers, and they should continue 

always to do so. FINRA has worked alongside both in overseeing 

broker-dealers, making hundreds of referrals at both the Federal 

and State level, and providing information in response to numerous 

requests each year. The problem at issue today is not about coordination among regulators, but about ensuring oversight where otherwise there is not acceptable coverage. 

Investor protection demands that more resources be dedicated to 

regular and rigorous examination and day-to-day oversight of investment advisers. SROs can help fill an untenable gap in the protection of investment advisory clients. FINRA is committed to 

working closely with other regulators and this subcommittee as you 

consider how best to address the lack of examination resources for 

investment advisers. 

I appreciate the opportunity to testify today and I will be happy 

to answer any questions you may have. 

[The prepared statement of Mr. Ketchum can be found on page 

101 of the appendix.] 

Chairman GARRETT. Ms. Roper, you are recognized. 

STATEMENT OF BARBARA ROPER, DIRECTOR OF INVESTOR 

PROTECTION, CONSUMER FEDERATION OF AMERICA (CFA) 

Ms. ROPER. Thank you, Chairman Garrett, Ranking Member 

Waters, Chairman Bachus, and members of the subcommittee. 

I am Barbara Roper, director of investor protection for the Consumer Federation of America. I appreciate the opportunity to appear before you today to talk about a topic that has been a priority 

for CFA for a quarter century, improving protections for investors 

in their dealings with brokers and investment advisers. 

The policies advocated in the two SEC studies that are the subject of this hearing have the potential to plug two significant gaps 

that put retail investors at risk: the fact that brokers are allowed 

to market themselves as advisers and offer extensive advisory services without having to act in their customers’ best interest; and the 

fact that investment advisers are subject to inadequate regulatory 

oversight. My written testimony deals with both topics. 

While both are priorities, I am going to focus on the standard of 

care issue in my oral statement since, of the two, we believe it has 

the greater potential to increase investor protection. 

In the Section 913 study, the Securities and Exchange Commission has proposed an approach for imposing a fiduciary duty on 

brokers when they give personalized investment advice to retail inVerDate Nov 24 2008 17:07 May 16, 2012 Jkt 072599 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\72599.TXT TERRIE
20 

vestors that has won praise, on the one hand, from investor advocates, State securities regulators, and others who have long advocated for a broker-dealer fiduciary duty and, on the other hand, has 

won praise from the likes of SIFMA and FSI who long resisted 

such an approach. 

It has earned the support of the first group by pledging that the 

existing standard of protection under the Investment Advisers Act 

would not be weakened. It has earned the praise of the second 

group by proposing an approach that would preserve the brokerdealer business model by ensuring that brokers would remain free 

to charge commissions, to sell proprietary products, to sell from a 

limited menu of products, to engage in principal trading, and to 

offer transaction-based recommendations. 

If the Commission moves forward with a rulemaking along these 

lines, the result for investors would be the best of both worlds. 

They would retain their ability to choose whether they want ongoing account management or transaction-based recommendations, 

whether they want to pay through fees or through commissions. 

But they would be able to make that choice without giving up their 

right to recommendations that are in their best interest; and they 

could expect to see their costs drop, not rise, if brokers had to take 

costs into account in making their recommendations. 

Some, including some members of this subcommittee, have suggested that the Commission hasn’t adequately demonstrated the 

need to raise the standard. But here is what we know: We know 

that investors can’t tell brokers from investment advisers. Indeed, 

they cannot tell whether their own financial professional is a 

broker or adviser, even after the differences have been explained 

to them. And we know this confusion cannot be disclosed away. 

We know that investors do not understand that brokers and investment advisers are subject to different legal standards when 

they perform the same functions, and we know that investors expect that anyone who is providing them with investment advice 

will be acting in their best interest. As a result, we know that investors are simply not able to make an informed choice among providers on whom they rely for recommendations; and they are not 

sufficiently on their guard when dealing with so-called financial advisers who are really just selling products. 

Some continue to maintain, however, that the SEC has not done 

enough to demonstrate that investors are being harmed. And it is 

true that the Section 913 study does not provide extensive evidence 

of that harm, something that we had advocated that the SEC do. 

But the simple truth is that investors pay significant excess costs 

and lose out on important long-term benefits as a result of conduct 

that is permissible under the suitability standard but not under a 

fiduciary duty. 

Take, for example, the investor who is purchasing a variable annuity with a guaranteed living benefit. As long as that is a suitable 

investment in light of the investor’s circumstance, the broker selling the annuity is free to select one that offers him the biggest paycheck. He doesn’t even have to check to see if another variable annuity would offer the investor a better deal, let alone whether a different investment strategy might be in the investor’s best interest. 

But the difference can amount to thousands of dollars a year in inVerDate Nov 24 2008 17:07 May 16, 2012 Jkt 072599 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\72599.TXT TERRIE
21 

come for investors and tens of thousands of dollars over the lifetime of the investment. The investor who is sold the inferior product will likely never know that he or she has been had. But a couple of thousand dollars of income is real money to middle-income 

investors, money they cannot afford to sacrifice just so the broker 

can enjoy a more profitable payday. 

A well-enforced fiduciary duty would change that, not by imposing an unrealistic requirement that the broker consider every product available in the market, not by requiring brokers to give up 

their expectation of reasonable pay for their services, but by requiring the broker to have a reasonable basis for believing that, among 

the products he has to sell, the one he recommended is, in fact, the 

one that is best for that investor. And if product sponsors had to 

start competing based on benefits to investors, rather than compensation to the broker, the change could be truly revolutionary. 

The kind of harm that occurs when advice is offered under a 

sales standard isn’t always dramatic and it isn’t easy to quantify. 

But for the average investors whose retirement security is put at 

risk, it more than justifies the long-overdue rulemaking to subject 

brokers to the same standards all other advisers live under when 

they offer personalized investment advice. 

The Commission has pledged to gather additional data before 

moving forward on a rulemaking. We urge members of this committee to support, rather than impede, those efforts. 

Thank you. 

[The prepared statement of Ms. Roper can be found on page 109 

of the appendix.] 

Chairman GARRETT. Thank you. 

Mr. Taft, you are recognized. 

STATEMENT OF JOHN TAFT, CHAIRMAN, THE SECURITIES 

INDUSTRY AND FINANCIAL MARKETS ASSOCIATION (SIFMA) 

Mr. TAFT. Good morning, Chairman Garrett, Ranking Member 

Waters, Chairman Bachus, and members of the subcommittee. 

I am the chairman of the Securities Industry and Financial Markets Association, and CEO of RBC U.S. Wealth Management, 

which has over 2,000 financial advisers serving 800,000 client accounts. Thank you for the opportunity to testify. 

Today, I will present SIFMA’s views in support of establishing a 

uniform fiduciary standard for brokers and advisers and ensuring 

uniform examination of that standard. We believe that such a 

standard is consistent with the current best practices in our industry, and we hope it will ultimately result in a heightened industry 

focused on serving the best interests of retail customers. 

Our support, however, is premised on achieving this standard in 

a manner that protects investor choice, protects investors, is costeffective, is business model neutral, and avoids regulatory duplication or conflict. The development of such a standard is a complex 

undertaking that must be well thought out, reflect both the statute 

and congressional intent, and reflect the thorough cost-benefit analysis. 

Further, it is our strong view that the Department of Labor’s expansive new proposed definition of fiduciary under ERISA directly 

22 

conflicts with Section 913. Unless DOL reproposes, their proposal 

will result in decreased investor choice and increased investor cost. 

That said, Congress explicitly intended for the SEC to craft a 

uniform fiduciary standard that not only protects investors but also 

preserves investor choice and access to cost-effective financial products and services. The standard must also be adaptable to the substantially different operating models of broker-dealers and investment advisers. 

Section 913 of Dodd-Frank requires that the uniform fiduciary 

standard be no less stringent than the general fiduciary duty applied by the Advisers Act. However, the plain language of DoddFrank, together with its legislative history, makes clear that the no 

less stringent language does not require the SEC to impose the Advisers Act on broker-dealers. If the SEC did so, it would negatively 

affect client choice, product access, and affordability of customer 

services. By definition, such a move would not be in the best interests of retail customers. 

The general fiduciary duty implied under the Advisers Act also 

provides incompatible and insufficient guidance for broker-dealers 

on how to manage, disclose or, where necessary, obtain consents to 

potential conflicts of interest. Imposing the Advisers Act standard 

would also be problematic for broker-dealers from a commercial, 

legal, compliance, and supervisory perspective, thereby undercutting the SEC’s intent to take a business model-neutral approach. 

Under our proposed framework, the general fiduciary duty implied under the Advisers Act would be newly articulated through 

SEC rulemaking under the Advisers Act and parallel, consistent, 

and equally stringent rulemaking under the Exchange Act which 

governs broker-dealers. The SEC would also issue rules and guidance to provide the structure and detail necessary to enable brokerdealers to apply the standard to their distinct operating models. 

