[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




                RESTRICTING ACCESS TO FINANCIAL ADVICE:
                 EVALUATING THE COSTS AND CONSEQUENCES
                   FOR WORKING FAMILIES AND RETIREES

=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HEALTH,
                    EMPLOYMENT, LABOR, AND PENSIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 17, 2015

                               __________

                           Serial No. 114-21

                               __________

  Printed for the use of the Committee on Education and the Workforce


                   Available via the World Wide Web:
                       www.gpo.gov/fdsys/browse/
           committee.action?chamber=house&committee=education
                                   or
            Committee address: http://edworkforce.house.gov
            
 
                                 __________
                       U.S. GOVERNMENT PUBLISHING OFFICE
                
94-927 PDF                      WASHINGTON: 2016
  _____________________________________________________________________________
  For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
Internet: bookstore.gpo.gov. Phone: toll free (866) 512-1800; DC area (202) 512-1800
            Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001           
            
            
            
                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Duncan Hunter, California              Ranking Member
David P. Roe, Tennessee              Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania         Susan A. Davis, California
Tim Walberg, Michigan                Raul M. Grijalva, Arizona
Matt Salmon, Arizona                 Joe Courtney, Connecticut
Brett Guthrie, Kentucky              Marcia L. Fudge, Ohio
Todd Rokita, Indiana                 Jared Polis, Colorado
Lou Barletta, Pennsylvania           Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada                 Northern Mariana Islands
Luke Messer, Indiana                 Frederica S. Wilson, Florida
Bradley Byrne, Alabama               Suzanne Bonamici, Oregon
David Brat, Virginia                 Mark Pocan, Wisconsin
Buddy Carter, Georgia                Mark Takano, California
Michael D. Bishop, Michigan          Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin            Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma              Alma S. Adams, North Carolina
Carlos Curbelo, Florida              Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia

                    Juliane Sullivan, Staff Director
                 Denise Forte, Minority Staff Director
                                 ------                                

        SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS

                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           Jared Polis, Colorado,
Virginia Foxx, North Carolina          Ranking Member
Tim Walberg, Michigan                Joe Courtney, Connecticut
Matt Salmon, Arizona                 Mark Pocan, Wisconsin
Brett Guthrie, Kentucky              Ruben Hinojosa, Texas
Lou Barletta, Pennsylvania           Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada                 Northern Mariana Islands
Luke Messer, Indiana                 Frederica S. Wilson, Florida
Bradley Byrne, Alabama               Suzanne Bonamici, Oregon
Buddy Carter, Georgia                Mark Takano, California
Glenn Grothman, Wisconsin            Hakeem S. Jeffries, New York
Rick Allen, Georgia
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on June 17, 2015....................................     1

Statement of Members:
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor, and Pensions............................     1
        Prepared statement of....................................    68
    Polis, Hon. Jared, Ranking Member, Subcommittee on Health, 
      Employment, Labor, and Pensions............................    69
        Prepared statement of....................................    70

Statement of Witnesses:
    Haley, Mr. Jack, Executive Vice President, Fidelity 
      Investments, Boston, MA....................................   133
        Prepared statement of....................................   135
    Harman, Mr. Dean, CFP, Managing Director, Harman Wealth 
      Management, The Woodlands, TX..............................   174
        Prepared statement of....................................   176
    Kelleher, Mr. Dennis, Managing Director, Harman Wealth 
      Management, The Woodlands, Washington, DC..................   144
        Prepared statement of....................................   146
    Mason, Mr. Kent, Partner, Davis and Harman, LLP, Washington, 
      DC.........................................................   118
        Prepared statement of....................................   120
    Perez, Hon. Thomas E., Secretary, U.S. Department of Labor, 
      Washington, DC.............................................    71
        Prepared statement of....................................    75
    Reid, Dr. Brian, PH.D., Chief Economist, Investment Company 
      Institute, Washington, DC..................................   159
        Prepared statement of....................................   161

Additional Submissions:
    Bonamici, Hon. Suzanne, a Representative in Congress from the 
      State of Oregon:
        Letter dated June 16, 2015, from various organizations...   214
    Secretary Perez:
        Transcript Inserts.......................................   219
    Chairman Roe:
        GAO Report: Retirement Security..........................     3
        Report: Locked Out of Retirement.........................    54
    Questions submitted for the record                              221
    Curbelo, Hon. Carlos, a Representative in Congress from the 
      State of Florida submitted questions for the record to:
        Mr. Haley................................................   222
        Mr. Kelleher.............................................   226
    Guthrie, Hon. Brett, a Representative in Congress from the 
      State of Kentucky submitted questions for the record to:
        Mr. Haley................................................   222
        Mr. Harman...............................................   224
        Mr. Mason................................................   228
        Dr. Reid.................................................   230
    Mr. Polis, questions submitted for the record to Secretary 
      Perez......................................................   232
    Chairman Roe, questions submitted for the record to Secretary 
      Perez......................................................   232
    Responses to questions submitted for the record by:
        Mr. Haley................................................   240
        Mr. Harman...............................................   242
        Mr. Kelleher.............................................   244
        Mr. Mason................................................   246
        Dr. Reid.................................................   249
        Secretary Perez..........................................   250


 
                RESTRICTING ACCESS TO FINANCIAL ADVICE:
               EVALUATING THE COSTS AND CONSEQUENCES FOR
                     WORKING FAMILIES AND RETIREES

                              ----------                              


                        Wednesday, June 17, 2015

                        House of Representatives

                            Subcommittee on

                Health, Employment, Labor, and Pensions,

                Committee on Education and the Workforce

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2175, Rayburn House Office Building, Hon. David P. Roe 
[chairman of the subcommittee] presiding.
    Present: Representatives Roe, Wilson of South Carolina, 
Foxx, Walberg, Salmon, Guthrie, Heck, Messer, Carter, Grothman, 
Allen, Polis, Courtney, Pocan, Hinojosa, Sablan, Wilson of 
Florida, Bonamici, Takano, and Jeffries.
    Also present: Representatives Kline and Scott.
    Staff present: Andrew Banducci, Professional Staff Member; 
Janelle Belland, Coalitions and Members Services Coordinator; 
Martha Davis, Staff Assistant; Ed Gilroy, Director of Workforce 
Policy; Callie Harman, Staff Assistant; Tyler Hernandez, Press 
Secretary; Marvin Kaplan, Workforce Policy Counsel; Nancy 
Locke, Chief Clerk; Zachary McHenry, Legislative Assistant; 
Daniel Murner, Deputy Press Secretary; Michelle Neblett, 
Professional Staff Member; Brian Newell, Communications 
Director; Krisann Pearce, General Counsel; Lauren Reddington, 
Deputy Press Secretary; Alissa Strawcutter, Deputy Clerk; Alexa 
Turner, Legislative Assistant; Joseph Wheeler, Professional 
Staff Member; Tylease Alli, Minority Clerk/Intern and Fellow 
Coordinator; Denise Forte, Minority Staff Director; Christine 
Godinez, Minority Staff Assistant; Carolyn Hughes, Minority 
Senior Labor Policy Advisor; Eunice Ikene, Minority Labor 
Policy Associate; Kendra Isaacson, Minority Labor Detailee; 
Brian Kennedy, Minority General Counsel; Kevin McDermott, 
Minority Senior Labor Policy Advisor; Richard Miller, Minority 
Senior Labor Policy Advisor; Amy Peake, Minority Labor Policy 
Advisor; and Dillon Taylor, Minority Labor Policy Fellow.
    Chairman Roe. A quorum being present, the Subcommittee on 
Health, Employment, Labor, and Pensions will come to order.
    Good morning. I would like to begin by extending a special 
welcome to Secretary Perez. And we appreciate your willingness 
to engage in open and frank conversations about important 
issues facing working families and job creators.
    I know there are areas where we will disagree, but we will 
always welcome the opportunity to raise our concerns and lay 
out what we believe are more positive alternatives.
    I wish we were here to discuss a proposal that enjoyed 
broad bipartisan support, one that would help strengthen our 
economy and improve the lives of hardworking men and women. 
Unfortunately, that is not the case.
    Instead, we are here to address a regulatory scheme that 
will hurt a lot of families, retirees, and small-business 
owners. And it could not come at a worse-possible time.
    One of the most difficult challenges we face as a country 
is a lack of real retirement security for America's families. 
The defined benefit pension system continues to experience a 
decades-long decline while many workers are still rebuilding 
the savings they lost in the recent recession.
    Due to these and other challenges, including a persistently 
weak economy, too many workers are retiring without the means 
necessary to ensure their financial security.
    And just a moment. I found some information about 
retirement security by a GAO report, Mr. Secretary, that shows 
that 29 percent of households 55 and older have no retirement 
savings and 23 percent have a defined benefit plan, but no 
retirement savings. So it is a real issue.
    And I would like, without objection, to have this report 
submitted for the record; and also another report submitted for 
the record, the U.S. Chamber finds that the DOL-proposed 
fiduciary rule could impact 9 million small-business 
households. And I would like to have that introduced for the 
record also.
    [The information follows:]
    

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
    Chairman Roe. Our goal as policymakers should be to advance 
bold bipartisan solutions that will help more Americans plan, 
invest, and save for retirement. Regrettably, the Department's 
fiduciary regulation would move our country in the opposite 
direction. It would cut off a vital source of support too that 
many low- and middle-income families and small-business owners 
rely on, and that is the help of a trusted financial adviser.
    Four years ago, the Subcommittee examined a similar 
proposal that was later withdrawn under intense bipartisan 
opposition. I said at the time that anyone who provides 
investment assistance should be well-trained, committed to high 
ethical and professional standards, and devoted to the best 
interests of those they are serving.
    That is why financial advisers have long been subject to a 
host of securities, tax, and disclosure requirements. It is a 
complex system of rules and regulations, but it is an important 
one that has worked well for decades.
    That doesn't mean we shouldn't look for opportunities to 
improve current standards, but we cannot in any way make it 
harder for workers, retirees, and small-business owners to 
receive the financial advice they need.
    Yet that is precisely what this regulatory proposal would 
do. Offering some of the most basic assistance would be 
prohibited, such as advice on rolling over funds from a 401(k) 
to an IRA. Financial advisers would no longer be able to assist 
individuals on how to manage their funds on retirement. And 
small-business owners would be denied help in selecting the 
right investment options for their workforce, which would lead 
to fewer employees enrolled in a retirement plan.
    It has been suggested on numerous occasions that this 
proposal will simply apply to financial advisers the same 
standard recognized in the medical profession.
    Mr. Secretary, I believe you have drawn that comparison 
from time to time and it is a clever talking point, but one 
that couldn't be more flawed.
    As a physician with more than 30 years of experience in 
treating patients, let me just say that the approach reflected 
in this proposal would destroy what is left of our health care 
system. Imagine what would happen if doctors were prohibited 
from receiving compensation or were required to sign a contract 
with each patient before delivering services or were forced to 
publish online each and every treatment that had been 
prescribed the following year.
    No doctor could run a successful practice under this type 
of regulatory regime and no responsible financial adviser will 
be able to, either.
    Make no mistake. If this rule goes into effect, a lot of 
people will quickly learn that their financial adviser, someone 
they have known and trusted for years, will no longer be able 
to take their call.
    And it is important to note that low- and middle-income 
families are the ones who will bear the brunt of this misguided 
proposal. They will lose access to their personal service that 
they have relied on and be forced to find suitable advice 
online or simply fend for themselves.
    As is often the case with big-government schemes, the 
wealthiest Americans will do just fine. And those we really 
want to help we will hurt the most.
    Mr. Secretary, this latest fiduciary proposal will lead to 
the same harmful consequences as the first and should suffer 
the same fate. Please withdraw this proposal and work with this 
committee on a responsible, bipartisan approach that will 
strengthen protections for investors and preserve robust access 
to financial advice. Our nation's workers and retirees deserve 
nothing less.
    With that, I will now recognize the ranking member of the 
subcommittee, Congressman Polis, for his opening remarks.
    [The statement of Chairman Roe follows:]

  Prepared Statement of Hon. David P. Roe, Chairman, Subcommittee on 
                Health, Employment, Labor, and Pensions

    Good morning. I'd like to begin by extending a special welcome to 
Secretary Perez. We appreciate your willingness to engage in open and 
frank conversations about important issues facing working families and 
job creators. I know there are areas where we disagree, but we always 
welcome the opportunity to raise our concerns and lay out what we 
believe are more positive alternatives.
    I wish we were here to discuss a proposal that enjoyed broad 
bipartisan support, one that would help strengthen our economy and 
improve the lives of hardworking men and women. Unfortunately, that's 
not the case. Instead, we are here to address a regulatory scheme that 
will hurt a lot of families, retirees, and small business owners, and 
it could not come at a worse possible time.
    One of the most difficult challenges we face as a country is a lack 
of real retirement security for America's families. The defined benefit 
pension system continues to experience a decades-long decline, while 
many workers are still rebuilding the savings they lost in the recent 
recession. Due to these and other challenges - including a persistently 
weak economy - too many workers are retiring without the means 
necessary to ensure their financial security.
    Our goal as policymakers should be to advance bold, bipartisan 
solutions that will help more Americans plan, invest, and save for 
retirement. Regrettably, the department's fiduciary regulation would 
move our country in the opposite direction. It would cut off a vital 
source of support many low- and middle-income families and small 
business owners rely on, and that is the help of a trusted financial 
advisor.
    Four years ago, the subcommittee examined a similar proposal that 
was later withdrawn under intense bipartisan opposition. I said at the 
time that anyone who provides investment assistance should be well 
trained, committed to high ethical and professional standards, and 
devoted to the best interests of those they are serving.
    That is why financial advisors have long been subject to a host of 
securities, tax, and disclosure requirements. It is a complex system of 
rules and regulations, but it is an important one that has worked well 
for decades. That does not mean we shouldn't look for opportunities to 
improve current standards. But we cannot - in any way - make it harder 
for workers, retirees, and small business owners to receive the 
financial advice they may need.
    Yet that is precisely what this regulatory proposal would do. 
Offering some of the most basic assistance would be prohibited, such as 
advice on rolling over funds from a 401(k) to an IRA. Financial 
advisors would no longer be able to assist individuals in how to manage 
their funds upon retirement. And small business owners would be denied 
help in selecting the right
    investment options for their workforce, which will lead to fewer 
employees enrolled in a retirement plan.
    It has been suggested on numerous occasions that this proposal will 
simply apply to financial advisors the same standard recognized in the 
medical profession. Mr. Secretary, I believe you have drawn that 
comparison from time to time. It is a clever talking point, but one 
that couldn't be more flawed.
    As a physician with more than 30 years of experience treating 
patients, let me just say that the approach reflected in this proposal 
would destroy what's left of our health care system. Imagine what would 
happen if doctors were prohibited from receiving compensation, or were 
required to sign a contract with each patient before delivering 
services, or were forced to publish online each and every treatment 
that had been prescribed the following year. No doctor could run a 
successful practice under this type of regulatory regime, and no 
responsible financial advisor will be able to either.
    Make no mistake, if this rule goes into effect, a lot of people 
will quickly learn that their financial adviser - someone they may have 
known and trusted for years - will no longer be able to take their 
call. And it is important to note that low- and middle-income families 
are the ones who will bear the brunt of this misguided proposal. They 
will lose access to the personal service they rely on and be forced to 
find suitable advice online or simply fend for themselves.
    As is often the case with big government schemes, the wealthiest 
Americans will do just fine and those we want to help will be hurt the 
most. Mr. Secretary, this latest fiduciary proposal will lead to the 
same harmful consequences as the first and should suffer the same fate: 
Please withdraw this proposal and work with this committee on a 
responsible, bipartisan approach that will strengthen protections for 
investors and preserve robust access to financial advice. Our nation's 
workers and retirees deserve nothing less.
    With that, I will now recognize the Ranking Member of the 
subcommittee, Congressman Polis, for his opening remarks.
                                 ______
                                 