We continue to urge the SEC to newly articulate a uniform fiduciary standard rather than attempt to overlay the Advisers Act, 

which would result in significant negative effects for investor protection and choice. 

The DOL’s fiduciary proposal conflicts with Section 913 and with 

SEC efforts to implement Section 913 and could subject brokers 

and advisers to multiple and conflicting regimes when dealing with 

retail customers. The DOL proposal also suffers from inadequate 

cost-benefit analysis, particularly with respect to retirement plans 

and IRAs and the impact on retirement savings. We strongly believe that the DOL proposal should be withdrawn and reproposed. 

In conclusion, if we succeed in establishing a uniform fiduciary 

standard, avoiding an Advisers Act overlay and removing conflicts 

with a DOL proposal, what next? That is a central question raised 

by Section 914 of Dodd-Frank, which required the SEC to review 

the need for enhanced examination of advisers. 

The SEC’s Section 914 study recommends three options. We believe that the third option, the SRO option, is the most practical 

and prudent. Oversight of broker-dealers is bolstered by the examination activities of SROs like FINRA, particularly with respect to 

conduct directed towards retail customers. Consistent with establishing a uniform fiduciary standard, we ought to hold brokers and 

advisers to that same standard through uniform examination. Our 

23 

SRO recommendation, however, does not extend to institutional advisers, and we would not support legislation that extends SRO 

oversight to institutional investors. 

Thank you, Chairman Garrett, and members of the subcommittee for allowing me to present SIFMA’s views on these critically important topics. 

[The prepared statement of Mr. Taft can be found on page 139 

of the appendix.] 

Chairman GARRETT. Thank you, Mr. Taft. 

Mr. Tittsworth, you are recognized for 5 minutes. 

STATEMENT OF DAVID G. TITTSWORTH, EXECUTIVE DIRECTOR AND EXECUTIVE VICE PRESIDENT, INVESTMENT ADVISER ASSOCIATION (IAA) 

Mr. TITTSWORTH. Chairman Garrett, Ranking Member Waters, 

Chairman Bachus, thank you very much for the opportunity to be 

here today. 

The Investment Adviser Association represents SEC-registered 

investment advisory firms. Our members serve a wide range of clients including individuals, trusts, and families, as well as institutions such as endowments, charities, foundations, State and local 

governments, pension funds, mutual funds, and hedge funds. 

Today, there are about 11,500 SEC-registered advisers. Most of 

these are small businesses. More than two-thirds employ fewer 

than 10 employees, and more than 90 percent employ fewer than 

50 employees. Our members engage in a wide range of advisory activities and investment strategies on behalf of their clients. They 

perform a critical role in helping investors achieve their financial 

goals. 

Our written statement addresses a number of issues relating to 

SEC studies required under Sections 913 and 914 of the DoddFrank Act. I would like to highlight a few key points about each. 

With respect to the Section 913 report, we support the recommendation urging the SEC to propose rules or guidance providing for a uniform fiduciary standard for investment advisers and 

broker-dealers when they provide personalized investment advice 

to retail clients. 

Having said that, we have emphasized two core concerns. First, 

we have urged the SEC not to weaken or water down the Advisers 

Act fiduciary standard. This duty is well established. It has been 

consistently interpreted for decades by the SEC and the courts. 

One of the greatest strengths of the Federal standard is its 

breadth. It provides the highest level of protection for investors 

while remaining dynamic and relevant in changing business and 

market conditions. 

Second, we note that the range in which broker and adviser activities overlap is actually relatively narrow. Thus, it would be inappropriate for the SEC to import the entire sales-based brokerdealer regime on investment advisers or, vice versa, to impose Advisers Act rules on the nonadvisory activities of broker-dealers. 

With respect to the Section 914 report, we support regulation 

and oversight by the SEC, a single governmental regulator accountable to the Congress and the public that has investor protection as its paramount mission. We strongly oppose the creation of 

24 

a private regulator for the advisory profession. Many other organizations agree with this position. We note that several reports, including one by the U.S. Chamber of Commerce, have cataloged 

drawbacks, costs, and inefficiencies of the private regulatory model 

and FINRA, in particular. I would also note that other countries 

with mature markets have completely discarded or are trending 

away from the private regulatory model. 

We have reviewed the discussion draft legislation that would require most investment advisers to belong to a private regulator. We 

do not believe this is the best approach to enhance adviser oversight. 

The draft legislation is clearly based on current laws governing 

FINRA and would subject thousands of advisory firms, including 

most small businesses, to broad rulemaking and inspection authority by a private regulator, in all likelihood FINRA. Many concerns 

have been documented about FINRA, including its lack of accountability, lack of transparency, its questionable track record, excessive costs, and its bias favoring the broker-dealer regulatory model. 

FINRA’s budget and governance are not subject to direct oversight 

by the SEC or by Congress. It lacks the expertise to regulate investment advisers. It is not subject to statutory safeguards, such as 

the Freedom of Information Act. It is not required to conduct a 

cost-benefit analysis before imposing its rules. 

On the other hand, the SEC’s budget is directly accountable to 

Congress. It has developed the expertise to regulate investment advisers over many decades; and the SEC is subject to numerous 

statutory requirements before it can impose its rules, including the 

consideration of costs and benefits. 

As an alternative, we respectfully urge the subcommittee to consider legislation authorizing investment adviser user fees. We 

would be pleased to assist in this effort, as outlined in our written 

statement. 

Again, thank you for the opportunity to appear today. I would be 

happy to answer any questions. 

[The prepared statement of Mr. Tittsworth can be found on page 

229 of the appendix.] 

Chairman GARRETT. Great. Thank you very much for your testimony, and thank you to the entire panel for being here for the last 

hour-and-a-half now. 

I recognize myself for the first 5 minutes of questions, and I 

guess I will begin my questions where I began my opening statement. 

In my opening statement I said that it would seem incumbent 

upon an agency such as the SEC that before they consider and promulgate regulations or rules that—as Mr. Tittsworth was just saying—they do a cost-benefit analysis. And that would indicate then, 

while you do that, do you actually have a problem that you are trying to solve with the regulations that you are going to eventually 

promulgate? 

My question—and I will throw it out maybe to Ms. Roper first 

for an answer. But to the entire panel, do we have anything other 

than what I will say is anecdotal examples? We didn’t get it in the 

SEC study, as we pointed out. But do we have anything other than 

just the anecdotal examples—hard, factual data to show that the 

25 

suitability standard is disserving to those seeking advice from 

broker-dealers? 

Ms. ROPER. First, let me say I agree that the SEC’s 913 study 

does not provide that evidence. In our comment to the agency at 

the outset of this study, we outlined a number of areas where we 

thought they could pursue that evidence. It is not there. It is not 

that you can’t get it, but it is not there. 

We know that, for example, the single factor that most determines investors’ long-term performance is cost. It is not addressed 

under a suitability standard and is addressed under a fiduciary 

duty. There is evidence that could be collected and should be collected that would support the rulemaking. The SEC has a study 

team in place. They say they are going to collect that data. We believe it is a realizable task. 

Chairman GARRETT. Would anyone else like to comment on that? 

The basic question, is there actual data out there that the SEC 

should have had or that we should have that can make that come 

to that conclusion one way or the other? Are there studies or data? 

Mr. EHINGER. I don’t believe there is data that supports that information. I think that gets to the core of the question of what is 

the problem we are working to solve. Because in my statement, 

while there are differences in how broker-dealers and investor advisers are examined and regulated, in my opinion, in my experience, the broker-dealer model is much more robust. 

Chairman GARRETT. For anyone else, is there any data that is 

out there with regard to—not anecdotal—but how the customers 

actually feel about the service they are getting? Is there any data 

out there with regard to not just the feeling but actually their level 

of satisfaction under the current regime, the current methodology 

that we have right now? 

Ms. ROPER. Yes. There is survey data that clearly shows investors are satisfied with the service they receive. If they are not informed, they can’t tell you whether they are dealing with a broker 

or an adviser. They don’t know the basic things they would need 

to know if they were being disserved. 

Chairman GARRETT. So, in other words, they don’t know that 

they are being disserved? 

Ms. ROPER. Absolutely. If they don’t know that another product 

offers much better benefits than the one they were sold, why 

should they be dissatisfied? If they don’t know they are losing tens 

of thousands of dollars over the lifetime of an investment because 

they are paying excess costs, why would they be dissatisfied? 

Mr. TITTSWORTH. Mr. Chairman, I would just note that the SEC 

will have to submit a cost-benefit analysis if it has a rulemaking. 

I know you and other members of the subcommittee have urged 

them to do that. And there has been a recent court decision. As I 

am sure you are aware, they can be taken to court if their costbenefit analysis is not robust or effective enough. 

Chairman GARRETT. And on that last point, just for the whole 

panel, is there anyone who disagrees with the idea that before the 

SEC promulgates these regulations, there should be an effective 

cost-benefit analysis? Does anyone disagree with that? 

Mr. TITTSWORTH. No. We agree with that. 

26 

Mr. IRWIN. Chairman Garrett, I don’t think we need to wait. We 

can’t afford to wait. We, in Pennsylvania, do approximately 300 

events in libraries and at fairs and others, talking to investors on 

the local level. And they need to have the confidence to come back 

into the markets. We really see that every day. 

If we take the position that what they don’t know won’t hurt 

them—it is like buying a car. Did you get a good deal or did you 

not get a good deal? When you find out afterwards you got a bad 

deal and really feel bad about it, you are paying more every month. 

That is what we are risking. 

Chairman GARRETT. Mr. Ketchum, just a comment with regard 

to Mr. Tittsworth’s comment. Your organization promulgates lots of 

regulations. Do you do a cost-benefit analysis? 

Mr. KETCHUM. We operate from a cost-benefit analysis in a variety of ways. I believe anytime any issues are raised in our comment process, we do an analysis of the cost and the benefits of the 

rule. 

So, unlike the Federal Government, we first have representatives 

of the industry and industry committees and on our board who 

have a direct opportunity to raise any concerns from a cost standpoint. We then put out any nonadministrative rule we are proposing, unless it is an emergency, out to all constituents, including 

members but also to constituents of all sorts, to provide comments 

before we even provide it to the SEC. Our responsibility at the time 

we provide it to the SEC is to provide a response to comments, including any concerns with respect to costs at that time. Then, after 

the SEC evaluates, they come back to us and ask for additional details. 

So, yes, I believe anytime anyone in the industry or anywhere 

else has a concern with respect to cost, we are always required to 

address this. 

Chairman GARRETT. Since my time is up, I will let Mr. 

Tittsworth have the final word on that. 

Mr. TITTSWORTH. I appreciate that, Mr. Chairman. 

Just to say briefly, they may consider some costs and benefits at 

FINRA, but, as a legal matter, it is not required. And if somebody 

brought a lawsuit, as the U.S. Chamber of Commerce did recently 

with the SEC, there is no law that would require FINRA rules to 

have that cost-benefit analysis. And I don’t think you would have 

the same result. 

Chairman GARRETT. I thank both gentlemen for their statements. 

The gentlelady is recognized for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Ms. Roper, you state in your testimony that the most vocal critics 

of the SEC Section 913 study have been insurance broker-dealers 

because their sale of variable annuities would come under the 

heightened standard of care. Do you believe that variable annuities 

require a heightened standard of care? And if so, why? 

Ms. ROPER. I do believe so, yes. And I am not alone in that. 

Award-winning financial writer Liz Pulliam Weston has called 

them the worst retirement investment you can make. They have 

been called the most oversold, overhyped, least-understood investment products. And it is estimated by one industry observer that 

27 

at least $25 billion a year in investor excess costs are siphoned 

from vulnerable investors to the insurance industry and their sales 

force through the sale of variable annuities. We believe that an effectively implemented fiduciary duty has more potential to offer in 

this one area than in virtually any other area subject of brokerdealer conduct. 

Ms. WATERS. Thank you very much. 

Mr. EHINGER. Congresswoman Waters, may I make a statement, 

please? 

Ms. WATERS. Yes, you may. 

Mr. EHINGER. I would just like to add that variable annuities, as 

Ms. Roper points out, are a substantial and important retirement 

savings vehicle for millions of Americans and also that the concerns and some of the issues that have been raised over time about 

some of the sales practices have been very directly and deliberately 

and I think in a very detailed fashion addressed by FINRA and 

specifically in rule 2330, giving us in the broker-dealer community 

the ability to not only know specifically what are the actions, what 

are the reviews that we should take, but providing that guidance 

very directly— 

Ms. WATERS. Thank you very much. 

I want to understand FINRA. I understand that FINRA maintains a large investment portfolio. What do they invest in and how 

do they control for inherent conflicts of interest that arise from investing with broker-dealers when they regulate broker-dealers? 

Can you help me understand that? 

Mr. KETCHUM. Sure. That is a great question, Ranking Member 

Waters. 

First, we have a substantial investment portfolio, which allows 

us to defray some of our costs of regulation. Because we formerly 

had responsibility for the NASDAQ stock market, and through the 

spinning off of NASDAQ—we do have a substantial investment 

portfolio as a result of the spin-off of the NASDAQ stock market 

which our predecessor organization, the NASD, formerly owned. 

With respect to the concern of conflicts, we solve it by not investing in broker-dealer securities or, where we do, by doing it only 

with respect to fixed-income securities where there is an absolute 

wall provided with respect to anybody with regulatory responsibility with regard to those fixed-income investments and review of 

those investments. 

So, essentially, our investment committee and employees who 

have no regulatory responsibility are the only ones who are aware 

if and when we have investments with respect to fixed-income securities. 

Ms. WATERS. Could you also comment on the compensation of 

your 10-person board of directors? According to its most recent financial report, FINRA paid 8 members of this 10-person board of 

directors more than $1 million each in 2010. Cumulatively, the 

board members earned more than $4.7 million, up from $10.6 million that the board received in 2009. Could you comment on the 

procedures that you use to compensate executives and board members? 

28 

Mr. KETCHUM. Let me take board members first, and then I will 

take employees, which I think is the primary focus of your question. 

Our board members receive compensation ranging from between $50,000 and $70,000, depending on their committee responsibilities. That compensation is reviewed regularly by our Management 

Compensation Committee. That is a matter that obviously is a substantially lower compensation than a— 

Ms. WATERS. This information that I have is not correct about— 

in your most recent financial report, you paid 8 members of your 

10-person board of directors more than $1 million each, is that incorrect? 

Mr. KETCHUM. I believe, Ranking Member Waters, you are referring to our employees, not our board members. None of our board 

members, with the exception of myself as an employee, received 

more than $70,000. 

Our employees are paid more. I do believe that it is a good idea 

to have persons with experience and also to ensure that they stay 

at an organization for longer terms than those at the SEC—even 

though I am a loyal alumnus—usually manage to stay. We do pay 

for experience, and we do pay for ability and capability, yes. 

From your question, the determination with respect to those compensation levels is done by a Management Compensation Committee composed of only public members, i.e., persons who have no 

affiliation with the industry. They review our competitors, the various places that our employees leave and go to, or where we track 

employees in determining what is an appropriate compensation 

level. 

Ms. WATERS. Thank you. I yield back the balance of my time. 

Chairman GARRETT. Thank you. 

The chairman is recognized. 

Chairman BACHUS. Thank you. 

In proposing the SRO, one of the bases of that was one of the 

Democratic members of the SEC, Commissioner Walter, had endorsed that approach as beneficial to—and of course, she was General Counsel of the CFTC, and then she was appointed by President Obama as the acting Chairman of the SEC in January of 

2009. And there is some bipartisan support for the SRO. 

I would like to just introduce—I am sure those of you who are 

opposing that, you have looked at her testimony, her position, and 

that is that the SEC would do a better job on a lot of other responsibilities they had. 

Having said that, I understand, Mr. Irwin, you mentioned—and 

Mr. ‘‘Tittsworth’’—is that how you pronounce it? 

Mr. TITTSWORTH. It is ‘‘Tittsworth,’’ believe it or not. I couldn’t 

believe it when my mother told me. 

Chairman BACHUS. My name also causes some problems. 

But I do understand your concern about who oversees FINRA 

and also concern State regulators that—in fact, Congress specifically brought State regulators back into regulation because of some 

failures. I think a lot of us do not want to ignore the States’ role. 

It is very important. 

You look at the Stanford case. You had a State regulator, and 

you also had the SEC. Those were the two regulators in Stanford. 

29 

And Madoff, who was the investment adviser for the Ponzi scheme 

that was operated, which was the SEC’s responsibility again. I 

think we would all acknowledge the SEC and sometimes State regulation has failed. 

Now, with Madoff, there was an investment, there was a brokerdealer, but he moved the fraudulent business. The Ponzi scheme 

was clearly not in what FINRA regulated. 

And I do understand—you have talked about accountability and 

transparency, that FINRA—you are concerned about that. You are 

concerned about pre-empting your role. You are concerned about— 

and I do acknowledge—and I would ask Mr. Ketchum maybe, too. 

And we are going to meet with Mr. Irwin, I think after this hearing. 

You have talked about if we do this enhanced oversight of 

FINRA. And I think if we are able to come to some bipartisan 

agreement, I think there would have to be some protection for 

State regulators or roles for State regulators. There would also 

have to be some enhanced maybe oversight and transparency in 

the case of FINRA. I think that would be an improvement. 

And I would ask Mr. Ketchum or Mr. Irwin if you all want to 

comment on what I have said. I don’t know if that is a question. 

I usually ask short questions. 

Mr. IRWIN. I can assure you, Chairman Baucus, that if Joe Borg, 

your securities administrator in Alabama, had gotten the 

Markopolos report, things would have been different. 