    Mr. Polis. Thank you, Mr. Chairman.
    Today we will be discussing an important issue that has 
been simmering for several years now after the Department of 
Labor chose to modify the first version of this rule several 
years ago, they have been working to listen to a broad spectrum 
of stakeholders on how best to proceed.
    And I think that everybody in the room on all sides of this 
issue believes in a best-interest or fiduciary standard because 
I think we are all here out of concern that the clients' 
interests should be paramount.
    But what this comes down to is how to make that happen and 
how to implement the rule in a way that makes sense and 
benefits consumers.
    I truly believe today that most advisers do what is in the 
best interest of their clients, and hopefully the final rule 
won't be an overwhelming burden on those good actors.
    However, providing a standard that those few bad actors 
need to abide by is absolutely essential, as well as to improve 
transparency in the industry.
    As we all know, most Americans are not saving enough for 
retirement. It is essential that what little is being invested 
should not be biased by conflicted advice. Investors should be 
able to trust the person advising them about the money they 
need to live after retirement without having to worry about 
that adviser's self-interest.
    On the other side of the coin, we need to protect 
individuals and small businesses to make sure that they have 
access to quality advice, because mistakes in investments cost 
billions of dollars, and good advice is well worth the price.
    I am thankful to all of our witnesses for coming today to 
share their experience, and I am particularly glad that we are 
beginning with the Secretary of Labor. And I am glad to hear 
that he is interested in hearing our feedback about the rule. 
And I am thrilled that he has decided to extend the comment 
period by an additional 15 days.
    I know that he has been working diligently on an overall 
goal of expansion of retirement savings as a way to address the 
retirement crisis. They have been doing a great deal of work in 
the Department of Labor on financial literacy, increasing 
effective enforcement by the Employee Benefits Security 
Administration, providing technical assistance to employers and 
workers and retirees about saving for retirement.
    A good, workable rule regarding a best-interest standard 
can help increase trust between a client and their adviser, and 
that is an important part of expanding retirement savings.
    I don't think anybody thinks that the current rule is 
perfect, and that is why I am thrilled we are having this 
conversation and that the Secretary has extended the comment 
period for 15 more days.
    I will be asking some in-depth questions, both at this 
hearing as well as for the record, because although I believe 
that this process should continue forward to close a loophole 
and establish a fiduciary standard that reflects today's 
retirement landscape, we also need to understand and fix any 
unintended consequences, especially for low- and middle-income 
investors and small businesses.
    Ensuring that people are receiving good, affordable, 
conflict-free advice should be our end goal here. And I look 
forward to hearing in-depth answers from the knowledgeable 
questions from the members of this committee so that we can 
help the Secretary reach an end result that helps those most in 
need and improves trust in the client-adviser relationship and 
leads to greater retirement savings for Americans.
    Thank you, and I yield back the balance of my time.
    [The statement of Mr. Polis follows:]

Prepared Statement of Hon. Jared Polis, Ranking Member, Subcommittee on 
                Health, Employment, Labor, and Pensions

    Today we discuss an important issue that has been simmering for the 
past five years. After the Department of Labor retracted the first 
version of this rule several years ago, they have been working to 
listen to a broad spectrum of stakeholders on how to proceed.
    I believe that everyone in the room, on every side of this issue, 
believes in a ``Best-Interest or Fiduciary Standard'' because the 
client's interest should be paramount. What this comes down to is how 
to make it happen, and how to implement this rule in a way that makes 
sense.
    I truly believe that today most advisors do what is in the best 
interest of their clients, and the final rule needs to not have an 
overwhelming burden on those good actors. However, providing a standard 
that those few bad actors need to abide by is absolutely essential.
    As we all know, today, most Americans are not saving enough for 
retirement. It is essential that what little is being invested must not 
be biased by conflicted advice. Investors must be able to trust the 
person advising them about the money they need to live after 
retirement. On the other side of the coin we must protect individuals 
and small businesses access to advice. Because mistakes in investments 
cost billions of dollars.
    I am thankful to all of our witnesses for coming today in order to 
share their expertise. We are all interested in learning why this is 
necessary and how this will impact advisors; but more importantly how 
it impacts the advice individuals receive.
    I am especially glad The Secretary of Labor has joined us. I know 
he is glad to be hearing feedback about the rule, and I am especially 
pleased that he decided to extend the comment period by an additional 
15 days.
    I know that he has been working diligently on an overall goal of 
``expansion of retirement savings'' as a way to address the retirement 
crisis. They have been doing a great deal of work on financial 
literacy, they have increased effective enforcement by the Employee 
Benefits Security Administration and technical assistance that has been 
provided to employers, workers and retirees. A good workable rule 
regarding a best-interest standard will increase trust between a client 
and their advisor, and I know we all agree that is necessary part of 
expanding retirement savings.
    I don't think the Secretary or anyone on his staff would say this 
rule is perfect, but that is why having this conversation and having a 
comment period is so vital.
    I will be asking some very in-depth questions now and also for the 
record, because although I believe this process needs to continue 
forward to close a loophole and establish a fiduciary standard that 
reflects the retirement landscape as it looks today, we need to 
understand and fix any unintended consequences, especially for low and 
middle-income investors and small businesses.
    Ensuring that people are receiving good, affordable, conflict-free 
advice should be, and I believe is the end-goal for everyone.
                                 ______
                                 
    Chairman Roe. I thank the gentleman for yielding.
    Pursuant to committee rule 7(c), all subcommittee members 
will be permitted to submit written statements to be included 
in the permanent hearing record. And without objection, the 
hearing record will remain open for 14 days to allow 
statements, questions for the record and other extraneous 
material referenced during the hearing to be submitted in the 
official hearing record.
    It is now my pleasure to introduce our distinguished 
witness on the first panel.
    The Honorable Thomas E. Perez was sworn in as the 26th U.S. 
Secretary of Labor on July 13, 2013. Prior to his confirmation, 
he served as Assistant Attorney General for Civil Rights at the 
U.S. Department of Justice and as the Secretary of Maryland's 
Department of Labor, Licensing and Regulation.
    Mr. Secretary, I will ask you to stand and raise your right 
hand.
    [Witness sworn.]
    Let the record reflect the witness answered in the 
affirmative.
    You may be seated.
    Before I recognize you for your testimony, let me briefly 
review so you understand the lighting system; you will have 
five minutes; we will have some latitude with that with the 
Secretary here.
    And with that, you are recognized.

 TESTIMONY OF HON. THOMAS E. PEREZ, SECRETARY, U.S. DEPARTMENT 
                   OF LABOR, WASHINGTON, D.C.