Chairman BACHUS. I can tell you that wouldn’t have happened 

under Joe Borg in Alabama. 

Mr. IRWIN. Absolutely not. 

And as to Commissioner Walter’s reaching out in an SOS for 

help, she absolutely is. And I understand that, without sufficient 

resources, they are really hamstrung and unable to exercise their 

strong, robust role of oversight over FINRA. It takes a village. 

There is a role for an SRO. 

Mr. Ketchum and I agree on a lot of things. We agree that there 

is a gap in oversight of a large portion of investment advisers, and 

Congress has set out to fix that problem with the $25 million to 

$100 million. 

We are prepared, the States are prepared to take on that responsibility. We have asked for it for 5 consecutive years. We have increased the number of exams that we have done. We have come up 

with a number of strategies to speak to the additional responsibilities that we have. We have a memorandum of understanding that 

every State has signed, agreeing to do joint examination, to work 

with each other, to have uniform exam procedures, better risk analysis. 

We can do this job. Give us the opportunity to do it, and we will 

show you that we can. 

Chairman BACHUS. Mr. Ketchum and Mr. Tittsworth, if you 

would like to comment? 

Mr. KETCHUM. Chairman Bachus, just a few things to your both 

thoughtful and complex question. 

First, it does take a village to regulate what has been done on 

the broker-dealer side. I have the highest respect for Mr. Irwin’s 

30 

program in Pennsylvania. And surely for Joe Borg’s program in 

Alabama. 

What has worked on the broker-dealer side is the cooperation 

and consistent effort with concern for investor protection across 

both government and SRO resources. What is valuable is 

supplementing those resources, particularly when they are less; 

and not all States have the resources that the State of Pennsylvania or the State of Alabama may have to apply to do investment 

adviser oversight. 

Second, I do want to make this absolutely clear, and I know I 

will save a question from Chairman Garrett by doing this: FINRA 

takes accountability, just as the SEC has taken accountability, just 

as any State that has touched it should take accountability, for not 

finding the Madoff problem. Yes, in our situation, sadly, we did not 

get a Markopolos complaint. Sadly, Mr. Madoff covered his activity 

on the money management side by having zero, no records, with respect to the broker-dealer and denying that he engaged in a money 

management business on the broker-dealer. 

That made it hard. Hard is not an excuse for not finding it, and 

we accept that. We did a study from our board to take a hard look 

at that, and we have fundamentally revised both our examination 

and enforcement programs to try to get at the hard cases. 

But what is important from a regulatory policy standpoint is that 

it isn’t a good idea to make it hard. If FINRA had responsibility 

from the standpoint of Madoff as an investment adviser when it finally did regulate it, we would have immediately done a membership interview, we would immediately have done an examination of 

Madoff, and that was something the SEC did not have the resources to do. 

Chairman BACHUS. But I think my question is, would you be 

willing to accept enhanced oversight by the SEC or by the other 

government regulators, including the States, in accountability? 

Mr. KETCHUM. Yes, we would. We feel like we have substantial 

oversight from the SEC already. We accept the Boston Consulting 

Group’s suggestions that oversight should be more thorough and 

more complete. 

We recognize that if we did have responsibility for investment 

advisers on the State side, which is obviously a choice of Congress 

and not ourselves, that the consultation required and the interaction with respect to State regulators would be absolutely critical 

because it is State laws that FINRA would be essentially incorporating to supplement the State program. 

I would note that never in our wildest imaginations would we 

ever imagine a situation where a FINRA rule should preempt State 

regulations. State rules and regulations are critical to investor protection. 

Chairman BACHUS. I think in the past, the States have not always had some transparency or access to some of the information. 

If the committee could bear with me and let him have maybe 30 

seconds to respond? 

Chairman GARRETT. Sure, Mr. Chairman. 

Mr. TITTSWORTH. Thank you, Mr. Chairman. 

I agree this is not a partisan issue. I noted that the U.S. Chamber of Commerce issued a recent report talking about FINRA’s lack 

31 

of accountability. And all regulators have had shortcomings. It is 

not a job I particularly want to have. But, unfortunately, none of 

us have found the silver bullet. 

I think there is an issue. We have recognized it. The question is, 

how fast do you address this issue of enhancing investment adviser 

examinations? 

And I thought you said it best, Chairman Garrett, in your opening statement with Madoff. There were failings all the way around 

on that and I am not sure that is the best case to build this policy 

around enhancing investment adviser oversight. I think maybe we 

need to just take a step back and look at the facts and try to figure 

out the best approach. 

Chairman BACHUS. Right. Let me say, Mr. Ketchum, you were 

not on the job. I understand you have made a lot of reforms, and 

I applaud the job you are doing. You are doing a very good job. I 

wasn’t trying to point out a failure. Because I think everyone 

failed, everything failed, and certainly the Congress is not without 

blame. 

Thank you. 

Chairman GARRETT. I thank the gentleman. 

The gentleman yields back, and we will be a little loose with additional time on this side of the aisle as well. I assume we are just 

going to go right down the aisle. 

The gentleman from California. 

Mr. SHERMAN. Believe it or not, I don’t have a whole lot of questions, but I do have one for Mr. Healy. Why does the National Association of Insurance and Financial Advisors want FINRA to become the SRO for investment advisers? That will be the first question, and I will have a follow-up. 

Mr. HEADLEY. It is Mr. Headley, but that is fine. 

Mr. SHERMAN. If I hired staffers based on their handwriting, it 

would be different. Go ahead. 

Mr. HEADLEY. I think it is quite simple. Two-thirds of our NAIFA 

members are registered representatives through a broker-dealer, 

and 40 percent of that population are also registered as investment 

advisers—investment adviser representatives under the corporate 

RIA of the broker-dealer. Since there is the dually registered representatives, it seems the most effective or efficient and cost-effective method, since we are already examined by FINRA through our 

broker-dealer compliance areas on an annual basis through an annual face-to-face compliance meeting, that it would be best to not 

layer on an additional burden or hardship in terms of having an 

additional examination process. 

Mr. SHERMAN. Your members are willing to pay an additional 

user fee? 

Mr. HEADLEY. Again, we think it would be more cost effective if 

FINRA was named as that self-regulatory organization. 

Mr. SHERMAN. Are all of your members already paying a user fee 

to FINRA? Or this would mean some of them would be paying and 

others might be paying a bit more? 

Mr. HEADLEY. They are paying, obviously, registration fees both 

to FINRA and, of course, to each of the States in which they are 

securities registered. 

32 

Mr. SHERMAN. Okay. And the SEC has, I think, not been doing 

all that the SEC would like to do in this area. I assume one of the 

reasons is they are not collecting enough in user fees or they are 

not collecting a user fee from your members to do that work directly? 

Mr. HEADLEY. Right. Again, the majority of our members are 

dealing with middle-class investors and Main Street investors and 

everything else and do not have the assets under management to 

kind of meet the threshold with SEC registration. 

Mr. SHERMAN. I yield back. 

Chairman GARRETT. The gentleman from Arizona. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

In going over the notes here, I had one that looked as if the SEC 

was suggesting that implementation of these major changes for 

broker-dealers would not have much in the way of cost changes. 

Can I solicit a response on that? And why don’t we— 

Mr. EHINGER. Yes. Thank you. 

In my opinion, there would be significant changes. I think you 

would start with—first of all, not knowing what the rule is, the 

documentation expectations of interactions with clients, decisions 

made regarding what was to be invested in or what not—even decisions of what not to do. Investing is a whole different type of scenario in terms of expectations of what the registered representative 

would need to do. There potentially are additional registration-type 

fees that could be associated with the business, and the other concern would be the model may need to shift or might potentially 

shift even as a result of some of the changes being proposed. 

Mr. SCHWEIKERT. Ms. Roper, the same sort of question. Do you 

agree or disagree that we would see the scaling of additional costs 

here? 

Ms. ROPER. There will clearly be additional costs in certain 

areas. For example, an investment adviser has to provide up-front 

disclosure about conflicts of interest and material information that 

brokers don’t have to provide. There is a cost with that. Many of 

the brokers are doing that now for their advisory accounts. But 

there is an offsetting savings to the investor if the broker has to 

take costs into account in making their recommendations. 

Furthermore, the criticisms about cost ignore the fact that the 

SEC took those into account in coming up with the proposal that 

it put on the table. It is not going to eliminate the broker-dealer 

Investment Adviser Act exclusion. There is no new registration. 

They have made clear that the broker-dealer business model, commissions, proprietary sales, all of that stays the same. Most of the 

cost data that has come from the broker-dealers has analyzed a 

scenario that is simply not on the table. 

The SEC has in fact been very sensitive on the issue of costs. I 

think that is why you have seen groups like FSI and SIFMA at the 

table in a negotiation about how to implement rather than simply 

trying to prevent this rulemaking from going forward. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Mr. Ketchum, same question. 