    Secretary Perez. Good morning. Thank you, Mr. Chairman. It 
is a pleasure to be here, Ranking Member Polis, Chairman Kline, 
and other members of the Committee. It is an honor to be here, 
and thank you for allowing me to come to discuss the 
Department's important efforts to help ensure that your 
constituents and all Americans have access to sound investment 
advice that a middle-class retirement requires.
    Merlin Toffel did everything right. He was a veteran of the 
U.S. Navy and an electrician. He and his wife, Elaine, raised 
their four kids in Lindenhurst, Illinois, and instilled in them 
those middle-class values befitting of their greatest 
generation.
    They loved to travel. They worked hard and they took care 
to save wisely. Over four decades, they built up an impressive 
portfolio with Vanguard: Merlin at the helm managing the 
account and Elaine, an accountant, keeping the books.
    Life took its toll. Merlin was diagnosed with Alzheimer's. 
When Merlin could no longer manage their finances, Elaine made 
an appointment at the local retail bank. This is the bank they 
had been using for years. They trusted them.
    The bank's investment broker told her to liquidate the 
impressive Vanguard portfolio and sold them variable annuities 
to the tune of $650,000. Elaine trusted that advice. It was in 
her best interests, she thought.
    But those variable annuities charged nearly 4 percent of 
the investment per year, or $26,000, the rough cost of buying a 
new car each year. And if the Toffel's needed to access the 
money right away, as all too many families face when their 
loved one is in decline, a 7 percent surrender charge would 
cost them more than $45,000.
    In the end, the broker's conflicted advice cost a 
hardworking, middle-class family more than $50,000.
    The Toffel's story is tragic, but regrettably is it not 
unique.
    Conservative estimates by the Council of Economic Advisers 
place the cost of conflicted advice at more than $17 billion 
annually. Our economic analysis shows that conservatively the 
amount that savers would benefit from our rule, and this is 
only based on a slice of the IRA market, would be $40 billion 
over 10 years.
    For families like the Toffels, families who have done 
everything we ask of the American middle class, the stakes 
could not be higher.
    ERISA is over four decades old. In my parents' generation, 
average Americans retired after working their entire life in 
the same company. Their retirement was met by with both a 
commemorative pen and a concrete pension. Because that pension 
was a defined benefit, the only thing at risk of running dry 
was the ink in the pen.
    But times have changed. Defined benefit plans have given 
way to defined contribution plans. Now consumers are in control 
of making their own investment decisions through from 401(k)s 
and IRAs. We can still count on that commemorative pen, but a 
secure retirement is less predictable.
    For the majority of Americans without a finance degree, the 
market is, at best, a confusing place.
    I appreciate the fact that you are a very distinguished 
doctor in addition to a member of Congress, Mr. Chairman. I 
have four siblings and they are all doctors. And you know, I am 
a lawyer, and I promised them I would never be a plaintiff's 
personal injury lawyer, and I kept that promise, no disrespect 
to any plaintiff's personal injury lawyers around the table.
    But you know what? As I said, three of the most important 
decisions that people make in their lives are medical, legal, 
and financial. And I know my siblings, the doctors, they 
understand that they have a very concrete obligation to put 
their patients' best interests first, just as I as a lawyer 
have an obligation to put my clients' best interests first. 
That is clear.
    And most people assume that the same holds true for their 
financial professionals. But that is not necessarily the case.
    Indeed, many of those working in the retirement space are 
in fact doing the right thing. Many of them are fiduciaries 
already, having taken an oath to serve in the best interests of 
their clients.
    Yet many more are not fiduciaries, and despite marketing 
that might suggest otherwise, they operate under no such 
commitment to do what is in the best interests of their 
clients.
    When seeking advice on retirement, consumers are at an 
informational disadvantage. This playing field is not level.
    But this is not simply about people who do bad things. I 
actually think, and I agree with both the Chairman and the 
Ranking Member, that the vast majority of people who provide 
advice are trying to do the right thing. I have not heard from 
anyone who said that I don't do anything but try to put my 
customers' best interests first.
    But the challenge is that the system is flawed. They are 
operating within a structurally flawed system, a market that 
sees the personal financial interests of the adviser and the 
firm all too frequently misaligned with the best interests of 
the customer.
    So the Labor Department's conflict of interest proposal has 
a singular goal: to align the best interests of the customer 
with those of the adviser and the firm. Simply put, we want to 
create an enforceable best-interest standard so that you can 
have certainty that your financial adviser is working for you 
first and foremost.
    This proposed rule is a product of lengthy, exhaustive 
outreach. It includes extensive consultation with the SEC, 
whose expertise has been invaluable as we have developed this 
rule. Our outreach to the SEC was not a box-checking exercise, 
it was critical to the rulemaking and it has helped us make a 
better proposal.
    The proposed rule was also following very significant 
outreach to representatives of consumer groups, the financial 
services industry and members of Congress. And we appreciate 
that input that we have gotten throughout the process.
    We have established a lengthy comment process of roughly 
140 days, which is one of the longest that we have done in a 
rule, and for good reason.
    Throughout this outreach process, I have been very 
heartened by the calls that we have gotten from many in the 
industry to establish a best-interest standard.
    So for instance, John Thiel, the head of Merrill Lynch 
Wealth Management, said, ``Since 2010, we have supported the 
notion of a consistent and higher standard for every 
professional that deals with the American investor and those 
that deal with retirement plans. As an organization, we have 
provided input to policymakers in Washington. We believe we 
were heard and we will have an additional opportunity to 
comment.''
    The CEO of Bank of America, Brian Moynihan, said, and I 
quote: ``We believe that doing what is in the best interests 
for your customers is absolutely the right thing to do. We have 
been clear that we see the industry moving and we expect to 
help it move there.''
    There is an increasing recognition inside and outside the 
industry that the best-interest standard is in fact the right 
way to go. The debate has shifted unmistakably from what 
problem to an acknowledgment of the problem that people 
providing investment advice should have an enforceable 
obligation to look out for their customers' best interests.
    And now the important questions that remain, and I agree 
with the Ranking Member, is how do we operationalize this 
standard?
    And we look forward to the feedback and constructive 
dialogue that we continue to have so that we can get ideas on 
how best to operationalize this because leaders of large and 
small businesses alike have recognized not simply that this is 
the right thing to do, but it is the smart thing to do.
    Jack Bogle, the founder of Vanguard, said, and I quote: 
``For as long as I can remember I have pressed for a federal 
standard of fiduciary duty, a simple rule that stresses that 
clients come first.''
    Mr. Bogle has 64 years in the business and he said, ``I 
learned early on that when you put your customers' interests 
first it is great for your customer and it is great for 
business.''
    He has retired, but Vanguard's competitiveness has not.
    And while Jack Bogle, who built Vanguard, understands the 
importance of acting in the best interests of his clients, so 
do many small- and medium-sized companies.
    Wealthfront is a relatively small investment adviser just 
shy of four years old. And they wrote to us recently to say, 
and I quote: ``We were built from the ground up to operate 
under the full fiduciary standard despite serving small 
accounts and charging incredibly low fees. Thankfully, our 
effort to serve the small investor has been rewarded with 
unprecedented growth. Wealthfront is living proof that not only 
is it possible to provide fiduciary service at low cost to 
small investors nationwide, but also that the market greatly 
rewards these efforts.''
    This is what we are hearing from members of the industry. 
And what we are hearing is that the rule is good news for both 
American workers and retirees and everyone who is leaving a job 
and deciding what to do with their hard-earned money.
    But ultimately, it is not about simply the firms, it is 
about the people. The middle-class life rests on five pillars: 
fair pay, a roof over your head, health care for your family, 
education for you and your children, and the ability to save 
for you and your family's retirement.
    I totally agree with you, Mr. Chairman, that we have a 
retirement crisis. We have got to save more. And what we are 
trying to do in this rule is to ensure that the hard-earned 
money that people have saved throughout their career can go to 
them and at the same time making sure that we have an industry 
that continues to be able to do good and do well. You can do 
both.
    And I look forward to hearing your questions and concerns. 
And I look forward to continuing the outreach because it has 
been a very, very constructive process for the two years, or 
roughly two years, I have been in this job. I have appreciated 
the input from many members of this Committee who have helped 
us frame an even better rule.
    So thank you, Mr. Chairman, for your courtesy. And I look 
forward to your questions and those of everyone on the 
Committee.
    [The testimony of Secretary Perez follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Mr. Secretary, thank you for being here. And 
I will start off the questioning.
    I know one of the premises that was made is that we have a 
crisis and basically there is a $17 billion number. Being a 
numbers guy, I went back and sort of dug through how that 
number came up, how that actually happened.
    And the way that occurred, the Council of Economic 
Advisers, the way they put that number together was they took 
the total value of loaded mutual funds and IRAs and the total 
value of annuities and IRAs, added them together, and somewhere 
in the literature found out or determined that there was a 1 
percent difference in that advice and other advice, and there 
is $1.7 trillion in the total assets when you add those 
together. And that is how the $17 billion got there.
    The problem with that is there are a lot of assumptions and 
extrapolations when you get to that. One assumption was that 
when you paid a loaded mutual fund that you did that every year 
instead of just going ahead and having the one-time load. I 
have got a loaded mutual fund in my own retirement plan that I 
haven't changed in 15 years.
    And it was a terrible example that you gave. I really feel 
badly for that family that had a 4 percent annuity and a 7 
percent surrender. I agree with that, that is very bad advice 
that they got. But making them a fiduciary, Bernie Madoff was a 
fiduciary and look what happened there.
    So making a fiduciary and more rules, I guess the first 
question I have for you is, do you think all this rulemaking--
we have got 29 percent of the people that don't have retirement 
savings--will make it easier for people? Will it make it 
simpler and easier for me as a small-business person to provide 
retirement benefits for every employee I had from the day I 
started my medical practice?
    Will this rule make it easier for me to set that up and 
provide for those retirement savings for people, or will it 
make it harder?
    Secretary Perez. I think it makes it easier for both 
workers and for employers. And let me talk about workers first.
    It is a very confusing world for people who want to get 
advice, because some people that give advice have taken an oath 
to have a fiduciary obligation, some people are broker dealers 
and they are under a suitability standard, and some are 
actually dual-hatted. So depending on where you are in the 
conversation, they are a fiduciary one minute and they are not 
a fiduciary the next minute.
    That is remarkably confusing for consumers. And that is not 
the case for a doctor or a lawyer. When you go in there, your 
doctor is always looking out for your best interests and your 
lawyer is looking out for your best interests.
    So, this rule makes it simpler by making sure we have one 
standard.
    As it relates to businesses, businesses are often victims. 
And I have spoken to a lot of small businesses who, you know, 
they know how to make widgets, they are not experts in 
investing. And what they are often getting is advice that also 
has the same structural flaws.
    So when small businesses who are trying to do well by their 
employees are looking for that advice, this rule is going to 
ensure that businesses and consumers alike are going to have 
access to that same non-conflicting advice.
    Chairman Roe. My time is limited, Mr. Secretary. Why would 
the NFIB and the Chamber, who represent small businesses, 
object to this rule the way it is proposed?
    Secretary Perez. Well, I can tell you that we have also 
spoken to a lot of small businesses as well. And one 
interesting one--
    Chairman Roe. No. I asked why would they oppose. And then 
to make it easier, these are the rules right here. This is 
yours right here, this big, whole, thick thing you have to read 
through. And let me just go through a couple of things.
    This is what someone has to do now with a BIC exemption, to 
get an exemption, which you provided in there, you did provide 
a way to exempt the broker dealers. A total cost of disclosure 
must be provided to the investor before executing any 
investment transaction. Disclosure must be provided and all the 
end costs and anticipated future costs, recommended assets over 
one-, five-, and 10-year periods, making reasonable assumptions 
about investment performance. And the all-in inclusion includes 
acquisition ongoing, deposition, and any other costs that 
reduce the asset's rate of return.
    I mean, it is very simple. I looked up mine this morning. 
And it is very simple with the account I have to be able to 
tell exactly what my returns are net of fees.
    I mean, I see some things right here. A public website must 
be maintained and updated quarterly showing the direct and 
indirect material compensation paid to the adviser, financial 
institution, and any affiliate of a financial institution with 
respect to any asset that the investor is able to purchase, 
hold, or sell through the adviser or financial institution over 
the last 365 days.
    This is going to be thousands of things that you have to 
do. Does that sound like it makes it easier?
    Secretary Perez. I think, sir, this rule is very 
straightforward. You have an obligation, if you are providing 
advice, to look out for your customers' best interests.
    Chairman Roe. Totally agree with that.
    Secretary Perez. Well, that is what the rule says. And that 
is what the proposal says. And what we heard in our feedback 
was we don't want a straitjacket. We want to make sure that we 
don't have to ban commissions, for instance. And the rule 
doesn't ban commissions. We want a flexible road map for 
compliance that enables us to design what works best for our 
business, and the best-interest contract is exactly responsive 
to that.
    Now, if there are questions about how to operationalize it, 
as the Ranking Member said, we are having that conversation 
right now. And we are having very productive conversations 
about how to make it work.
    The issue you said about publishing fees, I believe in 
transparency, the problem right now is that the system is 
really, really opaque. You don't know what your fees are 
because there are a lot of hidden fees. And when you publish 
these and have that sunshine, there will be, I predict, third 
parties that are going to emerge that are going to start the 
consumer reports of financial advice. And so consumers are 
going to be more empowered when you have that transparency.
    Chairman Roe. Permit me to interrupt. My time is expired.
    Mr. Polis, you are recognized.
    Mr. Polis. Thank you, Mr. Chairman.
    Secretary Perez, I want to thank you for your Department's 
work on the lifetime income disclosure regulation. As you know, 
I am an original sponsor of that bill and I strongly believe 
all workers should have access to this tool that federal 
workers currently have.
    In a snapshot, workers will know not only how much they 
have saved, but also what the balance would translate into in 
guaranteed lifetime income, very relevant for their own 
retirement plans.
    And I know that this particular rule here is also part of 
your plan to make sure Americans save enough to retire.
    I wanted to address a few issues in the rule.
    There have been question about the extent to which your 
Department has sought input from the SEC and other regulators 
regarding the specifics of the proposal. Would you provide some 
details regarding these interactions and how the Department has 
gone about receiving input in crafting a proposal that marries 
well with securities law?
    Secretary Perez. Sure. We have had extensive conversations 
with the SEC. We detailed this in a letter. I have had, I 
think, eight different, either face-to-face or calls, meetings 
with Chair White throughout this process.
    We provided the day before yesterday roughly 800 pages of 
documentation to note and document the extent of the 
coordination. And it has been very helpful. Our career staffs 
have met countless times over the last four years. And as the 
materials describe, you will see that they had helped inform 
our judgment in every aspect of the rule.
    This Committee has helped inform our judgment as well. And 
I want to thank Congressman Guthrie.
    We had a provision in the old rule that related to ESOPs. 
And there were some concerns raised by Congressman Guthrie and 
some of his constituents with whom we met. And as a result of 
that, we took that out of the current proposal.
    And so we are going to continue to listen and learn, 
whether it is from the SEC, whether it is from members of 
Congress, whether it is from industry. All the stakeholders 
have really helped us make this a better rule. And I am 
confident that the final rule will be even better because we 
continue to get good input.
    Mr. Polis. Thank you. And as you know, the proposal 
includes a significant exemption from the prohibited 
transaction rules for financial advisers who enter into a best-
interest contract with customers. To use that exemption, the 
adviser needs to comply with significant disclosure 
requirements.
    And my question is around the cost-benefit of the amount of 
disclosures and whether the disclosures actually provide an 
average investor with information that they can process and 
whether that additional burden is worth it.
    And of course, we have heard from some advisers that the 
disclosures currently in the rule are so burdensome that they 
simply won't serve some of the middle-income investors.
    So I was hoping you could address that kind of cost-benefit 
tradeoff around those disclosure retirements.
    Secretary Perez. Sure. The best-interest contract is our 
way of making sure. This is our Ronald Reagan provision in the 
rule, which is that we want to trust and verify.
    I have yet to meet somebody who is an adviser who hasn't 
told me that they put or they think they put their clients' 
best interests first.
    And so what we are saying in this rule is we agree with 
you, that is the rule and it is now enforceable. And the best-
interest contract is a way to make sure that you have a 
flexible road map for compliance and that it is enforceable.
    There are a number of disclosure requirements that we 
believe are very discrete and very targeted. You ought to know 
how much, you know, what the fees are. I think that is a good 
idea so that you can make informed judgments because, you know, 
an educated consumer is the best consumer.
    Mr. Polis. Would the consumer also have some basis to know 
whether those fees are high or low relative to the fees of 
others? Because I mean, they might not know in seeing the fee.
    Secretary Perez. And that is part of the education that 
they can absolutely get, because you want to comparison shop. 
There is a lot of modeling that you can do to figure out, well, 
what are the fees for a similar product elsewhere? And those 
are the types of things that this rule would permit and, 
actually, good practice would dictate.
    Mr. Polis. Along with that education question, in your last 
30 seconds, there is a carve-out, as you know, for investment 
education in the rule. And I was hoping you could clarify about 
where that distinction is between advice and education.
    Secretary Perez. Sure. One of the main things we did, and 
this was responsive to the feedback we got, is to clarify and 
really explain the line between education and advice, because 
we all agree that education is exceedingly important. And this 
rule establishes very broad parameters for education.
    So one of the most important things that you can do in 
education is talk about asset allocation. That is totally 
education, nothing kicks in there. You know, you should have 
some of your money in, you know, equities, bonds, cash. That is 
education.
    Tradeoffs between risk and reward are education.
    We had 1996 guidance that we put into the rule, the 
proposed rule, so that we are operationalizing something that 
the industry has been using for some time.
    We clarified that employers can provide advice because 
employers are trusted advisers that people go to. And they are 
not generating a fee so they are not fiduciaries, so we 
clarified that employers can provide advice.
    And we welcome your comments on whether the line is drawn 
in the right place or whether we should do something different 
and better.
    Mr. Polis. Thank you, Mr. Secretary.
    Yield back.
    Chairman Roe. I thank the gentleman for yielding.
    Next is Chairman Kline.
    Mr. Kline. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here.
    I think there is nobody probably in this room and certainly 
up here who doesn't agree that financial advisers ought to be 
acting in the best interests of their client. But the rule 
doesn't simply say that. The rule is in fact quite complex.
    Dr. Roe lifted up the book and it is about this thick. And 
clearly, there is a lot of confusion.
    And so I am not as thrilled as the Ranking Member that you 
have extended the comment period by 15 days; 45 would have been 
better. But the more discussion we have, I think, the better 
because right now I am afraid the rule is going to prove to be 
pretty complex and in some cases may be unworkable.
    Mr. Secretary, you said that you have had extensive 
outreach to the SEC. And since you are here under oath, I have 
got to assume that is a true statement, but it may depend upon 
what ``extensive'' and what ``outreach'' means.
    As you know, Mr. Secretary, going back to March 4, the 
Committee has asked for documents and communications to verify 
that substantive coordination has occurred between the 
Department of Labor and the Securities and Exchange Commission. 
And after months of virtually no response, less than 48 hours 
before this hearing the Department produced 827 pages of mostly 
scheduling emails, Outlook calendar items, and similar things.
    And this leads us to believe the Department has still not 
provided a complete response to our inquiry.
    So here are the questions. Do these 827 pages represent the 
entirety of the written communications between DOL and the SEC?
    Secretary Perez. Could you repeat the question, sir? I am 
sorry.
    Mr. Kline. Do these 827 pages that we just got from the 
Department represent the entirety of the written communications 
between DOL and the SEC on this fiduciary standard?
    Secretary Perez. No. We have had an extensive conversation 
with your staff. And I am a big believer in the importance of 
oversight. And I think you and I have had this conversation in 
many contexts. And we look forward to continuing to work with 
you.
    We also had agreed--we offered, I am sure you are aware, to 
provide a briefing about the extent of the coordination. The 
materials were due the close of business yesterday; we provided 
them to you at the close of business Monday so you would have 
an extra day to review them in preparation for today.
    And we will continue to work with you on this.
    Mr. Kline. And we reviewed them quickly.
    So I am not sure I still have the answer to the question. 
Is there more documentation that we have not yet received?
    Secretary Perez. We are still reviewing everything. This 
process has taken place over five years. And so we wanted to 
demonstrate our good faith in the work that we are doing. And 
so we turned over the 800 pages.
    Mr. Kline. But you are not claiming executive privilege for 
not providing more documents, you just haven't found them yet?
    Secretary Perez. No. We are continuing to work with your 
staff, and I think we are working in a collaborative fashion. 
And again, we offered up a briefing to show the coordination.
    And with all due respect, the documents demonstrate, 
because all of the areas of discussion for a particular meeting 
are noted on the document, so the issue that was presented in 
the oversight request was are we collaborating with the SEC. 
The documents that you have, I would respectfully assert, 
clearly demonstrate both a wide breadth and depth of 
collaboration with the SEC.
    Mr. Kline. Well, is it all of the collaboration? That is 
what we are getting at.
    I mean, we would like to have a log from you identifying 
responsive documents by date, author, subject line, recipients, 
and a summary of content. That is what we have asked for and we 
haven't gotten that. We got 827 pages of stuff, and I 
appreciate getting the 827 pages.
    But as you know, Mr. Secretary, there has been a great deal 
of debate and conversation and unrest about who should be doing 
this in the first place, right? The SEC is charged under Dodd-
Frank with some activities here. DOL is acting under ERISA for 
this.
    But we have been looking at coordination. We have had 
legislation in this body insisting that SEC act before DOL, 
that has not been signed by the President, it is not law.
    But we are very, very concerned as a body about what this 
coordination is between DOL and SEC. You have given us a bunch 
of stuff, we are looking for something a little bit more 
precise than that. And I hope you will be able to provide that.
    Secretary Perez. Well, I look forward to our staff oral 
briefing because I think you will get even more depth about 
what we have been doing.
    And again, the documents that you have now and the proposed 
rule, you will see that virtually every section of the rule, 
there were conversations with us and the SEC.
    So if the question is, were we talking? The answer is, a 
lot.
    Mr. Kline. I guess I believe a lot; I am looking for a 
little more precision.
    I yield back.
    Chairman Roe. I thank the chairman for yielding.
    Mr. Courtney, you are recognized for five minutes.
    Mr. Courtney. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here today.
    Secretary Perez. Good morning, Congressman.
    Mr. Courtney. You know, just at the outset, I would just 
sort of change maybe a little bit of the tone of the last 
exchange. And again, I have nothing but the highest regard for 
the Chairman, but you know, this Secretary, since he took over, 
in my opinion, has shown, you know, a real willingness to work 
with the committee members on a whole host of issues.
    Mr. Kline and I raised the question of whether or not the 
Department of Labor's actions in the Office of Contract 
Compliance with hospitals was an overreach by the Department.
    And to your credit, you ran the forensics and came back and 
actually terminated an enforcement action which, again, was 
what generated our objection.
    The pension amendment to the Cromnibus, which the chairman 
of the subcommittee and the Chairman of the full committee 
worked with your Department to produce, you know, a change to 
the crisis that existed in defined benefits again is another 
example of where this Secretary has shown a willingness to work 
with this committee.
    And frankly, that has been a change since you took over.
    The last time the Department came forward with a proposal 
on a fiduciary rule, it was a disaster. I mean, and I am saying 
that as a, you know, as a Democrat. It just was a fiasco.
    And you have already sort of alluded this morning to some 
of the changes that the Department has implemented or proposed 
with the new proposed rule compared to the first fiduciary 
proposal.
    Again, you mentioned Mr. Guthrie's concern regarding ESOPs. 
That was deleted.
    The financial education piece, which frankly I personally 
think needs more work, and you have already said this morning 
you are willing to listen to people about ways to let the call 
centers do their jobs without sort of too much restriction.
    But the sellers' exemption is an example. Maybe you could 
talk a little bit about, you know, where we are today versus 
where we were whatever it was, three or four years ago, when 
the Department came out with its first set of rules.
    Secretary Perez. I think we have come a long way, in short. 
And we have come a long way because I am a big believer, and we 
had this chat yesterday, Mr. Chairman, when you are in the 
regulatory process, number one, you have got to build a big 
table, you have got to make sure you are listening to every 
stakeholder. You have got to understand what the consequences 
of your proposed actions are, intended and unintended.