Mr. KETCHUM. I agree with much of what Ms. Roper said. I think 

the SEC is focused on costs here. We do believe that a properly implemented fiduciary standard makes a great deal of sense, and we 

33 

also believe there should be a very careful analysis of the costs and 

approach. There will be some costs increased by changes in disclosure requirements and the type of up-front disclosure that Ms. 

Roper indicates, although FINRA already requires a variety of disclosures with respect to a product-by-product basis consistent with 

its rules. It is better to do that across-the-board. It is certainly appropriate to make sure that there is a careful cost analysis before 

making final decisions. 

Mr. SCHWEIKERT. Mr. Chairman, to the entire panel—and I said 

this in my opening statement, when reading through this material, 

you start to say, okay, what am I missing? Where is my law of unintended consequences? Do I wake up 2 years from now and either 

with one or two more layers and have I either narrowed consumer 

choice, have I started to create an environment where my access 

to information— 

Because I have heard a couple of folks say that we have these 

cost differentials. But, before getting this job, I remember trading 

stocks for $7 a share, but I also sometimes would sit down with my 

investment adviser and have to write him a check at the end of the 

day. I see lots of consumer choice right now and the inherent fear 

is, does any of this put some of that in peril? I was going to start 

with Mr. Tittsworth. And tell me, am I engaging in a fear that is 

inappropriate? 

Mr. TITTSWORTH. I can’t tell you those are unjustified fears. I 

guess I would have to say—I am not trying to avoid the question, 

but I would have to see the SEC actual proposed rulemaking I 

think before I could intelligently respond to your question. 

We certainly don’t want to see consumer choice limited by any 

action on the 913 study. And we make a point in our statement 

that under the Advisers Act currently, there is a huge broad range 

of activities that investment advisers, both very small businesses, 

as well as some very global firms, engage in. I think it accommodates—we certainly don’t want to limit consumer choice. 

Mr. SCHWEIKERT. Thank you. 

Mr. Chairman, my time is up. Thank you, sir. 

Chairman GARRETT. The gentleman is recognized. 

Mr. HINOJOSA. Thank you, Chairman Garrett. 

First, I ask unanimous consent to enter into today’s record two 

documents relevant to today’s hearing: one, the petition supporting 

a fiduciary standard for financial professionals, as outlined in Section 913 of the Dodd-Frank Act; and two, is the petition requesting 

that the SEC extend the fiduciary standard to broker-dealers. 

Chairman GARRETT. Without objection, it is so ordered. 

Mr. HINOJOSA. Thank you. 

Mr. HINOJOSA. My first question is directed to Mr. Ketchum. 

Thank you for testifying today. 

I would be remiss if I did not acknowledge FINRA’s investor education foundation and its solid financial literacy activities which we 

strongly support. However, I am concerned that FINRA does not 

provide the kind of transparency necessary to provide investors the 

type of education they need to protect themselves while operating 

in the capital markets. How is FINRA qualified to be a self-regulatory organization for investment advisers given this failure to unVerDate Nov 24 2008 17:07 May 16, 2012 Jkt 072599 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\72599.TXT TERRIE
34 

cover the Madoff fraud that wrecked the lives of so many innocent 

Americans? 

Mr. KETCHUM. First, Congressman, thank you for your kind 

words with respect to our education foundation. We appreciate it. 

As I indicated before to Chairman Bachus’ question, no regulator 

can be happy with missing Madoff. And that includes FINRA as 

well as the SEC as well as State regulators. Certainly it includes 

FINRA, notwithstanding the fact we did not receive the complaints 

that Mr. Markopolos lodged, notwithstanding the fact that Mr. 

Madoff fabricated and created zero records with respect to the 

money management activity in his broker-dealer and claimed to 

have no money management activity in the broker-dealer. 

Having said that, there were strings we could have pulled. There 

were approaches we should have taken. We should have had 

knowledge of discussions out in the industry that raised concerns. 

So I absolutely take accountability. I think any regulator should. 

Though if you eliminated all of the regulators that did not find Mr. 

Madoff’s fraud, you would be out of regulators in the United States. 

I think the question, as I say, is not whether any of us did it 

right with respect to Madoff. We didn’t. The question is whether 

regulation can make it less hard to find serious frauds—put Madoff 

aside—to find serious Ponzi schemes. 

The answer would be, if there was an SRO to supplement government resources, an SRO that would have the ability, as FINRA 

does, to do management reviews and to do membership reviews before a firm can become a member of FINRA—and any SRO would 

do the same things—you would increase the likelihood of detecting 

a Ponzi scheme such as Mr. Madoff’s and others. That is why I 

think the addition—not as a replacement for government, which is 

absolutely critical for the protection of investors—but the addition 

of an SRO from a supplementary standpoint is a very valuable 

thing. 

Mr. HINOJOSA. So the argument that we need a smaller Federal 

Government does not work. I hear my friends on the other side of 

the aisle that they want a much smaller Federal Government, and 

you are telling me that we really need more folks regulating. 

In looking at the statement by Commissioner Irwin, I would like 

to ask him a question. Commissioner, you said that the enforcement actions by State security regulators last year represent a 51 

percent increase over the number of investigations reported for the 

previous year. I was amazed at the number of violators. 

So, tell me, what are your thoughts on how we can improve the 

requirements of all of these certified and listed companies to protect investors? The Federal Government’s Thrift Savings Program 

makes available to us detailed information such as fund performance, annual returns on investments, the monthly returns on our 

investments, and, perhaps provides our constituents access to market information that is detailed but easily understood, and summaries to help our constituents estimate their net worth. Give me 

some of your thoughts on that. 

Mr. IRWIN. Congressman, I think that one of the easiest and best 

steps that we can take right away is making a fiduciary duty applicable to all investment professionals who are offering investment 

advice in a personalized nature in a retail setting. The fiduciary 

35 

duty that was proposed in Dodd-Frank that we were pushing for 

at that time was much broader than the one that ultimately was 

enacted. The one that ultimately was sent to the SEC to study was 

one that was really very limited. There was no ongoing obligation 

to supervise accounts after that decision is made. 

If we just ask investment advisers and broker-dealers who are 

giving investment advice to put their clients before themselves, it 

is not the best advice. It is just a matter of putting, based on what 

they know, the interest of their customer before themselves. Those 

customers will automatically be better off. 

We live in a time when the kind of returns that people are seeing 

are very small. You just can’t double your money by putting it in, 

and compounding interest won’t do it for you for the rest of your 

investing career. We really need to provide this. 

Fiduciary duty is a very flexible answer. It is based on the facts 

and circumstances of each situation. It has worked since 1963 

when the Supreme Court said in the Capital Gains case—and investment advisers are subject to that Act. We think that we have 

plenty of history, plenty of case law to build on. Let’s do that today. 

Mr. HINOJOSA. In closing my questions, at my request, the Office 

of Financial Education was created at the CFPB. There are numerous financial literacy programs that could help not only high school 

students but community college students, the university students, 

and adults. 

With that, Mr. Chairman, I yield back. 

Chairman GARRETT. The gentleman from New York is recognized. 

Mr. GRIMM. I thank the chairman, and thank you to all who testified today. We appreciate it. 

Obviously, this is a very difficult matter. We hear from the larger 

institutions a little bit of a difference of opinion from the smaller, 

more small-business-oriented institutions, SROs versus SEC, and 

so on. 

But one of the things I want to emphasize—and Ms. Roper, if I 

can turn to you, you mentioned about the consumer saving thousands of dollars and, over time, tens of thousands of dollars. But 

there are other factors as well. And I am asking you if you would 

agree that when a representative—when an adviser or a registered 

rep is selling a product, there are other things other than just the 

rate of return that are also looked at. For example, the customer 

service of the company that you are dealing with and the financial 

background of that company and the stability and the track record 

that they may have had for many years, is that not also something 

that goes into it? 

Ms. ROPER. Absolutely. And we have tried to indicate that cost 

is just one factor that is relevant to that assessment. But it is a 

factor that shouldn’t be ignored. Morningstar not too long ago did 

research that indicates that cost is the single best predictor of longterm performance and is better than their star ratings, for example. I think you ignore it at your peril or at least at an investor’s 

peril. 

But, absolutely, you adopt an approach, much as we do under, 

say, our best execution standard where you provide guidance regarding a variety of factors that have to be considered. But they 

36 

have to be considered, and we can’t afford to continue to ignore 

costs. 

Mr. GRIMM. In your recommendations to the SEC, you asked the 

SEC to look not only at the prior enforcement actions but at cases 

that could have been brought as well. You went on to suggest the 

SEC should examine what could be accomplished under an aggressively enforced standard. 

I take from that—and based on my background as a former special agent in the FBI, I worked very closely with, back then it was 

the NASD and with the SEC. And when I look at a lot of what happened—everyone keeps bringing up Bernie Madoff, and I understand that this was such a travesty, the magnitude of his fraud. 