    And the best way to learn about the latter is to make sure 
you have a big table so that you can hear and learn from people 
who have been in it. And that is what we have done.
    And I am heartened by the fact that this conversation has 
evolved from a there really isn't a problem to address to an 
increasing recognition that we have to have one standard and it 
needs to be a best-interest standard because we don't save 
enough.
    And when a family works hard to save $50 or $100,000 or a 
few hundred thousand in the case of the example I cited, we 
need to make sure that the advice they are getting is in their 
best interests. And that is what this is about.
    And the question of how to operationalize that, we asked 
literally dozens of questions in our proposed rule about 
precisely that, because another principle of effective 
rulemaking is humility.
    We have ideas about how we think you can operationalize it. 
But we also recognize that so do others. You know, we have met 
with, and I have personally met with CEOs of Fidelity and 
others, and their input is invaluable to us. And we will 
continue to have those meetings.
    I have met with small businesses who are in this space, 
who, frankly, they tell me with regularity anyone who says that 
they are going to get out of the $11 trillion market, could you 
give them my email, because I am serving a lot of small savers, 
and I am making good money using technology and looking out for 
their best interests. So there is a way to do it.
    And so, I think we have improved the rule as a result of 
that listening, whether it is a more robust economic analysis, 
whether it is the ESOP issue that Congressman Guthrie addressed 
and we took it out, whether it is the best-interest contract 
exemption, which is an effort to make sure that we have 
guardrails, the best-interest rule, but we have flexibility and 
compliance.
    There is no bar on commissions. That was an issue that we 
heard and feedback we got and we listened.
    And we clarified the line between education and advice. And 
as I said earlier, if people think that further clarification 
is necessary, give me chapter and verse because we are all 
ears.
    Mr. Courtney. And you know, we are going to obviously watch 
closely as the Department continues its deliberations.
    So when August rolls around and there is a revised, I 
guess, reg that comes out, there is an additional comment 
period after that as well. I mean, if doesn't just shut down at 
that point. Am I right about that?
    Secretary Perez. Absolutely. We are having a public hearing 
in August. The comment period closes, then we have a public 
hearing, then we publish the transcript of that hearing, and we 
invite comment on that transcript. So we are going to end up 
having roughly 140 days of formal comment, and that is on top 
of the 2 years or so of outreach that we have done to date.
    Chairman Roe. I thank the gentleman.
    And Dr. Foxx, you are recognized.
    Dr. Foxx. Morning.
    Secretary Perez. Good morning. It is great to see you 
again.
    Dr. Foxx. Nice to see you.
    Thank you, Mr. Chairman.
    And thank you, Secretary Perez, for being here today.
    I have been listening to the comments made already and 
having read a lot of the material about this with a great deal 
of interest. This, I will tell you, is not an area of expertise 
for me, but my husband and I discuss these things a lot. He 
generally handles our investments for us with a little bit of 
input from me.
    But I am really interested in this issue of best-interest 
contracts. And I know in many cases you can get advice that 
people think is in the best interest. I know my husband over 
the years has invested money in areas where he thought there 
would be a great return, and yet something happens outside his 
ability to control it.
    It happens all the time in investments. You invest in one 
thing and the market is going up and all of a sudden a new 
technology comes along or some substitute for that product and 
your investment isn't worth as much.
    You know, best interest, it seems to me, is in the eye of 
the beholder.
    But I want to ask you a quick question about this. If I 
talk to somebody, a financial professional, to help me open an 
IRA, why do I need to sign a contract before we can even have a 
conversation? Do you think that kind of requirement is going to 
intimidate the new investors that we need to get into the 
market and ultimately discourage them from saving?
    You know, signing a contract for the average person is a 
big deal.
    Secretary Perez. The short answer is you don't have to sign 
a contract before you have a conversation. And we understand 
that the proposed rule and part of our feedback that we have 
heard, this issue has come up with some frequency. And there 
have been concerns raised about the timing of when the contract 
requirement would go into place.
    And so your question is a perfect example of the issue of, 
how do we operationalize this, because we have a shared goal in 
making sure that you can go out and get access to advice, shop 
around.
    You know, I want to know what you are telling me, , and I 
want to make an informed choice. Just like if I buy a car or I 
buy a refrigerator, I want to do some comparison shopping.
    And our goal is to make sure that comparison shopping is 
facilitated.
    So we have heard that and that is an issue that we, I am 
confident, are going to clarify because we want to encourage 
shopping, we want to encourage informed consumers.
    And there is a lot that you can go to now and not have a 
contract. You can go and see somebody and talk about asset 
allocation. You know, what should my asset allocation be? You 
can look at interactive modeling and plug in a number of 
different assumptions and you don't need a contract. That is 
all a part of the shopping.
    The most important part I have learned from talking to 
folks in the industry about the conversations is the asset 
allocation conversation. You know, what is your risk tolerance 
threshold? And my wife and I have different risk tolerance 
thresholds in this, and we learned that during the course of 
meeting with our financial planner.
    And those are the things we want to facilitate. And those 
don't require a contract to have those conversations.
    Dr. Foxx. Well, one of the things it sounds to me like, in 
terms of best interest, is that this is going to be a full 
employment regulation for trial lawyers, because who decides 
what that best interest is going to have to ultimately be 
decided.
    One more question. Are you concerned at all that long-
standing, positive relationships between investors and advisers 
will be disrupted if they are forced to comply with a host of 
new mandates?
    Secretary Perez. I am not concerned because everybody that 
I have spoken to has said that I put my customers' best 
interests first. I haven't met anybody who says they haven't. 
And so what we are trying to do is operationalize and 
memorialize that.
    And as it relates to your question about--
    Dr. Foxx. If they are already doing that, then why do we 
need to have a host of new rules and regulations?
    Secretary Perez. Because we are trusting and verifying. 
Because I am sure that when, you know, the Toffels went in they 
thought they were getting advice that was in their best 
interest.
    But there is a structural problem here. And it isn't about 
bad actors as much as it is about the fact that when you have a 
suitability standard there are five different products that are 
suitable, but many of those products get you a better 
commission. And it is completely appropriate for you to steer 
someone to a product that gives you a better commission and 
does so at the expense of the consumer.
    I think that isn't in the best interests of the consumer, 
and so that is why we are trying to change it.
    And by the way, there is a substantial percentage of folks 
who are already fiduciaries. There is no evidence of a 
litigation boom with folks who are already fiduciaries.
    And we also have a provision in the rule, for your 
information, that allows a best-interest contract to have a 
mandatory arbitration clause for individual claims. So a firm 
can put that in if they want. And it was designed to get at the 
concern that you address.
    Chairman Roe. The gentlelady's time is expired.
    Mr. Pocan, you are recognized for five minutes.
    Mr. Pocan. Thank you very much, Mr. Chairman.
    And thank you, Mr. Secretary, for being with us this 
morning.
    Secretary Perez. Good morning, good to see you again.
    Mr. Pocan. Good to see you. Thanks for being here today.
    And you know, I think we all agree that far too many people 
don't have enough money put aside to live comfortably in 
retirement and we need to do something to reverse this trend. 
And I really appreciate the work that you and your Department 
are doing to ensure that Americans savings for retirement are 
able to receive investment advice that is in their best 
interest.
    I appreciate the open-comment period and extension for the 
extra 15 days as well. And I think one of the things that you 
have said over and over is in order for this rule to be 
successful it must be workable. And I think that is where I 
just have a few issues that I would like to bring up, just that 
people brought up to me that I think are something I hope you 
are looking at closely that maybe we can have some impact on.
    I would echo Dr. Foxx's comment about this idea on signing 
a contract with an adviser. I think it does need some clarity 
and clarification.
    While I completely disagree that the U.S. Chamber and NFIB 
represent small business, I have been a small-business owner 
for 28 years, I work in a business-to-business market, a 
fraction of 1 percent aren't members of those organizations.
    But you do know your thing. You are a chef, you may not be 
the best businessperson, but you certainly may not be your best 
retirement adviser, right?
    But it does have some questions about whether or not if you 
have to sign a contract right away, it isn't just asset 
allocation, you might have some broader questions about, you 
know, I want to do this in retirement, what should I be looking 
at. It is just a step further. But if you have to sign a 
contract for that, it is something that seems larger, I think, 
than just getting some initial advice.
    So you know, I guess I would just like to associate myself 
with the comments on that, but just kind of really raise that 
issue, because I was talking to another Democrat on the floor 
yesterday and this issue came up with that person as well. So I 
think more of us do look at this as something perhaps a little 
bigger and would appreciate any consideration you can give to 
that.
    Secretary Perez. Absolutely. And you are addressing two 
issues; one is the line between education and advice, and we 
have a proposal out there, we think it is broad, but we are 
hearing feedback about how we can make it even clearer. And 
that feedback is really helpful.
    Secondly is the issue that Congresswoman Foxx raised about 
when you execute that. And again, we have heard that and that 
is why I keep coming back to why I love this process because 
you have to have humility to understand that, you know, you 
have done your best to integrate the feedback you have gotten 
and folks are going to help you make it better.
    And your question, Congresswoman Foxx's question, other 
questions about the operational aspects of this are very 
important.
    Mr. Pocan. And let me raise a couple more, if I could, just 
while I have got the time.
    Secretary Perez. Sure.
    Mr. Pocan. Another one is there has been some concern over 
the data that is being collected as part of the rule, both from 
a substantive perspective and from the cyber security 
perspective. And you have probably heard some of these through 
the comment process.
    A few of the things were, like, if you represent the 
investment fees versus the return it can be misleading on the 
type of investments. Some investments are more like apples, 
some are more like oranges, but now we are going to try to 
combine them completely.
    There have been some conversations about the six years of 
sensitive data that we are going to collect just making sure 
that doesn't become something that is a collection of data that 
isn't as useful.
    And then there is a very specific about, you know, if 
someone makes a good-faith mistake versus something that 
instantly puts them into the excise tax area.
    Those are some of the things that came up. But also then, I 
guess, is this question on the cybersecurity levels and whether 
DOL has the funding within the Department to make sure they are 
going to have that.
    We know we aren't great at appropriations around here. We 
want to make sure that is all in place. So that is another 
level, I guess, I would just like to raise real quickly.
    And I do have one more after that.
    Secretary Perez. No. I mean, the good news is that we have 
heard from various stakeholders every one of those items. And 
again, they are all in a bucket of how do you operationalize 
this.
    One of our goals is transparency. Right now the system is 
very opaque. You don't know what the precise fees are. 
Actually, people think it is free. And it isn't free. And so 
that is why what we are trying to do here is to make sure that, 
you know, by publishing what various fees are then you can 
have, as I said before, a consumer reports of apples to apples 
comparisons that will help consumers make informed judgments.
    But all of the issues that you raised are absolutely things 
that we have been thinking about.
    Mr. Pocan. Yes, looking at it, I appreciate it. And the 
last thing I would say with only seconds left, just real 
quickly, on the eight month thing, a few folks have said it is 
a little short. Can you just tell me how the eight month idea 
for implementation came in mind and where we are in 
flexibility?
    Secretary Perez. Well, that is another area where we are 
hearing a lot of feedback on. And there have been a number of 
suggestions that have been raised about phase-ins or, you know, 
how you can make sure that the rule is in effect. So that is an 
area where we invite, we affirmatively ask for comment about 
that. And we are getting a fair amount of it.
    So I hope that we can have more conversation about that.
    Mr. Pocan. Yes. And we will relate some of these concerns 
directly to you.
    Secretary Perez. Sure.
    Mr. Pocan. I just really appreciate the openness, again. I 
think, you know, every time you have come to this committee you 
have been one of the most open folks that I have dealt with in 
my two-1/2 years here. And thank you for--
    Secretary Perez. Well, it is an honor to be here. And I 
learn a lot. You make me smarter, all of you, so I appreciate 
it.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Walberg, you are recognized.
    Mr. Walberg. Thank you, Mr. Chairman.
    Secretary Perez. Good to see you again, Mr. Chairman.
    Mr. Walberg. Good to see you. And I hope you have got your 
wife a trip planned back to Michigan, right?
    Secretary Perez. Absolutely.
    Mr. Walberg. Good.
    Secretary Perez. U.P.
    Mr. Walberg. Say hi to the U.P., too.
    Secretary Perez. I don't have a Harley, though.
    Mr. Walberg. Well, you have got to get one.
    Secretary Perez. Yes, I will borrow yours.
    [Laughter.]
    Mr. Walberg. You are welcome to do that.
    I heard you say nothing is free, and that is absolutely 
true. So in relationship to some costs, I am concerned about 
the cost of this proposal, including the potential litigation 
and administrative costs that may go with it as a result.
    How many additional ERISA fiduciary lawsuits do you project 
will be filed annually if your proposal is finalized?
    Secretary Perez. Well, again, there is a provision in the 
proposal that allows for mandatory arbitration clauses in the 
best-interest contract. And that is a provision actually that 
we took from I believe it was SIFMA or FINRA.
    And so in the area of trying to make sure we are 
harmonizing our rules with other rules, we put that in place 
because we recognize that was a concern people brought to our 
attention.
    Mr. Walberg. Any figure that you have considered on 
additional costs and a number of lawsuits that might be filed?
    Secretary Perez. Well, we certainly have considered that. I 
would observe that we now have a controlled experiment going on 
because there is a substantial subset of people in this space 
who are already fiduciaries. So if your theory is correct that 
if you are operating under the best-interest standard you are 
more susceptible to litigation, that hasn't been borne out.
    There is no evidence that folks who are fiduciaries get 
sued more often. What the evidence shows is that when times are 
good, there tend to be less lawsuits against advisers. And when 
times are bad, there tend to be more lawsuits, regardless of 
whether you are a broker dealer or whether you are a fiduciary.
    Mr. Walberg. Well, in order to make sure that happens, how 
expensive will this proposal be for participants and IRA 
holders due to increased litigation risks and insurance costs?
    Secretary Perez. Well, again, you know, the premise of 
increased litigation risk, I mean, the evidence to date has 
shown that folks who are fiduciaries aren't dealing with 
increased litigation risk.
    And everybody who has come in, including broker dealers, 
and said I would like to think that I put my customers' best 
interests first, if they are in fact doing that then they have 
little to worry about.
    Mr. Walberg. But they are worried about the complexity of 
the regulation that is expanding with this for all sorts of 
reasons. But there will be litigation costs. Is there any 
figure out there that you have considered for the best 
interests because, ultimately, won't these costs just be passed 
on to the investors?
    Secretary Perez. Well, again, if there was evidence that 
fiduciaries were facing increased litigation costs, then that 
is something we would have flagged. And there is no evidence of 
that.
    So the notion that this is going to trigger a litigation 
bonanza when you have a mandatory arbitration clause in there 
and when folks are already doing this, presumably, you know, I 
respectfully take issue with the premise.
    Mr. Walberg. Well, I mean, expanded regulation always adds 
some costs. So I guess I will take your answer, but I am 
concerned that we haven't assumed some greater costs and, 
ultimately, the impact upon the investor as well as the IRA 
holders, participants, et cetera. That would be a concern for 
me. And I guess I would put it out still further.
    I would like to see the workup done to ultimately bring 
satisfaction to your mind that you have seen evidence, and that 
is fine, that this won't increase the costs and, ultimately, 
those investors will experience paying for that cost.
    Let me jump onto one other thing.
    Secretary Perez. There is the real cost of the status quo, 
sir, as well. So I mean, and we have that.
    Mr. Walberg. I can understand that. Yesterday, I spent 
significant amount of time in the Oversight and Government 
Reform Committee on the issue of OPM and the data breach that 
went on there.
    We also had in recent months VA in front of us as well.
    I was in a classified briefing there also and it was 
unbelievable the lack of preparation and expertise and ability 
to handle this with the OPM director. And ultimately, as you 
are probably aware, there has been a call for her resignation.
    In this issue with the increased amount of data that you 
are going to be pulling in, what are you doing to make sure 
that data is secure and we have investors as well as the 
fiduciaries protected from a breach like that?
    Secretary Perez. Well, if you look at our budget request 
for the fiscal 2016 budget, we have a very robust request for 
IT. And it is not simply for this, but it is to make sure that 
our IT infrastructure is as impermeable as possible.
    And so I look forward to citing you during our budget 
deliberations about the need to have our IT requests--
    Mr. Walberg. Yes, it isn't always money. It is preparation 
and I hope you are prepared to a great degree right now. I 
would like to have some confidence in that.
    Chairman Roe. The gentleman's time is expired.
    Mr. Sablan, you are recognized for five minutes.
    Mr. Sablan. Thank you very much, Mr. Chairman.
    And Mr. Secretary, it is always good talking to you and 
having conversations.
    I have some concerns in addressing, how best do you 
operationalize this best-interest standard in my district?
    Coming into this room, I thought we had nine securities 
investment or advisers, now I only count that we may have 
actually four, three with each one of the banks and one, the 
gentleman that is a dealer or agent for Fidelity. And so you 
can see how small the market is for us.
    And how do we do this, how do we bring this very well-
intentioned best-interest standard, which I like very much, 
without forcing these investment agents, at least the one with 
Fidelity, to stop doing business in the Northern Marianas with 
forcing them to close shop because the costs of managing this 
government oversight is going to go higher, of course, when his 
clients aren't very large?
    And I would like to maybe work with your office. And maybe 
if I understand, maybe--I am sure you may have an answer for 
this, I don't know. But because we are so small and I can tell, 
I can probably count on my two hands how many people have 
investments with firms that are, you know, housed in Honolulu 
probably and they have the means to get up and fly there and be 
there.
    But for those who are the smallest investors, retirement 
savings investors, there is very little. And I would like to 
see how would we manage these small accounts.
    Secretary Perez. In the same way you would manage every 
account. And that is, you know, small investors are the ones 
who are most vulnerable.
    Mr. Sablan. Very small.
    Secretary Perez. Because you know, if you have a 1 percent 
loss, let's say you invested, you know, I think it is $10,000 
and you have it in for 35 years, if you as a result of 
conflicted advice see a 1 percent diminution in your return, 
that translates to almost $10,000 less. So it would be about 
$35,000 over time and instead it is $25,000.
    And so, I think that this rule is most designed for small 
investors.
    Mr. Sablan. Don't get me wrong. I think I like the rule, I 
think it is about time. But it is just that for places as small 
as the Northern Marianas where there isn't very much money 
invested, it is just forcing these companies to decide to say, 
no, we will just stop doing business there.
    Except for those 10 people I can count on my hands, 
everyone else would lose the chance towards accessing an 
investment agent maybe, not necessarily a broker, but an agent 
on how they could invest their retirement savings, aside from 
those who are employer-based.
    Secretary Perez. Well, one thing that has been really 
helpful, and I have certainly learned a lot about this industry 
over the course of the last two years, is that technology is a 
huge ally. It is a huge ally in rural America, it is a huge 
ally in the CNMI.
    And I mentioned in my opening remarks a company out of 
California Wealthfront. They are a startup. They are four years 
in. They have now over about $2 billion in assets. They don't 
charge a fee for anyone who is under $10,000, and that is 
because they believe that--they have a platform that enables 
them to significantly lower the fees, operate as a fiduciary 
and do well by doing good.
    And so I think technology is a big ally for the residents 
of the CNMI because--
    Mr. Sablan. Mr. Secretary, and I don't doubt the well 
intention of this rule. Let me just give you an example. 
Primerica, for example, has 21 investment accounts in the 
Northern Marianas, 21. I am sure Fidelity has much more. ASC 
Trust does a larger business there.
    But Primerica is a huge company. They have 1.9 million 
investment accounts in the country, 21 of that is in the 
Northern Marianas, so we are very small.
    I am just concerned that this new rule will force people to 
close shop. And instead of growing the market for us, it would 
have a negative effect.
    I am not trying to stop your rule and I probably won't. But 
just having this conversation, I hope that--
    Secretary Perez. Well, I look forward to talking with you 
about the various vehicles that are accessible as we speak 
right now.
    Mr. Sablan. Thank you for your recent decision, Mr. 
Secretary, that this five years extension also works for that. 
I appreciate that very much.
    Chairman Roe. Thank you. The gentleman's time is expired.
    Mr. Guthrie, you are recognized for five minutes.
    Mr. Guthrie. Thank you.
    Thank you, Mr. Secretary. Thanks for being here.
    Secretary Perez. Good to see you, Congressman.
    Mr. Guthrie. And I know it has been mentioned a couple of 
times, us working together on sections of this proposed rule. 
And that was just a great process.
    I want to reiterate, I think I talked about it before when 
we were in a public hearing, but I mentioned something in a 
hearing such as this, you said let's get together and talk 
about it and followed through. And I think that it was a 
healthy change to the proposed rule and we appreciate you doing 
that very much so.
    The one thing I just want to talk about is the President 
had a proposal. The myRAs, myRAs, and so there is a difference 
in myRAs and IRAs, IRAs. And I know it is Treasury so it isn't 
in your area, but just how your rule treats, does it treat 
these differently?
    And I will just start by asking, and I will do this. There 
is a December 2014 letter from the Department of Treasury that 
exempts the myRA program from ERISA's fiduciary obligations. 
And the letter states that the exemption is granted for 
employers, in part, because, and I will quote: ``some employers 
may also want to hold employee meetings to explain the myRA 
program and encourage eligible employees to participate. Others 
may want to answer employees' inquiries about the myRA program 
or refer them to Treasury's financial agent.''
    And so this description does sound a lot like the advice in 
many similar circumstances that workers in my district rely 
upon. And since the letter acknowledges that workers need to 
get information and begin saving and then exempts myRAs for 
fiduciary liability, why are myRAs different from IRAs? And is 
that in your area that you have looked at?
    Secretary Perez. The myRAs are not covered in this rule. 
And the Treasury Department controls all aspects of the myRA 
rule.
    Mr. Guthrie. But in your proposed rule, do you treat the 
myRAs different from IRAs in your proposal?
    Secretary Perez. MyRAs are not covered under our rule.
    Mr. Guthrie. So you don't have the fiduciary--
    Secretary Perez. Yes. So that wouldn't kick in at all.
    Mr. Guthrie. And the reason they are different, the reason 
you treat the myRAs and IRAs differently?
    Secretary Perez. Well, again, the myRAs as I understand it, 
and again, I am outside my lane here, so I want to note that at 
the outset, the purpose of the myRA was to encourage auto 
enrollment in a different way so that we can help more people 
who are trying to save.
    And when the Treasury Department put those in place, you 
know, as a result of the fact that it is kind of a startup, 
that was the decision that was made. And I think it makes 
sense. And so that is the situation there.
    I can get you more information because I don't want to 
misrepresent anything. And at the moment, you know, what I do 
know is that the myRA isn't covered here. You know, what I 
don't know are the nuts and bolts of the myRA.
    Mr. Guthrie. You know, and I think it is because the myRA--
I guess where the Treasury Department seems to look at it is 
the myRA is a government-run thing so the government agent 
wouldn't be a bad actor or a physical agent.
    Secretary Perez. Right. Yes.
    Mr. Guthrie. I assume that is where they are coming from.
    Secretary Perez. Well, there is also no referral fees for 
myRAs. So you aren't falling into any of the tests that would 
come under here still. That is kind of a biggie.
    Mr. Guthrie. Okay. So if an employer--well, you wouldn't 
really hit the employer in this. But if an employer is making a 
presentation to employees and said here is myRAs, here is IRAs, 
I mean, how is that handled in the proposed rule?
    Secretary Perez. Sure. Well, an employer, if you are 
talking about an employer, I have 50 people in my business, I 
have a grocery store, I think that was the one we met--
    Mr. Guthrie. Yes.
    Secretary Perez.--and you are making a presentation, you 
aren't a fiduciary because you aren't the one--and I think it 
was Congressman Pocan who said, you know, I am a good cook, but 
I am not, you know, this is not my bailiwick.
    So employers can provide those seminars and provide that 
advice. And they wouldn't fall within the rule because, again, 
they aren't the ones who are--
    Mr. Guthrie. Selling the product.
    Secretary Perez. Right, exactly.
    Mr. Guthrie. Okay. I guess my confusion is that the 
Treasury Department treats employers and says employers 
wouldn't be fiduciaries. So it seems maybe, and it is probably 
different than your section, so it is probably--I think we have 
answered where I need to go with that.
    But again, appreciate the work that you have done on that 
and done with me and different members of the committee and 
people you have talked to, and I think it has been an open 
process.
    I know there are some questions and more information will 
flow, but I will tell you I had a good experience working with 
you and I really appreciate it.
    Secretary Perez. Anything else that comes up, feel free to 
give me a call to my cell.
    Mr. Guthrie. Thanks.
    Chairman Roe. I thank the gentleman for yielding.
    Ms. Bonamici, you are recognized for five minutes.
    Ms. Bonamici. Thank you very much, Mr. Chairman. Thank you 
for holding this hearing on this really important topic.
    And we talk a lot about retirement security. And I have to 
tell you, I have had a lot of meetings about this issue.
    I am particularly proud of my state. The legislature just 
passed the Oregon retirement security bill which is a voluntary 
plan to make an IRA available to all Oregonians without access 
to a retirement plan at their workplace, which once again our 
state is showing some leadership there on this really important 
issue.
    This is a fascinating, but complex issue and I am fairly 
new to it, even though I did some work years ago as a lawyer in 
securities. So to try to understand the whole jurisdictional 
issue with when the Department of Labor is involved because it 
is ERISA and when state law is preempted and then the SEC 
involvement.
    And I am glad you are working with the SEC. And I 
appreciate your comments about telling the committee about all 
of those discussions and correspondence.
    So I wanted to just emphasize how important this is to our 
constituents, particularly middle- and low-income families in 
my district and all of our districts. It is important for them 
to have access to financial advice that they can trust.
    And again, I have had a lot of meetings about this. I have 
also heard from people in the industry who are very concerned 
about the implementation. We have made progress with the 
consensus now that the best interest is what the industry is 
saying they agree to and it is the implementation that appears 
to be the issue.
    I have also heard from AARP, NAACP, National Council of La 
Raza all supporting the rule. And they have really made 
consumer rights a centerpiece of their advocacy. And I have a 
background in consumer protection and I very much appreciate 
that.
    And to me, it seems like we have the same goal here, to 
make sure that the people who are getting advice are getting 
advice that they can trust and that it is in their best 
interests.
    So let's talk a little bit about some of the issues that 
have been raised. Particularly, will you please clarify because 
I have heard over the past couple of years it is going to be a 
big problem because we won't be able to sell any products on 
commissions? That has been clarified, correct?
    Secretary Perez. We won't be able to?
    Ms. Bonamici. Sell products and get a commission.
    Secretary Perez. Right. Commissions are not banned under 
the rule.
    Ms. Bonamici. Thank you. And then the information versus 
advice, and this has to do with the timing. Are you open to 
working on that and taking advice from people who are here? 
When does that contract--you talked a little bit about what if 
somebody calls in and can they get advice about the balance of 
investments. Let's talk about the timing because that has been 
raised by industry as well. When does that contract need to be 
signed?
    Secretary Perez. Right. And as I said, I think, in response 
to a couple of other questions, we want to make sure that we 
are facilitating advice and that conversation and the shopping 
that is critically important for consumers. And so that is an 
area that people have said it doesn't feel clear enough to me 
when I have to sign the contract.
    And so we are working together to make it clear. And our 
goal is to make sure that we can facilitate the shopping and 
that we are talking about it.
    And one thing I think that is clear in the rule is that 
there is a heck of a lot that you can do right now. So you can 
go to your adviser and he or she will tell you, you know, what 
is your asset allocation and what is your risk tolerance 
threshold and let's go online and, you know, we can plug in 
some assumptions and you can see how if you go more equities 
versus bonds and given your risk tolerance threshold how it 
will affect you.
    All of these things are in the realm of education. We have 
a whole group of folks that do a steady diet of educating, 
including seminars and things of that nature, because we 
recognize, again, as I have said, an educated consumer is the 
best customer.
    At the same time, I am confident that line is going to be 
drawn even sharper as a result of the input that we are getting 
right now. And we welcome that.
    Ms. Bonamici. And I appreciate your involvement. And 
certainly, the products are much more complex than when I think 
ERISA was enacted in the mid-1970s. And you know, it really is 
a different world out there and it is critical.
    So I just want to emphasize that I appreciate your 
Department's willingness to work with the industry, your 
openness to hear the concerns. Because again, we have the same 
goal, we want to make sure that people are getting advice that 
they can trust, that is in their best interest.
    And even though prevention is obviously ideal, your story 
that you told at the beginning about what happened to the 
family, you know, it is devastating what happened. I hope they 
had a remedy and I hope that through this process we make sure 
that people who do end up in those situations have a remedy so 
that they don't lose their life savings and their home.
    So again, thank you for your willingness to work with us. 
And appreciate your being here.
    Secretary Perez. I look forward to it.
    Ms. Bonamici. Yield back. Thank you, Mr. Chairman.
    Chairman Roe. Thank you for yielding.
    Dr. Heck, you are recognized for five minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here today.
    Secretary Perez. Good morning.
    Mr. Heck. You know, I think we have heard from everybody on 
the panel that no one would disagree of the importance of 
making sure that it is the best interest of the client who is 
seeking investment advice that comes first, just like the 
patient seeing their doctor or the client seeing their 
attorney.
    And again, it comes down to what my colleague just said 
about the implementation that seems to be under discussion and 
making sure that the actions of a few don't impact the 
practices of the many who are doing a good job and providing 
advice and education to their clients.
    You know, I appreciated the anecdote you told about that 
couple that had problems with their investments. And you know, 
I have a constituent, Janice who called her insurance agent to 
see if he could help her with her recently deceased husband's 
401(k) plan.
    They were retired, lived off of his pension as well as 
Social Security. From time to time, they take some money out of 
the 401(k) to supplement their income.
    Once her husband passed away, she became a beneficiary of a 
decedant 401(k). So then when Janice tried to get some much-
needed money from a plan, she was informed from the company 
that she was not eligible to withdraw the funds anymore because 
she was the beneficiary and that she needed some help in 
understanding what her options were.
    So she called her agent. They discussed her needs, went 
over some of her options. She could take the funds out and pay 
taxes, continue to invest the dollars using a rollover, discuss 
the types of risks she was willing to take in the time frame 
they were working with to help her meet her needs.
    Ultimately, she was able to make a decision, rolled over 
approximately $21,000.
    There are many people like Janice who perhaps would not be 
able to find the information and knowledge to take care of 
these or many types of 401(k) rollovers or transactions that 
are in their best interest under the proposed rule.
    So if you could tell me, how does the rule actually protect 
the interests of individuals in this type of a situation?
    Secretary Perez. Well, the rollover market is a huge 
market. And that is where you really need the right advice. And 
one thing that our rule does is clarify that employers are very 
much able to provide advice, including keep your 401(k) with us 
even after you leave. Because we are talking about, you know, a 
trillion-dollar impact here.
    And so the standard, whether it is the rollover, whether it 
is, you know, how do I invest my 401(k), is the same. You have 
to make sure you are looking out for your clients' best 
interests.
    Mr. Heck. And I would say that this situation, this is the 
insurance agent that they have used their entire lives, that 
they did have trust in, and that this insurance agent did look 
out for--
    Secretary Perez. I would agree from the circumstances that 
you have described. And again, that insurance agent sounds to 
me, at least from the limited facts that we know, has been 
already looking out for people's best interests, which is why 
compliance with something you are already doing is very readily 
attainable.
    Mr. Heck. You quoted, you know, Mr. Bogle of Vanguard 
saying that, you know, they would basically look for a simple 
rule where clients come first. However, it doesn't appear that 
this rule is that simple.
    So there are concerns amongst those individuals, like this 
insurance agent, that the proposed rule would actually limit 
their ability for providing these services to their long-term 
clients, because before they enter into this discussion they 
are going to have to have a contract signed, they are going to 
have to have all this disclosure and disclose any potential 
fees that might be upfront.
    I mean, it is the same thing if somebody was coming into my 
office that I had a long relationship with and all of a sudden 
I had to ask them to sign a disclaimer form and all these forms 
about potential fees and what not. Why would I continue to use 
that individual as my adviser?
    Secretary Perez. Well, I actually think that the 
implementation of this is a lot simpler, sir, especially for 
those like the person you described who is already doing the 
job and is already abiding.
    Because folks, whether it is a large firm, they already 
have in place policies and practices to make sure that they are 
mitigating conflicts. And so what we are saying now is, you 
know, you have an obligation to do that.
    And so if they are already doing it, I think compliance is 
very workable.
    Mr. Heck. I think we have a few seconds left. You said 
several times that commissions aren't banned under the rule.
    Secretary Perez. Yes.
    Mr. Heck. But what are the restrictions, obstacles or 
impediments to people providing products based on commission 
under the rule, if any?
    Secretary Perez. Well, you have to make sure that you are 
putting your clients' best interests first. And so, you know, 
the situation that we deal with now is under the suitability 
framework. You may have four or five different options that are 
suitable, and two of those options get you a significantly 
higher fee than the other two options.
    Well, if under a review of the circumstances that is 
reasonable, well, then, you could do it. But chances are, you 
know, the thing we are trying to do is correct the malalignment 
right now because I want to make sure that when that person is 
making the decision, making the recommendations to me, that he 
or she is motivated by my best interest as opposed to I have 
got four products here that are suitable and I want you to take 
these two products, even if it gets you 1 percent less.
    I don't think that is right. And I think that has real 
costs for people.
    And we have prepared a toolkit for every member of Congress 
who wants to use it so that they can help educate their 
constituents on the questions to ask. Because this is a 
complicated world and there is an inequality of information and 
we want to empower consumers.
    Mr. Heck. Thank you, Mr. Chairman.
    Chairman Roe. Time is expired.
    And Mr. Secretary, we don't want to become fiduciaries.
    Mr. Takano, you are recognized for five minutes.
    Secretary Perez. You would do pretty good at it, sir.
    Mr. Takano. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary.
    You mentioned a few times in your testimony that this is a 
simple proposal that allows for flexibility to reflect not only 
different business models, but also the innovation and 
technological advances some in the industry have made and 
continue to make.
    How do you envision the industry reacting in terms of 
product offerings and tech-based solutions? And how will this 
help small savers?
    Secretary Perez. Well, let me take the example of 
Wealthfront. Wealthfront is a California-based company. They 
started roughly three years ago. And this is actually a letter 
from their CEO.
    They were built from the ground up to operate under a full 
fiduciary standard, despite serving small accounts and charging 
incredibly low fees. And they have now become a $2 billion 
asset management company.
    They don't charge management fees for accounts under 
$10,000 because ``we do not believe we need to make money on 
those in the beginning stages of saving and investing. We 
charge a fraction of what others charge for accounts over 
$10,000.''
    ``And we know that there is a significant debate regarding 
ways to increase the protections and requirements around 
providing high-quality fiduciary service. We believe technology 
can dramatically aid in this front.''
    ``Wealthfront is living proof that not only is it possible 
to provide fiduciary service at low cost to small investors 
nationwide, but that the market rewards these efforts.''
    ``And we believe that technology can not only improve the 
quality of service provided to small investors, but also lower 
the barriers and costs that have limited their access in the 
past, whether they are in California''--they have a 50-state 
footprint. I don't know whether they are in the CNMI.
    But we have spoken to folks like Wealthfront. We have 
spoken to individual broker dealers who are doing this on the 
front lines. I think technology is a real ally in this.
    Mr. Takano. But has this been borne out, the technology? My 
concern is that some would say, what I have heard from people 
in the industry, is that this rule will disincentivize people 
to help the small saver. And you are saying, well, technology 
will help offset that problem.
    And I am just wondering, so Wealthfront has been able to 
build a market, they have been able to reach these small 
savers, the $10,000-a-year savers, I am just wondering whether 
or not if there is a test of this technology.
    Yes, go ahead.
    Secretary Perez. Well, Wealthfront is not the only company 
that has figured out how technology can be your ally in helping 
to serve small-, mid-sized, large-sized savers. I mean, 
technology is, I think, a linchpin to the innovation that is 
enabling more people to get access to advice. And that is why I 
think this is so important.
    An equally important fact here, and I think this is 
something that often gets overlooked, is a lot of people don't 
seek advice right now because they don't trust the advisers.
    Mr. Takano. Okay.
    Secretary Perez. And what we are trying to do by 
establishing a best-interest rule is to help bridge the trust 
gap that currently exists. Because there is a lot of marketing 
out there, but sometimes the marketing and the reality, there 
is a little bit of a gulf between the two.
    And so when we can have, you know, increased trust by 
having a best-interest standard, I think we help everybody, 
including small savers and large savers, get access.
    Mr. Takano. I want to talk more from the point of view 
about the remedies for the saver who thinks that they have been 
deceived or misled.
    At the end of the day, this rule is about guaranteeing 
Americans being able to make investments to retire comfortably. 
Can you tell me a bit more about the process for investors if 
they feel they have been misled?
    You talked about the mandatory arbitration. But are there 
other remedies besides? I mean, arbitration may be a big part 
of it. Under what agency would they seek redress? Is it FINRA? 
Who is the--
    Secretary Perez. Well, we currently, our Employee Benefits 
Security Administration, EBSA, we have right now a robust 
docket of enforcement cases. Bernie Madoff, we were part of 
that prosecution team. The Enron case, we were part of that 
effort.
    We have a steady diet of cases right now involving folks 
who have breached their fiduciary obligation to the detriment 
of individuals. And so that will continue.
    In this particular rulemaking, you know, what we are trying 
to do is to create for the individual who has been wronged 
potentially a remedy through the best-interest contract. The 
proposition that we are putting forth here is that you now have 
an enforceable contract, so that looking out--
    Chairman Roe. Mr. Secretary, could you go ahead and wrap 
that up because we have another panel also--that answer.
    Secretary Perez. I am done, sir.
    Chairman Roe. Time is expired.
    Mr. Takano. Thank you, Mr. Chairman.
    Chairman Roe. Mr. Allen, you are recognized.
    Mr. Allen. Thank you, Mr. Chairman.
    Secretary Perez. Good morning, sir.
    Mr. Allen. Thank you, Mr. Secretary. Thank you for being 
here. Appreciate what you are doing.
    You know, you talk about trust. I am from the small-
business community myself and about 30 years ago recommended 
that our folks participate in our 401(k) program. Of course, I 
am assuming that now makes me an investment adviser. I don't 
know.
    Secretary Perez. Actually, it doesn't, sir.
    Mr. Allen. It doesn't? Okay. But anyway, recommended that. 
And they asked me, well, why? And I said, well, you know, 
frankly, I can't trust that Social Security is going to be here 
when you retire, you know, based on if you look at the 
actuarials and all that of Social Security.
    And so, yes, there is a trust problem out there, even with 
our own Social Security system. Exactly where is that going and 
why aren't we working on that to try to fix that and then we 
will start giving people advice on how to deal with their own 
savings?
    But as far as the rule is concerned, obviously the 
investment business is just like my business, it is a 
relationship business.
    You know, I have never had anybody that hired our company 
that went to the Internet and said, well, I am going to pick 
this company. You know, they would actually check out exactly 
our reputation in the industry.
    Plus the fact, as I understand it from my friends in the 
investment business, it is a highly regulated industry already. 
And the fact that you had the Enrons and the others involved, 
you know, part of that problem was the fact that it was 
accounting that should have been long ago discovered as far as, 
you know, keeping two sets of books.
    But as far as trying to give investment advice, I don't 
quite understand how you are going to make this work. I mean, 
say you are dealing with my business right now and you said, 
okay, we are going to implement this rule in your business. 
What would that look like?
    Secretary Perez. Well, again, you aren't a fiduciary, sir, 
because you are running a business.
    Mr. Allen. Okay.
    Secretary Perez. If somebody is giving you advice or there 
is somebody, your employee, has $100,000 in their 401(k) and 
they want to know how to invest it and they go to an adviser 
and he or she gives that person advice, they simply have to 
look out for your best interests. Just like if you go to the 
doctor, they have to look out for you.
    Mr. Allen. Let me ask you this. You know, I advised our 
folks to get involved in this 401(k). Well, they were all 
tickled to death with it until 2008 and 2009 when the market 
took a tumble.
    And along with my investment adviser and myself, we 
suggested that, hey, you know, America is going to come back. 
We need to have the confidence the country is going to come 
back.
    Now, I am going to tell you what, they are a happy bunch 
right now. But what would it look like had that not happened? 
And here I am and my investment adviser had given this advice, 
what does your rule do to me then?
    Secretary Perez. Well, again, you have a duty to act with 
reasonableness and prudence, just as a lawyer has a duty to 
look out for their clients and a doctor has a duty to look out 
for her client, her patient.
    Mr. Allen. Who determines that? Who determines what is 
reasonable and prudent?
    Secretary Perez. These are rules. Reasonableness and acting 
with prudence, this is a construct that has been in place in 
the financial service industry for literally decades, just as 
in other contexts, whether it is, you know, in the medical 
malpractice context, the duty of care. That is not a new 
concept.
    And so the notion that you have to look out for your 
customers' best interests isn't anything new. And in fact, you 
know, again, many people are already doing it.
    Mr. Allen. Don't we already have those rules in place?
    Secretary Perez. For some, but not for everyone. And that 
is why it is really confusing. Because if your constituents, 
when they go in, they think that everybody is looking out for 
them and some have a legal obligation to do it and some don't. 
That is a problem. That is confusing.
    Mr. Allen. So how are you then going to mandate that 
people, I guess, check out their reputation or their investment 
advice?
    Secretary Perez. Well, no. What we are establishing is that 
the adviser that they seek out has an obligation to look out 
for their best interests. I cannot, we do a lot of education 
and outreach and we hope that people will take the due 
diligence that they need.
    But what we are doing is making sure that the people they 
go in to see, we are taking out the uncertainty. Is this person 
looking out for my best interests or does this person have 
other options? I don't think that is good for consumers. That 
is why we are doing this.
    Mr. Allen. How can I--
    Chairman Roe. The gentleman's time has expired.
    Mr. Allen. Thank you, Mr. Chairman.
    Chairman Roe. Ms. Wilson, you are recognized for five 
minutes.
    Ms. Wilson of Florida. Thank you, Mr. Chair.
    Secretary Perez, good to see you.
    Secretary Perez. Good to see you.
    Ms. Wilson of Florida. I know that you are just as 
concerned as I am about the economically vulnerable. I 
represent one of the most economically depressed districts in 
the country and these individuals I represent work extremely 
hard to provide for their families, but they struggle to make 
ends meet. The median household income in my district is 
$36,748 a year, 30 percent less than national average.
    South Florida also has a high cost of living which is 
growing faster than the national average. These economic 
realities make it extremely difficult for my constituents to 
save at the levels that guarantees a secure retirement.
    In fact, on average, south Floridians have saved 20 percent 
less in their 401(k) retirement accounts than the average 
American.
    For example, as a former educator I worked with many 
teachers who lived on limited wages for years, but were given 
lump sums out of DROP, sometimes as much as a half-million 
dollars to last them through retirement. They did not know what 
to do with all of that money.
    Because there is so little margin for error for those with 
limited savings, I want to be sure that they have access to 
sound advice from financial professionals, trusted.
    My late husband was a financial adviser, so to speak, back 
in the 1980s. He sold tax-sheltered annuities to first-time 
people who had little money, but were able to save.
    So I know there is going to be a rule. I know there is a 
proposed rule. And I am hoping that this rule will make sure 
that, when it is finalized, that people are not intimidated and 
will find the process access-friendly, that they will want to 
save and be given that sort of financial assistance.
    I want to thank you for responding to my letter and 
extending the comment period so stakeholders have the 
opportunity to submit comprehensive feedback.
    And under your leadership, I am confident that the 
department will continue to engage with stakeholders and the 
public and really look at the feedback that has been provided, 
because it is my understanding there has been a lot of 
feedback.
    I know how committed you are to making this rule work for 
all investors. I have heard your life story and I know where 
you come from and how you have achieved.
    Can you speak more about the process that will ensure that 
all interested parties are heard in the formation of the final 
rule?
    Secretary Perez. Certainly. We are in the middle of the 
formal comment period. One of the things that we don't 
generally do, but we did here, was to have a public hearing in 
August so that we can take additional comments on the rule. 
Following that public hearing, we will publish that transcript 
of that hearing and invite comment on that.
    We continue to do regular meetings. And I am working not 
only, you know, with our team, but a lot of other folks have 
been involved in this effort. My colleague Jeff Zients at the 
White House has been very helpful.
    And our goal is to get it right. I think we can thread this 
needle. Your concerns that you have expressed about small 
savers, everybody, that is a concern we all share. And I 
actually think that small savers can least afford the 
consequences of conflicted advice. And you know, places like 
Wealthfront and others are serving every corner of this country 
now.
    And I look forward to learning from you and others about 
how we can use this as an opportunity to actually enhance 
access to services for everyone, but in particular for small 
savers, because I think we can. Because when we increase trust 
in the people from whom you are getting the advice, then we can 
increase access even greater.
    Ms. Wilson of Florida. Just one final comment. Technology 
is very intimidating to many people in our communities. It is 
something that we feel comfortable with because this is what we 
do. But people who don't have access to technology, it is 
intimidating. So let's be sure that we don't eliminate them 
from the equation because they are thrust into a pit that they 
don't quite understand--
    Secretary Perez. The human element, absolutely.
    Ms. Wilson of Florida.--but that when this rule is 
finished, they will have the same opportunities.
    I want to make sure that not only people with small amounts 
of money, but first-time investors, people who find themselves 
with DROP, a half-million dollars and not know what to do with 
it. These are the people I am concerned about.
    Thank you.
    Chairman Roe. Thank you. The gentlelady's time is expired.
    Mr. Messer, you are recognized for five minutes.
    Mr. Messer. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    You use the phrases ``small savers'' and ``first-time 
investors,'' and that is what we are here to talk about today 
in this hearing.
    I represent a district full of those people. I represent 19 
counties in east, central and southeastern Indiana, working 
communities, people that work in agriculture and manufacturing.
    I am also the product of a single-parent family. My mom 
just retired from the Delta faucet factory there. She raised my 
brother and me on her own. She was somebody that couldn't 
really afford to save until she was well into her 40s and falls 
in the category here.
    I think one of the things we have got to remember as 
policymakers is we aren't just accountable for our intentions, 
we are also accountable for our results. And we could bring 
forward rules with the best of intentions designed to protect 
people that, in the end, actually hurt the very people we are 
trying to protect.
    I think part of the challenge of threading the needle here 
that you have talked about is we have looked at other countries 
that have tried to do it and not had much success. And so we 
need to be careful that with the best of intentions of 
protecting these investors we don't end up making their 
situation much worse.
    Of course, the best way to avoid that is by coordinating 
with others who have knowledge in the field.
    And I know Chairman Kline talked to you a little bit about 
your efforts to coordinate with the SEC. We are, of course, 
concerned that we haven't gotten the documentation from you 
that shows that coordination also at the Department of Labor.
    I want to give you a quote and ask you to respond to it, 
Secretary Perez. In February of this year, SEC Commissioner 
Daniel Gallagher said the follow, ``The DOL has not formally 
engaged the commissioners, at least not this commissioner, on 
its fiduciary rulemaking process and the impact it may have on 
investors. And despite public reports of close coordination 
between the DOL and the SEC staff, I believe this coordination 
has been nothing more than a check-the-box exercise by the DOL 
designed to legitimize the runaway train that is their 
fiduciary rulemaking.''
    Secretary Perez, is this true?
    Secretary Perez. I did not coordinate with that particular 
commissioner because I coordinated with Mary Jo White. She was 
the one commissioner because she is the chair, just as when I 
coordinate with the EEOC I go through the chair.
    And the documentation--
    Mr. Messer. All this work is done at the chair level?
    Secretary Perez. Pardon me?
    Mr. Messer. So all this work is done at the chair level, 
there is no staff coordination?
    Secretary Perez. No. If I could finish, sir. The documents, 
the 800 pages of documents that we have provided demonstrate 
the dramatic and extensive coordination between our staffs. And 
you will look and see that there is, you know, page after page 
of documentation relating to meetings, relating to calls, 
relating to conversations about various aspects of the rule.
    I also traveled, sir, to the U.K. because I wanted to learn 
from their experience as well. And what we learned, we learned 
a lot about how the U.K. experience can inform our judgment.
    I have also spoken to the Consumer Protection--
    Mr. Messer.--specifics about what was--
    Secretary Perez. Pardon me?
    Mr. Messer. Much of that documentation didn't include 
specifics about what was discussed in those meetings.
    Do you care, does the Department of Labor care about the 
inconsistency and confusion that could result from unharmonized 
rules of the road in this area?
    Secretary Perez. Well, it is interesting that the former 
chair of the SEC is very supportive of the Department of Labor 
moving forward. And actually, the current chair has indicated 
publicly that she thinks the best-interest standard is the 
right way to go for the SEC regulatory agenda.
    So actually, she is saying conceptually that they should be 
doing the same thing that we are proposing in this rule.
    Mr. Messer. Again, I think most folks, no one would quarrel 
with the intention of protecting these investors. The question 
is, will these rules actually make matters worse for those 
investors?