But I would say the biggest problem we have had is a lack of enforcement, and it is the enforcement that we really need to focus 

on. And we can promulgate rules until we are blue in the face, but 

if they are not enforced, they are irrelevant. 

Ms. ROPER. Yes, you absolutely need enforcement. And we, of 

course, are strong supporters of enforcement. But if you don’t have 

the standard to enforce—it is two sides of the same picture. If you 

can’t enforce a best-interest standard because the standard doesn’t 

exist, tough enforcement doesn’t get you anywhere. If you have a 

best-interest standard and you don’t enforce it, the best-interest 

standard doesn’t get you anywhere. You need both sides of that 

equation. 

Mr. GRIMM. I agree that we need both. But I think ultimately, 

we also need to be cognizant of the fact that it is a balance. We 

have to balance making sure that investors and consumers are protected, while at the same time balancing the fact that our markets 

and our sectors within the financial services sector are also robust 

and competitive not only here in the United States but in the global markets that we are in. 

That being said, if I could just switch a little bit and ask Mr. 

Ehinger, can you walk us through the various levels of the regulatory oversight facing a broker-dealer and its registered representative, compared to the investment advisory firm and its registered 

investment advisers? 

Mr. EHINGER. I think one of the best examples, Congressman, to 

describe that is just my recent experiences with examinations just 

recently with FINRA and also the SEC. The SEC was in and had 

conducted an examination both of our investment adviser and our 

broker-dealer, and shortly thereafter, FINRA was in as well. They 

were in on their cycle exam within 2 years. The SEC hadn’t been 

in on the investment adviser side for 5 years. And we are a corporate registered investment adviser, so I would think that there 

would be more attention given to some of the bigger firms. 

But just the differences are the detail, the activities, the selection 

of individual accounts, the reviewing with individual supervisors in 

our organization about why they chose to approve or not approve 

a particular product sale that had taken place. That is the level of 

detail that the FINRA examination had. 

With respect to the SEC, while there are very good individuals 

in all fronts working to do what they can do, there was one individual who was looking at the investment advisory and specifically 

only focused on advertising, which is, I think, ironically where 

37 

there are rules that they can really, really audit to, as opposed to 

something that is vague and amorphous like fiduciary standard. 

Mr. GRIMM. My time has expired. Thank you very much. 

Chairman GARRETT. Thank you. 

Mr. Lynch is recognized. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Staying right on that, Mr. Dwyer, your testimony more than suggests, it actually endorses the idea that FINRA would be the body 

best suited to oversee inspection of investment advisers. I have 

heard a couple of different people who apparently are in agreement 

with you, but can you expand on why you think FINRA is a better 

option than, say, a new and improved SEC or a newly created SRO 

that is specifically designed and funded for this purpose? 

Mr. DWYER. Thank you, Congressman Lynch. That is an important question. 

We heard here about problems that have arisen across the spectrum of regulators that have been in place, and I go back to the 

comments I gave in my oral testimony, that, as we look at what 

is reasonable, the supervisory needs that we have, I would turn to 

precedent, first of all; and the SEC has over 70 years of history of 

overseeing an SRO that in turn provides oversight to the industry; 

and that, first and foremost, to me sets a track record that makes 

FINRA an obvious choice. 

Also, the reality or the practicalities of what is in place. Today, 

FINRA has an elaborate structure to do audits of institutions and 

offices all across the country, they have over 1,000 employees already who are out doing exams across the country, and there is no 

question in my mind that they are far and away best positioned to 

take on this task. 

The significance of it should not be taken lightly; and I would say 

that, no matter what the organization, we need to continue to work 

with them to improve how they protect the customer. 

I think one of the things that needs to be called out is who our 

advisers are. As I represent the Financial Services Institute today, 

representing over 200,000 independent financial advisers across 

the country, what that means is that these are local business owners who are providing services in communities all across the country. They are also community leaders. They are also extremely 

philanthropic. 

At the end of the day, when we surveyed our advisories a year 

ago at LPL Financial, about 86 percent of them told us that their 

number one source of clients is referrals. It is paramount to them 

that they are able to work with clients and build confidence with 

those clients to lead to additional business. They need to operate 

in an environment where the consumer has confidence and clarity 

about where they are going to, who they are going to do business 

with, and how that will be transpired. 

Mr. LYNCH. Thank you. 

Ms. Roper, if I could ask you, on the fiduciary standard, it seems 

from your testimony that you agree with the SEC’s position of—at 

least as I see it, the Department of Labor has recommended that 

we adopt the ERISA standard and apply that to both broker-dealers and advisers. How do you support that? How do you argue in 

favor of harmonizing both groups under that standard, as opposed 

38 

to coming up with a standard that is more exacting or something 

more—rather than lifting the standard and simply applying something that is more targeted? 

Ms. ROPER. We actually have fairly significant concerns about 

the Department of Labor proposal, although we recognize it as very 

well intended and think there is a potential to resolve the difficulties. 

Mr. LYNCH. Let me say, I may have—it seemed like you were 

warm to the idea, but you really weren’t beating the drum, so to 

speak. But I could sense there was not clear opposition to that idea 

in your testimony anyway. 

Ms. ROPER. The issue we addressed in our testimony is the fact 

that the DOL proposal should not be allowed to stop the SEC proposal. 

The concerns that we have about the DOL proposal are that it 

doesn’t more closely resemble the SEC proposal, and it is in two 

different aspects. One, it has a huge seller’s exemption in it and 

threatens to recreate in the retirement plan market precisely the 

problem the SEC is trying to address here. 

Sort of at the other end of the spectrum is that I think the 

broker-dealer firms are absolutely right when they say, if you apply 

an absolute ERISA, no conflict of interest, no third-party compensation model in particularly the individual retirement account 

arena and with the sanctions that exist under ERISA, the brokerdealers are going to exit that business—$2,000-a-year investors are 

not that enticing a market, and there are not a lot of fee-only financial planners or fee-only advisers who are going to step in and 

provide those services. 

So, yes, we have concerns about the DOL proposal. We are not, 

by any stretch of the imagination, advocating that it be adopted in 

the SEC world. Quite the contrary. We would like to see something 

under the DOL proposal that more closely resembled the SEC. 

That is primarily an issue with ERISA rather than with the definition itself. And the key issue—one of the key issues is how will 

they do the prohibited transaction exemptions which seem to have 

sort of replaced ERISA as the way the law is imposed, and I don’t 

think you can move forward with the proposal until you know the 

details of what it would look like in practice. 

Mr. LYNCH. Okay, that is very reassuring and very helpful. 

Thank you. I yield back. 

Chairman GARRETT. Thank you. 

The gentleman from Florida. 

Mr. POSEY. Thank you very much, Mr. Chairman. 

Clearly, Madoff was not empowered by a lack of loss. He was empowered by a lack of enforcement, and there is not a single law 

that would have changed that, that we could adopt now. If we 

could do it all over again, the only thing that would be needed to 

stop Madoff was to make some employees do their jobs, which they 

were unwilling to do. 

As another related issue regarding ERISA, there was a company 

named TRG. It was one of about a dozen that wrote health insurance in 49 States, every State but their own State. No State felt 

like they were empowered to do anything about it because they 

were protected by ERISA, protected from State sanctions until fiVerDate Nov 24 2008 17:07 May 16, 2012 Jkt 072599 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\72599.TXT TERRIE
39 

nally Florida did break loose and in cooperation with 13 agencies 

in other States they went to the culprit State, and it was the first 

time in history State lines were ever passed to prosecute health insurance fraud, and that was done because the Federal Government 

did absolutely nothing to enforce the law to those who fell under 

ERISA and seemingly out of the hands or ability to prosecute by 

States. 

I support fiduciary standards, but they must be clear, they must 

be unambiguous, and they must not be conflicting. And obviously, 

I think one agency is sufficient to promulgate such standards, and 

I think the more agencies you have involved in it, the worse it is 

going to be on everybody. 

And to that point I would like to ask Mr. Headley, since it was 

in his written testimony he talked about the Department of Labor’s 

fiduciary proposal in addition to the SEC proposal that we have 

been discussing today. Mr. Headley, I would like to ask you to explain why you believe the Department of Labor’s proposal could impact the middle-market investor’s access to professional guidance 

for their retirement plans, if you would be kind enough to do that. 

Mr. HEADLEY. Thank you, Mr. Congressman. 

First of all, again, on the DOL fiduciary duty, there was no congressional directive to look at this. It clearly conflicts with the 

SEC’s fiduciary duty, what they are proposing for broker-dealers 

and investment adviser representatives. It clearly is using ERISA 

to overreach into another section of the Internal Revenue Code as 

it pertains to IRA account holders and everything, that is differentiated from the employer context. It would require that no Commission-based products could be implemented, requires a level fee 

model in lieu of that. It could literally shut down the middle-class 

access to professional advice and for IRA account owners. 

I think the two areas that NAIFA members would like to see is 

that, if they were to go forward, is to simply exclude IRA advice 

from the rule and, secondly, to exclude any advice under a seller’s 

exemption that is incidental to the sales activity. 