    You commented earlier about potential coordination with 
FINRA. And I want to give you another quote and give you the 
opportunity to respond. In March at the 2015 Annual Financial 
Industry Regulatory Authority Conference, FINRA Chairman Rick 
Ketchum said, quote: ``I fear that the uncertainty stemming 
from contractual analysis and the shortage of useful guidance 
lead many firms to close their IRA businesses entirely or 
substantially constrain the clients that they will serve.''
    Secretary Perez, to what extent did you coordinate with 
FINRA and other industry analysts? And why didn't you address 
their concerns?
    Secretary Perez. Well, actually, what is interesting to 
note, if you look at the totality of Mr. Ketchum's comments, he 
says now that a best-interest standard is indeed the right way 
to go, and I appreciate that. He says a requirement, and he 
talks about the solutions, requirements that firms carefully 
design structures and procedures to minimize conflicts, that is 
what we are trying to do in this rule. Adherence to existing 
security laws, more effective disclosures.
    So actually, there is a remarkable amount of overlap 
between what our rule says and what he stated.
    And we met with FINRA staff as recently as last week. And 
we met with the Consumer Financial Protection Bureau.
    I personally traveled to England to meet with regulators 
over there and learn from them. We have done a lot of outreach 
and will continue to because it is important in this process.
    Mr. Messer. Thank you. And we appreciate your time.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Jeffries, you are recognized for five minutes.
    Mr. Jeffries. I thank the chairman for yielding, as well as 
for Secretary Perez for your presence and your leadership.
    The rule that we are discussing today was first put forth 
in 2010. Is that correct?
    Secretary Perez. Yes, that was 2010.
    Mr. Jeffries. And then it was subsequently withdrawn. Is 
that right?
    Secretary Perez. It was withdrawn and then we re-proposed 
it earlier this year after a lengthy period of outreach.
    Mr. Jeffries. And can you walk us through sort of the 
substantive changes that have been made from the withdrawal to 
the re-institution of it?
    Secretary Perez. Sure. One of the issues that was raised 
was there was a concern about having a more extensive economic 
analysis. So this rule contains a much more extensive economic 
analysis.
    There was a concern that Congressman Guthrie and others 
addressed about a provision we had in the 2010 rule about 
employee stock ownership plans. And the recommendation was to 
take that out, and we took that out.
    There was a concern about giving more flexible exemptions 
from the rule that you have to put your clients' best interests 
first. And the best-interest contract exemption is the attempt 
to do just that, so that we have created guardrails, but not 
straitjackets. So that is a new feature of this rule.
    We clarified the line between education and advice and we 
continue to take comment on that to see what the reaction is to 
where the line is drawn. And we have had some discussion about 
that today.
    So those are some examples of, I think, material changes 
from now as opposed to 2010.
    Mr. Jeffries. Thanks. Now, there has been some discussion 
about ongoing engagement with the SEC.
    Secretary Perez. Yes.
    Mr. Jeffries. Has that engagement resulted in any 
substantive changes that have either been adopted or are under 
consideration?
    Secretary Perez. Well, I think the SEC, our interaction 
with them, especially I had interaction I think there was eight 
different times with Chair White, our staffs have been together 
innumerable times, and I can certainly tell you with confidence 
that I think the rule, the proposal is a better proposal as a 
result of that interaction. It was a soup-to-nuts interaction 
talking about, you know, so many aspects of this process.
    Mr. Jeffries. Are there any specific concerns that the SEC 
raised that the Department of Labor has responded to in 
yielding the newly proposed rule?
    Secretary Perez. Again, you know, we had a consistent back-
and-forth. And again, we welcome that. And I had a consistent 
back-and-forth with Chair White. I didn't participate in the 
career-level meetings and those were the ones where there was a 
lot of good discussion and good feedback under way.
    And again, I think as a result of that feedback you will 
see there are provisions in the rule that I think are very, 
very, you know, informed by our judgments and our feedback, not 
only from them, but from the Consumer Financial Protection 
Bureau, from members of Congress, from consumer groups, from 
industry stakeholders.
    Everybody has an expertise to bring to bear in this. And 
our goal was to make sure we built a big table so that we could 
take all that advice to bear.
    Mr. Jeffries. Now, is my understanding correct based on 
your earlier testimony that the CEO of Bank of America supports 
the proposed rule?
    Secretary Perez. Well, what I said before was that what 
Brian Moynihan said was we believe that doing what is in the 
best interest for your customers is absolutely the right thing 
to do. We have been clear that we see the industry moving and 
we expect to help it move there.
    And so, you know, the fundamental tenet of this rule, which 
is that you have to act in your clients' best interest, is a 
tenet that has increasing support.
    Now, we are getting a lot of feedback from everyone, 
including but not limited to B of A, about the questions of 
operationalizing that and making sure we give it good meaning 
and that we address the issues of unintended consequences, 
things of that nature.
    But a really important part of this rule, a linchpin if you 
will, is making sure that when you walk in and your 
constituents walk in to get advice that they don't have to 
wonder whether that person is operating under one standard, a 
higher standard or a lower standard or maybe both.
    Mr. Jeffries. Lastly, as my time is expiring, Mr. 
Secretary, how would you define a small investor in terms of is 
there a threshold, is there an amount of the investment? Who 
are the individuals that could potentially benefit or could 
potentially be harmed by this approach depending on what 
stakeholder you are listening to?
    Secretary Perez. I think any investor who is going to have 
greater assurance that his or her person giving the advice is 
looking out for their best interests is going to be benefit.
    And you know, small, medium, large is kind of in the eye of 
the beholder. You know, I have spoken to people who have 
clients that have $5-$10,000 in their portfolio. I have spoken 
to people with clients who have millions. And the rule is the 
same.
    Chairman Roe. The gentleman's time is expired.
    Mr. Grothman, you are recognized for five minutes.
    Mr. Grothman. Thank you very much.
    My first question is with regard to fraternal 
organizations, okay? Fraternal organizations, okay?
    Secretary Perez. Okay.
    Mr. Grothman. Fraternal organizations, first of all, are a 
little bit different breed because they have certain 
requirements under the IRS code so they are, you know, kind of 
highly regulated by another agency. And for that, they also 
disproportionately, I think, take care of smaller investors, 
maybe a lot of the IRAs or under $25,000, which is just kind of 
a unique thing as well.
    And I think the combination of the fact that they have 
their own rules under the IRS and that they have a lot of 
smaller investors are going to make this much more difficult 
for them to implement.
    Have you had discussions with these fraternal 
organizations? And are you prepared to have further discussions 
and maybe make changes so that these large organizations which 
have so many investors in them, including myself, are continued 
to be able to thrive?
    Secretary Perez. The short answer is we have had 
discussions with fraternal organizations. I think that is 
501(c)(8) of the Internal Revenue code.
    And what we did in the rule, we ask a number of questions 
in the rule, and one of the questions that we ask is: do you 
have a unique set of circumstances that dictate that we should 
be taking a different approach as it relates to your 
circumstance? And this is an example.
    The meetings that have been taking place with fraternal 
organizations, that is the issue that we invited. And I welcome 
that and we are having that discussion as we speak. And I look 
forward to your more specific observations about what you think 
should be done in relation to them.
    Mr. Grothman. Well, if you want, we can meet in my office. 
I mean, I think right now these large organizations with I am 
sure millions of investors and many employees are really 
jeopardized. And that is a problem you have whenever you have, 
you know, some massive new rule, some one-size-fits-all rule. 
Sometimes you have people who don't fit that rule.
    And I am told and it makes sense to me that this would be 
devastating for these large organizations.
    Now, do you plan on making further changes before this rule 
would be implemented or meeting with them again?
    Secretary Perez. Oh, again, we have already met, we will 
continue to meet. And the purpose of meeting with people is to 
learn from people and figure out what changes are called for in 
a final rule.
    And as you have seen, the current proposal is far different 
from the 2010 proposal. And that is because we sat down, we 
built a large table and we listened to folks. And we are 
continuing that process now.
    And so I appreciate the fact that folks have been taking us 
up on it. And anyone who comes to see you to say I have a 
challenge, I would encourage you to send them our way because 
we want to listen and learn.
    Mr. Grothman. Good. Good. That will be good.
    Next quick question, and I am kind of jumping ahead here to 
the testimony of somebody that is going to be speaking later, 
it just kind of jumps out at me that apparently there is going 
to be a public database of compensation, total compensation 
given to employees of firms or that sort of thing. Is that 
true?
    Secretary Perez. There is a transparency provision that is 
designed to get at the following problem. Compensation schemes 
are very opaque right now because you can legally get your fees 
from different sources in this. And what we want to make sure 
is when consumers are making judgments they understand how much 
things cost and so they can make an informed judgment as to 
whether this is a good deal for them.
    Mr. Grothman. Right. Just what kind of jumped out at me 
was, you know, if I am making $40,000 a year, if I am making 
$90,000 a year, if I am making $150,000 a year, all of a 
sudden, am I reading this right, that all of a sudden that is 
going to be public knowledge? I mean, maybe it should be. I am 
just saying it is kind of interesting.
    Secretary Perez. Well, the database isn't public. I think 
the one you are referring to is not a public database.
    Mr. Grothman. It says a website. No?
    Secretary Perez. But it is not a public website.
    Mr. Grothman. Okay. Final question I have for you. People 
are permitted to earn reasonable compensation and nobody should 
be able to earn unreasonable compensation, of course, but who 
defines that and what is the definition of reasonable 
compensation?
    Secretary Perez. Well, again, these are definitions that 
have been part of the practice for literally decades. You know, 
acting with reasonableness and prudence under the 
circumstances.
    Everything is a case-specific determination, but these 
principles of acting prudently and looking out for your 
consumer, your customers' best interests have been well-
established. This is not something that is drawn out of thin 
air.
    Chairman Roe. The gentleman's time has expired.
    Mr. Hinojosa, you are recognized for five minutes.
    Mr. Hinojosa. Thank you, Chairman Roe.
    Can you hear me?
    I want to thank you and Ranking Member Polis for holding 
this important hearing.
    But I especially want to thank Secretary Perez for being 
here and for the work you and your staff have been doing in the 
conflicts of interest rule re-proposal.
    Subcommittee Chairman Roe and I co-chair a Senior Citizens 
Caucus, which covers financial literacy to help these senior 
citizens make good financial choices in their retirement years.
    So this rule that we are discussing is of great interest to 
both of us as chairs and to many members on both sides of the 
aisle, as I have heard the questions.
    I think that we want to ensure access to advice at a very 
low administrative cost as federal employees which number 
probably several million get a quarter of 1 percent 
administrative costs for investing our Thrift Savings program 
investment and retirement portfolio.
    I think that I really paid attention to Congressman Rick 
Allen from Georgia, giving us his example of investors losing a 
large amount back in December 2007 and the following year, 
2008, which is the time of the worst recession in 50 years.
    And I enjoyed listening to how you handled that. And many 
of us did the same. We stayed in the market.
    But I will say to you, Mr. Secretary, that sometimes older 
men and women have good advice, simple. I remember hearing one 
tell me, just remember that you buy low and sell high. And so I 
did that. On the first week of January of 2008, I called and I 
changed my particular investment portfolio into Treasuries 100 
percent. And that is the best thing that I could have done.
    Secretary Perez. Why didn't you call me, sir? I could have 
followed suit.
    [Laughter.]
    Mr. Hinojosa. I can only say that this hearing today has 
been very, very interesting.
    And I want to ask a question or two before my time gets 
away.
    I read Mr. Haley's written testimony which reads he claims 
the best-interest contract is problematic and that the rule is 
unworkable as drafted. Moreover, that small business and lower 
and middle-income investors will be harmed the most.
    Mr. Secretary, in your view, do you believe this to be the 
case?
    Secretary Perez. I don't, for all the reasons that I have 
discussed. Small investors are the ones who can least afford 
the consequences of conflicted advice.
    Mr. Hinojosa. I absolutely agree with you 100 percent. Let 
me ask you another question because we agree on many things.
    I am most interested in the proposed rule's impact on the 
small savers and those middle-class workers who do not have 
hundreds of thousands of dollars to invest, but who are 
interested in insuring what they do have to invest, they want 
it to grow, and I want their savings to do that, too.
    Is there any reason that they should expect to pay more for 
the administrative services they currently receive as in 
examples that I heard that are up to 4 percent of the 
investment?
    Secretary Perez. Well, I think it is not going to be in 
your best interest. I would rather have more money in my pocket 
when I can get a better return. And the challenge right now is 
that the system is misaligned and too often advice is motivated 
by the fees it generates for the person giving the advice as 
opposed to what is in the best interest of the customer.
    Mr. Hinojosa. In my opening remarks, I said that we, 
federal employees, and we number in the millions, only pay a 
quarter of 1 percent for advice and for them to do the 
investments for us. And that 4 percent, as you said, is way, 
way too high.
    So I will ask one last question before my time is up. Would 
you say this rule can help address the challenges in retirement 
savings gap many Hispanic and minorities face when it comes to 
saving for retirement, because they, according to the materials 
I have read, are amongst the highest, like 40 percent, that 
have very little in assets to protect and invest?
    Chairman Roe. Mr. Secretary, I am going to have to ask you 
to hold that thought.
    Secretary Perez. I have one sentence.
    Chairman Roe. I am sorry. The time has expired.
    Mr. Carter, you are recognized for five minutes.
    Mr. Carter. Thank you, Mr. Chairman.
    Secretary, thank you for being here.
    Mr. Secretary, I have to be quite honest. I am going to 
preface my questions by saying that I am deeply disturbed by 
this and not in favor of this at all. I will just go ahead and 
tell you.
    But, let me ask you something. The premise for your action 
here seems to be that you are saying that conflicts of interest 
have resulted in higher fees for those that are in IRAs than 
are in 401(k)s and that it is because of these conflicts of 
interest that it has resulted in the higher fees.
    Yet the Investment Company Institute has discredited that 
number and said that isn't true, said that it has only 
increased at .16 percent and that indeed can be attributed to 
the fact that they get more advice and that they get a higher 
level of service.
    So if your premise is that the conflicts of interest are 
the reason why we need to have contracts, and yet we have the 
Investment Company Institute who disputes that, what is your 
premise then?
    Secretary Perez. Well, sir, we have many people in the 
industry who are saying that we need to have a best-interest 
standard because the system is misaligned. When I go in to see 
my doctor, I know that he or she is looking out for my best 
interest. I have got cancer, you are going to tell me what is 
best for me, you aren't going to tell me what is suitable for 
me.
    And when I go into a doctor or when I go into a financial 
adviser and they are telling me what is suitable, well, what 
that means is that there may be four or five products that are 
suitable.
    Mr. Carter. But aren't you kind of painting it with a broad 
brush here by saying that all investment bankers or all 
investment consultants don't have your best interests at hand?
    Secretary Perez. Well, with all due respect, sir, in my 
opening statement I explicitly said that most of the people in 
this business are trying to do the right thing. There are a few 
bad apples.
    What we have is a structural systems problem. People are 
rational, they respond to the incentives that are there. And it 
is perfectly legal right now to steer someone to a product that 
maximizes your return as the broker dealer at the expense of 
the return of the individual investor.
    And that is what we are trying to change. We are trying to 
change this malalignment and make sure that every time I walk 
in and every time your constituent walks in, they can have 
confidence that their adviser is going to do that.
    Mr. Carter. Mr. Secretary, wouldn't you agree that this is 
already an over-regulated field, that we have probably more 
regulations in this area than we have in any other area? And 
what you are suggesting is that more regulation will actually 
solve the problem.
    Secretary Perez. The Toffel family couldn't disagree with 
you more, sir, because the Toffel family lost $50,000 as a 
result of conflicting advice.
    Mr. Carter. I understand that. But there have been many 
families, and I am sure you could give many situations and many 
examples, where just the opposite has happened where you have 
had advice given by advisers that has resulted in people being 
able to live a better retirement.
    Let me give you an example. I am a small-business owner. I 
have owned a small business for over 27 years now. When I first 
went into business, I started a 401(k) within my business. And 
I will say that it is one of the best things I ever did, a 
great program. And it is one of the things that I am most proud 
of in my business, the fact that I can offer my employees that 
kind of program where they can invest, I can help match, we 
have profit sharing within that, they can borrow from it and 
they do that.
    In fact, just this past week I had an employee who is 
actually borrowing from her 401(k) in order to pay medical 
bills that she is saddled with right now.
    So that is something that has worked out well. And I don't 
think that I would have done it had I had to enter into a 
contract with a financial adviser. I mean, I am a pharmacist 
and my patients don't have to sign a contract with me before I 
make recommendations for them.
    I am not seeing where more government regulation is going 
to solve this problem. This seems to me to be a solution in 
search of a problem.
    Secretary Perez. Well, sir, one thing I can wholeheartedly 
agree with you on is we will not agree on this.
    Mr. Carter. Well, and you are absolutely right because the 
fact is that I am a free market person. And the fact is that I 
believe the free market works.
    My example, unlike what you might see, is a better example 
and an example of where it has worked and it has worked well. 
And I am very proud that I was able to offer that to my 
employees. They are very happy with it. I am very happy with 
it. It provides all of us with a good retirement and it did not 
come about because we had a contract with a financial adviser.
    Mr. Chairman, I yield back.
    Chairman Roe. The gentleman's time is expired.
    Mr. Scott, you are recognized for five minutes.
    Mr. Scott. Thank you.
    Mr. Secretary, what is wrong with the free market just 
taking place and people being able to get what it can out of 
transactions?
    Secretary Perez. Well, the free market didn't quite work 
for the Toffel family, congressman. And it didn't work because 
the system right now creates incentives and it is perfectly 
legal for people to give advice that is motivated not by a 
concern first and foremost for your clients' best interests, 
but by the fee structures. That is what we are trying to 
change.
    Mr. Scott. If you had the free market, would there be any 
limit to what an unscrupulous adviser could get out of a 
client, even if they might agree to it?
    Secretary Perez. I fear we would have more Toffels.
    Mr. Scott. When we are talking about pension funds, this 
rule only affects pension funds, is that right?
    Secretary Perez. Well, it affects, you know, 401(k)s, it 
affects IRAs, it affects rollovers. Trillions of dollars is 
what we are talking about right now.
    Mr. Scott. Tax-advantaged accounts.
    Secretary Perez. Correct.
    Mr. Scott. We made these tax-advantaged for a reason. Is 
there any reason that they should be treated more preciously 
than other funds that an investor may have?
    Secretary Perez. Well, Congress made a judgment to give 
tax-preferred treatment, and that was a good judgment, that was 
a sound judgment. I don't think Congress made a judgment to 
give tax-preferred treatment so that people who are then trying 
to make sure they have a healthy retirement, like the Toffels, 
then get themselves into the circumstances they have found 
themselves in, which were totally preventable.
    Mr. Scott. We have heard about this industry being highly 
regulated. Did I understand you to say that if an investment 
adviser knows that another product may not be as good, but he 
can make more money on the other product, that he can sell that 
product to the client knowing that he is going to make more and 
the client's going to make less?
    Secretary Perez. There is a suitability threshold that must 
be surmounted. But within that suitability threshold, you can 
have a number of products that have different commission or 
other fee structures for the person selling that.
    And the current system does not prevent you from taking 
advantage of that incentive. And I think that is wrong, and 
that is what we are trying to change.
    Mr. Scott. So if you are selling essentially an S&P 500 
fund and you know that the client could get it at a much lower 
price, there is nothing wrong in the present system in selling 
the mutual fund that pays the broker more money right out of 
the client's pocket.
    Secretary Perez. You would want to look at not simply 
price, but return and things of that nature.
    Mr. Scott. S&P 500 fund, all of them are going to do 
essentially the same.
    Secretary Perez. The premise of your question, yes, I mean, 
assuming all things are equal, then that is the challenge that 
we are trying to address in this rule is to make sure that we 
are putting your clients' best interests first.
    Mr. Scott. Now, how would a client know that they are 
getting ripped off like this without the rule?
    Secretary Perez. That is a huge part of the challenge that 
we confront, because people are unaware. You don't know what 
you don't know. There is a very significant inequality of 
information here. And that is why this rule is necessary.
    Mr. Scott. And that is why the client went to the adviser 
in the first place to try to get some good advice.
    Secretary Perez. Well, and they assumed that they were 
trustworthy. They read the marketing materials. And in fact, 
most are very trustworthy, but we are trying to do the Ronald 
Reagan trust but verify by having an enforceable contract.
    Mr. Scott. What level of sophistication are we talking 
about? People coming to an adviser looking for the right 
advice, how vulnerable are many of the people to getting ripped 
off?
    Secretary Perez. Well, if you are like me you don't know a 
heck of a lot about it. And I feel like I am a fairly educated 
person, but I also when I go to my financial adviser I feel the 
same way as when I go to my mechanic. These are two areas where 
I know very little about and I want to trust somebody else and 
I want to make sure that trust isn't misplaced.
    Mr. Scott. Thank you, Mr. Chairman.
    Chairman Roe. I thank the gentleman for yielding.
    Thank you, Mr. Secretary.
    And before I close, just a couple of comments. I think we 
all agree with the best-interest standards. I think everyone in 
the industry does and everyone here today does. I don't think 
there is any issue about that.
    Also, the GAO report clearly showed that we have 29 percent 
of the people in this country that have saved no money over 55, 
that is over half the nation; 23 percent just have a small 
defined benefit and no savings.
    So we have a huge crisis. I don't think we need to make it 
harder. We need to make it easier for people to invest money. 
Forty-five percent of people in the TSP have a default, that is 
just a treasury, and that is a very poor return.
    And you gave an example of a very unfortunate investment 
advice. Let me just share, Mr. Carter shared with you some, I 
can share with you many of them. A $78,000 investment in 
November of 1996 that went through the worst economic recession 
since the Depression, that in March of 2015 in a broker dealer 
fee-based plan was $362,000 left alone and invested with that 
same advice. So there are great stories out there also.
    And I think the question I would have to ask is, at the 
end, and you can think about this, does this rule make it 
easier? And for businesses to do this, does it make it cost 
less?
    Can you make a commitment basically today that no one will 
lose their financial adviser? I mean, it is like the President 
said if you like your doctor you can keep it, but it didn't 
work out that way in reality when all the rules of the 
Affordable Care Act came in.
    Will people not pay higher costs, a low-income person who 
very much Ms. Wilson and others over here are worried about? 
The small investor, will they be forced into a plan where 1 
percent of $10,000, maybe three-fourths of a percent that I 
might pay on a managed account, are they going to have to pay 
that?
    So those are the things I think we need to think about in 
the rulemaking process.
    And I want to thank you for being here. You have been very 
forthright today. And look, for a large family like yours with 
five in the family, four out of five turning out okay was not 
bad.
    Secretary Perez. That is pretty good. I agree.
    [Laughter.]
    Chairman Roe. So thanks very much, Mr. Secretary.
    Secretary Perez. Thank you for your time, sir.
    Chairman Roe. Thank you.
    Secretary Perez. And I always appreciate your courtesy.
    Chairman Roe. Thank you so much.
    It is now my pleasure to invite our second panel to the 
witness table, please.
    It is now my pleasure to introduce our distinguished panel 
of witnesses for the second panel. Our first witness is Mr. 
Kent Mason who is a partner of Davis & Harman LLP specializing 
in employee benefit matters. Prior to entering private 
practice, Mr. Mason held positions at the Joint Committee on 
Taxation and in the Treasury Department. He represents a broad 
cross-section of firms that offer and service employee benefit 
plans.
    Mr. Jack Haley is the executive vice president, 
Professional Services Group, with Fidelity Investments. He has 
been with the company more than 30 years and currently serves 
on its executive board. Mr. Haley also currently serves as 
president and chairman of the board of directors of Fidelity 
Management Trust Company.
    Mr. Dennis Kelleher is the president and chief executive 
officer of Better Markets, Incorporated, a nonprofit 
organization that promotes the public interest in the capital 
and commodity markets. Previously he has held several senior-
staff positions in the United States Senate and was a partner 
with the law firm of Skadden, Arps, Slate, Meagher & Flom.
    Dr. Brian Reid is a chief economist at the Investment 
Company Institute where he leads the institute's research 
departments. Previously, Dr. Reid was a staff economist at 
Monetary Affairs Division of the Federal Reserve Board.
    Lastly, Mr. Dean Harman is the founder and managing 
director of Harman Wealth Management. He has over 17 years of 
experience working with individuals and families with planning 
and investment management. Mr. Harman is a member of the Board 
of Directors of the Financial Services Institute.
    Mr. Mason, you are recognized--well, before I start let me 
swear you in.
    [Witnesses sworn.]
    Let the record reflect the witnesses answered in the 
affirmative.
    And you may take your seat.
    Before I recognize you to provide your testimonies, let me 
briefly explain our lighting system. You have five minutes to 
present your testimony. When you begin, the light in front of 
you will turn green. When one minute is left, the light will 
turn yellow. When your time has expired, the light will turn 
red. At that point, I will ask you to wrap up your remarks as 
best as you are able.
    And members will each have five minutes to ask questions.
    Mr. Mason, you are recognized for five minutes.