Mr. POSEY. Okay, I appreciate your comments. 

Would anyone else like to weigh in on that? 

Mr. HEADLEY. Thank you. 

Mr. POSEY. I am finished before my time, and I yield back. 

Thank you, Mr. Chairman. 

Chairman GARRETT. How about that? 

The gentleman from Colorado, I think we are skipping over, I believe, and we go to the gentleman from Colorado. Since he was 

here, we appreciate your coming. 

Mr. PERLMUTTER. Just a couple of things. 

Mr. Taft, it was your comments and your written remarks that 

I want to focus on a little bit. 

The rulemaking—going back and looking at 913, obviously in 

913, the Congress directed the SEC to go through this rulemaking 

process. It wasn’t something they just went out on a lark to do as 

I understand the legislation. Yes, sir? 

Mr. TAFT. If I could just clarify, it authorized—it directed the 

SEC to study the issue. It authorized them to act but does not require them to act. 

40 

Mr. PERLMUTTER. Thank you, and I think that is a perfect description. We asked them to look at a number of different things, 

including harm/benefit analysis. Whether they did or they didn’t, 

I am not sure, but in the directions from the Congress, those are 

clearly included. 

But when I really look now at the language, the standard of conduct—because you talk about the rulemaking to articulate the 

standard would address the following five key components: core 

principles, articulate the scope of obligations under a uniform fiduciary standard, define personalized investment advice, and then a 

couple more. 

When I look at the standard of conduct as it applies to the Securities Exchange Act of 1934 and then the standard of conduct as 

it applies to the Investment Act under what we did in Dodd-Frank, 

they seem to be pretty similar. It says the Commission may promulgate rules to provide that with respect to a broker-dealer when 

providing personalized investment advice about securities to a retail customer, the standard of conduct for such broker-dealer with 

respect to such customers shall be the same as the standard of conduct applicable to an investment adviser under Section 211. And 

then it says, Ms. Roper, the receipt of compensation shall not in 

and of itself be considered a violation. 

One of the things you were talking about is an underwriter—a 

life underwriter might propose a product that they make more 

money on, but we said specifically that really doesn’t have to be an 

issue. 

Then it goes down to the standard of conduct for the investment 

adviser. The Commission may promulgate rules for all broker-dealers, investment advisers when providing personalized investment 

advice about securities to retail customers shall be to act in the 

best interests of the customer. 

Do we even need any rules or is this standard of conduct that 

we have stated in Dodd-Frank enough, I guess is my question, 

when we say it has to be in the best interests of the customer? 

Mr. TAFT. What Congress—my understanding of congressional 

intent, what Congress told the SEC they need to do if the SEC decides to write a fiduciary standard is to build a standard the investor protection characteristics of which are no less stringent than 

those in the Adviser Act, and— 

Mr. PERLMUTTER. My question, though, to you—and I agree, that 

is what it says, ‘‘no less stringent.’’ It says—in fact, it says ‘‘the 

same.’’ 

Mr. TAFT. Right. 

Mr. PERLMUTTER. If you look at the standard of conduct. 

Mr. TAFT. Yes, the same. 

Mr. PERLMUTTER. It says, ‘‘the same.’’ It says, personalized investment advice about securities retail customers in the best interests of the customer with regard to the financial or other interests 

of the broker-dealer, etc. Do we need any— 

Mr. TAFT. Yes, here is what you need: So, today, the standard 

of care that is a fiduciary standard of care is implicit in the Advisers Act and governs a set of activities that have to do with a customer walking into their adviser and handing over their money to 

the adviser to manage discretionarily. In other words, they are 

41 

ceding control in a fundamental way of the management of those 

assets to an adviser. And there have been rules and there is case 

law and there is precedent built up over the years that 

operationalize that fiduciary standard with respect to the things an 

investment adviser does for their client. 

Okay. What we need going forward, if the SEC decides to apply 

a similar standard to the activities of broker-dealers who engage in 

personalized investment advice, we need rules that tell us how to 

operationalize that same standard to brokerage activities, to which 

that standard has never applied and for which rules do not exist 

today. That to me is the single most important thing the SEC 

would still need to do in writing a new standard. 

And back to the many comments of Congressmen, of the committee, it is important to note today that those rules have not been 

written, and going forward there is a chance to write them the 

right way, a way that aligns with the current best practices of the 

industry and which is not disruptive to investor relationships with 

their advisers. And there is a way to do that the wrong way which 

disrupts investor’s relationships with their advisers, increases 

costs, reduces access. So right way-wrong way, we are at a fork in 

the road. The SEC still has the opportunity to go down either path. 

Mr. PERLMUTTER. Okay, and my time has expired. Thank you. I 

could ask the rest of the panel that same question, but thank you. 

Chairman GARRETT. The gentleman yields back, and I don’t believe—no, we have no one else, at least at this moment. Mr. Green? 

Mr. GREEN. Thank you, Mr. Chairmanand I thank the witnesses 

for appearing today. 

For clarity purposes, if you are of the opinion as a witness that 

we need no additional regulations, would you kindly extend a hand 

into the air that things are fine as they are, we just need more enforcement? Anyone? 

Okay, we have one person who thinks so. 

How do you respond, sir, to the contention that enforcement necessitates something meaningful to enforce? I believe that is a fair 

way of putting it. Ms. Roper, you may have stated it more eloquently than I, but how do you respond to this contention? 

Mr. EHINGER. Congressman Green, first of all, I should qualify 

my statement in terms of, I am not saying there possibly shouldn’t 

be any type of new regulation over time. I am just answering that 

question with respect to what is being proposed today. 

Because I think it needs to be clear, as we stated earlier and, actually, Chairman Garrett said before, what problem are we trying 

to solve? And, also, do we really understand and have we really 

done investigation regarding the broker-dealer standards today and 

how that— 

Mr. GREEN. Because my time is limited, permit me to just intercede. And I don’t mean to be rude, crude, and unrefined, but let 

me ask this, please: What would you propose? I do understand now 

that you don’t support what we are doing today, but what would 

you propose that we do? 

Mr. EHINGER. I would propose a couple of different things. 

One, I would agree with Mr. Taft that rules, really guidelines, 

guidance that we can, as broker-dealer organizations, really train 

and educate and really help our registered reps understand— 

42 

Mr. GREEN. If I may, let me intercede again. Please forgive me. 

But I have in my hand intelligence from the RAND—a RAND 

Report indicating that investors could not identify whether their 

own provider was a broker or investment adviser, and that confusion persists even after the investors were provided with fact 

sheets on investment advisers and brokers that include a description of their common job titles, legal duties, and typical compensation practices. 

Mr. EHINGER. Congressman Green— 

Mr. GREEN. You seem to be implying that somehow disclosure 

will do what is not being done even when people are afforded empirical evidence to examine. 

Mr. EHINGER. I think that study—that 2008 RAND study also, 

and I believe one of my fellow panelists mentioned this as well, 

also found that investors were satisfied with their financial advisers or consultants or registered representatives in whatever fashion 

that they engaged. 

That confusion is not something I think you solve by changing 

legal standards. I think confusion is addressed first and foremost 

by, respectfully, proper disclosures. I think Mr. Ketchum, in one of 

the rule proposals that FINRA put forward, Rule 1054, is doing 

that very thing, actually I think in a very forthright and very 

smart fashion. That is, simple, direct, easy to understand and read 

disclosures that take advantage of today’s technology and allow 

deeper dives for those who want to know. 

Mr. GREEN. I am going to ask at this time that Ms. Roper kindly 

respond. I can sense that you desire to have a word. 

Ms. ROPER. What you have to understand is the RAND study 

was commissioned at the request of then-Commissioner Glassman 

at the SEC, because the SEC had already tried the disclosure 

route. As part of their fee-based brokerage account rule, they had 

tried to design a disclosure for broker-dealer ads and account statements that would help investors to understand when they were 

dealing with a broker, an adviser, and what the legal duty was. 

And they took that disclosure out and, thanks to Commissioner 

Glassman’s insistence that they test it with investors, they did that 

testing. They found investors didn’t understand it. They tried to redesign it. They tested it again. 

Disclosure does not work. You cannot solve through disclosure or 

through investor education a policy that doesn’t make sense, and 

it will never make sense to investors that their financial adviser is 

a salesperson and their investment adviser is an adviser. You cannot make sense to investors out of the fact that one person offering 

personalized investment advice has a fiduciary duty to act in their 

best interests and another person offering the exact same service 

doesn’t. Disclosure can be helpful, but it can’t solve a basic regulatory breakdown. 

Mr. GREEN. Mr. Ketchum, let me quickly ask you a question. Do 

you believe that the SEC is overpenalizing and overinvestigating? 

Mr. KETCHUM. No. I think the SEC is an agency that— 

Mr. GREEN. Since my time is running short, I will accept the 

‘‘no,’’ and let me just go on to suggest that I have intelligence indicating that the SEC issued about $1 billion in penalties and FINRA 

fined members about $43 million last year. Similar budgets, similar 

43 

issues. How do you cause persons who would have some consternation based upon a belief that FINRA is more lax than the SEC as 

evidenced by penalties imposed? 

Mr. KETCHUM. Much of the SEC number reflects one case with 

respect to Goldman Sachs, in particular egregious and problematic 

activity. A variety of others reflect major industry cases from the 

credit crisis. 

We strongly believe that fines should discourage behavior and 

encourage far superior compliance, but fundamentally fines have to 

relate to the fact situation and the actions that you are bringing. 

We think if you look through the cases that we brought with respect to that, I think the fines were stiff, and they were appropriate. 

Mr. GREEN. Thank you very much, and I thank the entire panel. 

Thank you, Mr. Chairman. 

Chairman GARRETT. The gentlelady from New York. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman, and 

thank you for having this important hearing. I think it is very good 

for all of us to hear the testimony of everybody and to understand 

what we had done over a year ago. 

I am interested in Section 913 because I actually had a pretty 

large part in getting that in there, so I want to explore that a little 

bit. 

Earlier this year, I, along with about 28 of our New Democrats, 

as we call ourselves, sent a letter to the Department of Labor, the 

SEC, and the CFTC on this issue on Section 913. I happen to believe it is important to maintain investment choice, and I believe 

Congress showed this intent in Section 913 of the Dodd-Frank Act. 

I am concerned that the Department of Labor—and we have had 

hearings here in the Education Committee talking to the Secretary, 

but I do believe that what—the Department of Labor’s board of fiduciary proposal will step on the toes of the SEC and ultimately 

increase the cost for the investors. That is my concern. I believe, 

as written, as of now, the selling exception in the DOL fiduciary 

proposal does not go far enough. In fact, it is counter to Congress’ 

intent and the direction the SEC is likely to take based on the 

agency’s findings. 

So, Mr. Taft, I will ask you, and certainly anyone else who wants 

to go in there, how will the DOL’s current proposal and seller’s exception impact investors and the market? 

Mr. TAFT. I will just give—maybe focus on one area in which we 

believe the DOL’s proposed rules will restrict client access to products, services, and advice and, as has already been alluded to, the 

issue with the DOL’s proposal, which expands the definition of fiduciary, okay, and creates tremendous uncertainty on the part of 

industry participants as to when and when they won’t be fiduciaries. We will default to the worst-case definition in order to 

defuse liability. And, secondly, it brings to bear upon the brokerdealer model the prohibited transaction elements of ERISA. 

In the case of Section 913, the SEC has the ability—I was talking about operationalizing a fiduciary duty through things like disclosure of conflicts and conflict management—to do things to allow 

brokers to continue to offer proprietary products, to continue to 

44 

offer new issues of stocks and bonds, to continue to charge commissions for their services. 

Under the ERISA proposal, all those things would be prohibited 

transactions and would not be allowed. Now, most problematically, 

they would not be allowed in individual retirement accounts. And 

I would say all the financial institutions at this table and the industry, the bulk of their accounts, their client accounts are individual retirement accounts. Forty percent of the accounts at our 

firms are IRAs, and the predominance of those accounts are small 

when it comes to assets under management, and today the predominance of those accounts receive advice through a commissionbased model. 

Under the DOL proposal, what would happen—and Barbara 

Roper alluded to this—is that, given the small size of those accounts and the extreme nature of the liability under the DOL’s proposal, broker-dealers will exit that business, will no longer provide 

those services to those small clients unless they move to a feebased model which already functions under a fiduciary approach 

that restricts access to products and services, cannot buy new 

issues of stocks, cannot buy new issues of bonds, and increases 

costs by as much as 50 percent on average, so increases costs, restricts access for exactly the kinds of investors that need it the 

most. 

Mrs. MCCARTHY OF NEW YORK. One of the things that I think 

bothers a number of us is that, going back in last January, the Administration actually put out an Executive Order for the different 

organizations when they are working on an issue to work together. 

From the conversations that we have had and many meetings that 

we have had, I don’t think that has happened, and that is why I 

am not letting this go until we hopefully come to some solution 

that is fair to our consumers. And I think that is where I am coming from. 

Gee, I only have a little bit longer. A short answer. 

But, Mr. Irwin, I know, listening to your testimony, we have 

been concerned about the frequency of examinations and the efficiency of the oversight investment investors. In 2010, I wrote to the 

NASAA, and they sent me back a very long response. What I am 

concerned about is anticipating a high volume of firms going from 

Federal to State regulation as a result of the threshold change 

within the Dodd-Frank Act. Does NASAA have a comprehensive 

database available for investors to research the examination enforcement process for each State as well as disciplining actions? 

I guess what I am saying is, one of the concerns we had even 

with going back with predatory lending was that one broker could 

leave the State, go into another State, and there was no way of 

checking it. Are we looking at for the States to come together for 

a database so we have that kind of information? 

Mr. IRWIN. Absolutely, Congresswoman McCarthy. We realize 

that to take on this additional responsibility, it is going to take us 

continuing to work together as we do. There is a memorandum of 

understanding among the States that every State has signed in 

which we are planning on doing these kinds of things. We are 

streamlining exams, and improving our risk assessment so we can 

more strategically undertake those exams. 

45 

NASAA is prepared to fund joint exams among different States. 

And, fraud doesn’t stop at the border. In Pennsylvania, it goes into 

Ohio, West Virginia, etc. We are issuing cease and desist orders 

every 2 weeks for scams that are coming out of California. And we 

share those orders that we issue with all of the other States. We 

work together on many, many different levels. We are prepared to 

take on the additional responsibility. 

Mrs. MCCARTHY OF NEW YORK. Would the States also—because 

most States are having fiscal difficulties, will you be able to handle 

the increased load, and financially would you be able to do it as the 

States go forward? 

Mr. IRWIN. That is a great question. 

Different States are having different experiences. In Pennsylvania, we knew, because of the discussions over Dodd-Frank early 

on, that we had to meet with our budget secretary and talk to the 

governor about the possibility that this was going to happen. And 

I am pleased to report that Governor Corbett in Pennsylvania has 

given us five additional examiners and additional accounting staff 

to deal with the more complex kinds of examinations we are going 

to have to undertake. 

Some States are not as fortunate. But the more exams that we 

do, unfortunately, the more fines emerge. It gives us—and those 

funds fall back into the States to increase our exams. 

We are net revenue generators in a big way for our States. Our 

budget in Pennsylvania, for example, is about $9 million. We last 

year gave $30 million back to the Commonwealth. We believe that 

the resources are there, and they just have to be given to us to be 

able to undertake our mandate. 

Mrs. MCCARTHY OF NEW YORK. Thank you, and I want to thank 

all the witnesses for taking the time to be with us today. 

Mr. Chairman, thank you. 

Chairman GARRETT. And I thank you for the question. 

I guess you can always find something wrong with an audit, 

though, right, to generate the fines? 

The gentleman from North Carolina is recognized for potentially 

the final word. 

Mr. MILLER OF NORTH CAROLINA. Mr. Chairman, I will forgo 

questions, but do not get your hopes up that that will become a frequent occurrence. 

Chairman GARRETT. Okay. At this time, we will recognize the 

ranking member for some documents that she wishes— 

Ms. WATERS. What did he say? 

Chairman GARRETT. He is forgoing questioning. You had some 

documents? 

Ms. WATERS. I ask unanimous consent, Mr. Chairman, to enter 

several documents into the record: a statement from the Project on 

Government Oversight; a report from AARP; an article by Mercer 

Bullard, associate professor of law at the University of Mississippi; 

a statement from the Financial Planning Coalition; a letter to Congresswoman McCarthy from the North American Securities Administrators Association; and a letter to Secretary Hilda Solis from the 

New Democrats Coalition. 

Chairman GARRETT. Without objection, it is so ordered. 

46 

And I also seek unanimous consent with regard to statements 

from the Independent Insurance Agents & Brokers of America; 

from the National Association of Independent Broker/Dealers; from 

Paul Schott Stevens of the Investment Company Institute; from the 

Financial Services Roundtable; from The American College; from 

the Managed Funds Association; from The Bond Dealers of America; from the American Council of Life Insurers (ACLI); and I think 

that is about it. 

Without objection, it is so ordered. 

With that, I very much thank all the members of the subcommittee for their participation and their questioning and also 

very much appreciate this diverse panel that we had today and for 

all of your information and dialogue that we got from you today. 

The Chair notes that some members may have additional questions for these witnesses that they may wish to submit in writing. 

Without objection, the record will remain open for 30 days for 

members to submit questions to these witnesses and to place their 

responses in the record. 

With that, this meeting is adjourned. Again, thank you. 

[Whereupon, at 12:40 p.m., the hearing was adjourned.] 

(47) 

A P P E N D I X 

September 13, 2011 

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