  STATEMENT OF MR. KENT MASON, PARTNER, DAVIS & HARMAN, LLP, 
                        WASHINGTON, D.C.

    Mr. Mason. Thank you, Mr. Chairman.
    My name is Kent Mason. I am a partner with the law firm of 
Davis & Harman and I have worked in the employee benefits area 
for over 30 years.
    I want to thank the subcommittee for inviting me here to 
testify. I am testifying today on my own behalf based on 
extensive discussions with plan sponsors as well as numerous 
financial institutions.
    Before turning to the meat of my testimony, I want to 
mention three key points. And this first one echoes, I think, 
what you have said here, Mr. Chairman.
    The industry is absolutely fine with a best-interest 
standard and has been for the past four and a half years, you 
know? I mean, every time somebody says, well, now, there is 
concern from the industry, there hasn't been for four and a 
half years.
    The concern has always related to the prohibited 
transaction rules. And these are the rules that make certain 
business models effectively illegal, such as the brokerage 
model; and those are the business models that provide 
assistance to low- and middle-income individuals and to small 
businesses. So that has been the issue for four and a half 
years and it has really not been addressed.
    The second point I want to hit is, even aside from the 
advice issue, we have had a lot of talk this morning about 
education. I just want to make one thing clear. The 2015 
proposal significantly cuts back on permissible financial 
investment education. 2010 preserved financial education; 2015 
explicitly cuts back permissible financial education.
    And that leads to the third point I want to hit before 
going to the meat of my testimony, which is I think there has 
been a perception that this has been an evolution. That we took 
the 2010 proposal and we sort of updated it and made some 
progress and we got to 2015 and we are going to make some more 
progress.
    In actuality, there is a growing consensus among the 
industry that the 2015 proposal, and this is detailed in my 
written testimony, is actually much worse and much less 
workable than the 2010 proposal. So the trend line is going in 
a disturbing direction.
    In the meat of my testimony, I would like to focus on two 
points: the effect of the re-proposal on small accounts, small 
IRA accounts, and the critical need for legislation.
    Small accounts, there are two ways that IRA accounts can 
get assistance. One is the brokerage model with commissions 
paid and payments from the mutual funds, such as marketing fees 
or record keeping fees.
    As I explain in detail in my written testimony, as a 
practical matter the proposal makes the brokerage model 
illegal. So really, that model is off the table.
    The second way to provide investment assistance is through 
something called an advisory model. Now, if somebody comes to 
me and says I want to enter into an advisory relationship, what 
I owe that person is 24/7/365 fiduciary responsibility. I owe 
them around-the-clock fiduciary responsibility.
    In exchange for that, what I get is a flat fee like 1 
percent of pay. And that 1 percent of pay, the problem is that 
structure won't work for small accounts. Because if somebody 
comes to me with a $4,000 IRA, I can't provide around-the-
clock, 365-day service for $40 for 1 percent of pay. So that is 
not available to small accounts.
    Oliver Wyman found that because of this analysis, just 
under their study sample, over 7 million IRAs would lose access 
to an investment professional and as many as 360,000 fewer IRAs 
would be opened every year.
    And a lot of the reaction to this has been, well, industry 
will never walk away, they will never walk away from this 
market. But that is exactly what happened in the United Kingdom 
under almost an identical rule. The industry went away from 
small accounts in droves.
    And then the question is, when would this happen? Under the 
current structure, under the current timetable from the 
Department of Labor, millions of small accounts would be told 
in the fall of 2016 that their investment adviser can no longer 
serve them because of new government regulations. October, 
September of 2016, that is the message that would be delivered.
    And just to wrap up, what we need here is bipartisan 
legislation that establishes a best-interest standard with 
workable rules, not the unworkable rules that are in this 
proposal.
    [The testimony of Mr. Mason follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Thank you, Mr. Mason.
    Mr. Haley, you are recognized for five minutes.

TESTIMONY OF MR. JACK HALEY, EXECUTIVE VICE PRESIDENT, FIDELITY 
               INVESTMENTS, BOSTON, MASSACHUSETTS

    Mr. Haley. Chairman Roe, Ranking Member, members of the 
Subcommittee, and thank you for the opportunity to testify.
    My name is Jack Haley. I am an executive vice president at 
Fidelity Investments. I oversee a team of investment 
professionals dedicated to helping employer clients and their 
workers access a wide variety of high-quality investment 
products and services to meet their investing needs.
    At Fidelity we have the privilege of helping more than 25 
million people save for their financial goals and serving more 
than 14,000 workplace clients, including 8,000 small businesses 
who offer retirement savings benefits to their workers.
    From our roots as a small mutual fund company, Fidelity has 
grown into a diversified financial services leader. Fidelity 
takes seriously the responsibility of helping employers set up 
and offer competitive retirement savings plans.
    I appreciate the opportunity to share our experiences 
helping small businesses and express our concerns about the 
Labor Department's proposal.
    First, I want to answer a call from the Department of Labor 
by stating directly up front Fidelity acts in the best 
interests of its clients and investors. We support a best 
interest fiduciary standard, but the details matter.
    We are proud of the services, products, and choices we 
provide our customers, but we fear that this proposed 
regulation will severely restrict our ability to continue 
providing this assistance to small-business workers.
    While the framework of the proposal would theoretically 
allow service models to remain when acting in the best 
interests of customers, its so-called best-interest contract 
exemption contains so many problematic conditions that the rule 
is unworkable as drafted. Labor's proposal effectively 
prohibits access to affordable financial help, even when it is 
in the interests of the investor.
    We believe a balanced approach where savers can be 
protected by the best-interest standard and continue to have 
access and choice in their retirement products, services, and 
providers.
    We look forward to continuing to work with the members of 
Congress and the administration to ensure that this balance is 
reached.
    Small businesses remain the lifeblood of our economy. These 
hardworking entrepreneurs and businesspeople bring significant 
expertise and passion to their work. We see their desire to 
offer competitive, high-quality retirement savings benefits to 
attract and keep a highly skilled workforce.
    Not surprisingly, with all they have to do to manage their 
businesses, there is little time, expertise, or desire to 
manage their retirement savings plans. That is why small 
businesses turn to us. We provide a range of critical services, 
from helping companies understand and select the right savings 
vehicles, to providing all of the critical functions to keep a 
plan running smoothly, including record keeping, compliance 
testing and reporting, selection and ongoing monitoring of 
investment, and, most importantly, education and guidance for 
their employees.
    Unfortunately, the DOL proposal would specifically prohibit 
service providers from assisting small businesses. The result 
would have a devastating impact on retirement coverage and 
savings for millions of workers employed by small businesses 
across the country.
    I reiterate, we support a best-interest fiduciary standard, 
but without exemptive relief from ERISA's strict rules Fidelity 
would be prohibited from providing critical services to small-
business clients, even when we provide help that is in their 
best interest.
    Just as important as our small-business services is the 
critical education and guidance we provide to their employees. 
The proposed rule jeopardizes many of the ordinary, everyday 
conversations we have with job changers, even if the 
conversation is merely educational where we do not discuss 
investments or advice.
    We are also able to help workers prepare for retirement by 
discussing potential product and service offerings with them. 
The proposal would require workers to sign a contract before a 
conversation would even occur. Each customer would have to have 
a contract with each of our phone reps, which number in the 
thousands, in order to get answers to basic questions.
    In addition to this new contract, the rules also include 
burdensome, confusing disclosure requirements that do not 
actually disclose potential conflicts. These requirements are 
not in anyone's best interests and must be addressed.
    These are just a few examples of the critical services we 
provide to small businesses and employees and how the proposal 
would harm the very people the rule intends to protect.
    We believe a balanced approach providing investors with 
fiduciary best-interest protections, retaining existing service 
models, is achievable.
    We look forward to working with you to make the necessary 
changes to allow individual retirement savers and businesses 
offering retirement plans to have choice and access to the 
products and services they need.
    Let me close by stating unequivocally that we support a 
best-interest fiduciary standard crafted in a way that allows 
workers choice and access to the services they need and desire.
    Thank you, and I am happy to take questions.
    [The testimony of Mr. Haley follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Thank you, Mr. Haley.
    Mr. Kelleher, you are recognized for five minutes.

  TESTIMONY OF MR. DENNIS KELLEHER, PRESIDENT AND CEO, BETTER 
                   MARKETS, WASHINGTON, D.C.

    Mr. Kelleher. Chairman Roe and members of the Subcommittee, 
thank you for the invitation to Better Markets to testify 
today.
    I would like to discuss just a few points that are detailed 
in my written testimony.
    First, it is unacceptable that brokers and others today are 
allowed to put their economic interests above their clients' 
best interests. That conflict of interest is costing Americans 
saving for retirement tens of billions of dollars every year.
    Make no mistake about it. That is what is at stake here and 
ending that is what the Department of Labor's proposed rule is 
all about.
    Today, tens of millions of hardworking Americans are 
struggling to make ends meet, provide for their families, and 
save a little for retirement. Figuring out how to invest those 
retirement savings forces many to seek investment advice from a 
broker, but that broker can put his or her economic interests 
above the client's best interests.
    What does that mean?
    If there are two similar investments but one pays the 
broker 5 percent and the other pays the broker 1 percent, then 
it is perfectly legal today for that broker to advise the 
client to invest in the product that will cost his client five 
times what it should be.
    Making matters worse, often the products that pay the 
brokers more don't perform as well as similar products. That 
means not only has the client paid five times more up front, 
but he or she is also stuck with a product that doesn't perform 
as well over time. The client is doubly victimized.
    As famed Vanguard founder Jack Bogle has called it, they 
are victimized by the tyranny of compounding costs.
    That is what is happening every day in this country. It is 
costing Americans tens of billions of hard-earned dollars.
    For example, the Department of Labor has detailed that 
these conflicts in the IRA arena only are costing savers as 
much as $430 billion over 10 years or $43 billion a year.
    Second, the rule governing retirement investment advice is 
40 years old; it is outdated and incapable of properly 
protecting workers and retirees in light of the dramatic and 
far-reaching changes in the way Americans now have to save for 
retirement.
    When this rule was written 40 years ago, almost all 
retirement savings were in defined benefit plans which were run 
by employers and managed by investment professionals with 
fiduciary duties. Forty years ago, 401(k)s did not exist and 
IRAs had just been created. Today, 40 years later, 401(k)s have 
gone from zero dollars to $4.6 trillion and IRAs have gone from 
$3 billion to $7.4 trillion.
    By 2012, 90 million Americans, more than two-thirds of all 
workers with retirement plans, had individual contribution 
plans. They are all forced to figure out their own retirement 
investments. This is a monumental and mind-boggling shift from 
40 years ago, and yet the rule has remained frozen in time as 
if nothing has changed when everything has changed.
    As the world has changed, so, too, must the rule change. 
And the time is now for the Department of Labor to act. It has 
considered this proposal for years. It has sought and received 
input from all stakeholders, including, in particular, 
industry. It has addressed many of the industry's concerns and 
incorporated many of their suggestions into the proposal, 
including their priorities.
    Yet they continue to object and the reason is clear: They 
simply do not want to change the status quo and work under a 
simple principle, a rule that says you must put your clients' 
interests first.
    The industry's complaints, however, boil down to a false 
choice, either brokers get to put their interests above their 
clients' best interests or they won't serve those clients. That 
is a false choice.
    The real choice is this: Let the DOL act to protect 100 
million workers and retirees across this country or continue 
letting brokers and other advisers put their interests ahead of 
their clients'. That is the real choice.
    If some brokers don't want to do that or feel that they 
can't make enough money doing that, then there are plenty of 
retirement investment advisers who are more than willing to put 
the clients' interests first and, frankly, today there are tens 
of thousands of advisers doing that right now across the 
country with fiduciary duties, low cost, best interest of the 
client, serving them today, literally hundreds of thousands.
    In conclusion, we all agree we have a very serious 
retirement crisis in this country. Not enough people are saving 
for retirement and too many of those that do aren't saving 
enough, as the chairman said in his opening statement.
    They need to keep every penny in their retirement accounts 
and not in their brokers' pockets. That is why updating a 40-
year-old rule is so important and why putting the clients' best 
interests first is imperative.
    Thank you, and I look forward to your questions.
    [The testimony of Mr. Kelleher follows:]
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Thank you, Mr. Kelleher.
    Dr. Reid, you are recognized.

TESTIMONY OF DR. BRIAN REID, PH.D., CHIEF ECONOMIST, INVESTMENT 
              COMPANY INSTITUTE, WASHINGTON, D.C.

    Mr. Reid. Thank you, Chairman Roe and Ranking Member.
    I am Brian Reid, chief economist of the Investment Company 
Institute, a leading global trade association representing 
mutual funds and other regulated funds in the United States and 
around the globe.
    I am here today to discuss the economic analysis that the 
Department of Labor uses to justify its proposed rule defining 
fiduciary duty for retirement advice and services.
    I have spent a lot of time on the DOL's regulatory impact 
analysis. I regret to say that it is fatally flawed. Its 
analysis is an exercise in storytelling, crafted more to 
support the Department's agenda than to measure accurately the 
proposal's impact on retirement savers.
    In fact, the economic analysis raises the question of 
whether the DOL fully understands the market for retirement 
advice.
    The DOL justifies its proposed rule by claiming that this 
market suffers from a substantial market failure resulting in 
serious harm for retirement savers who invest through broker 
dealers. But the Department's assertions don't stand up when 
tested against actual data and experience. Even worse, the 
DOL's proposal could actually have significant net social harm.
    I have five points to explain why.
    First, the DOL's analysis is flawed when it claims that 
retirement savers will lose as much as $1 trillion over the 
next 20 years without its rule. The DOL reaches this number by 
arguing that brokers who are paid commissions through front-end 
loads on mutual funds are directing their investors into funds 
that under-perform.
    But a simple test, with data drawn directly from the market 
since 2007, shows just the opposite. Investors who own mutual 
funds with front-end loads actually bought funds that 
outperformed, not underperformed, the average return for their 
fund category.
    This one finding eliminates almost all of the rationale 
that the DOL uses to justify its proposal.
    Second, the DOL ignores market realities and the fact that 
investors may end up paying more, not less for advice under its 
proposal. The DOL predicts that its rule will drive down 
brokers' fund commissions by almost two-thirds, but will not 
drive brokers from the retirement market. That seems highly 
unlikely to me.
    Furthermore, the DOL ignores the costs that investors will 
face if brokers do exit the market. The DOL estimates that 
investors are paying up to 28 basis points a year in front-end 
loads, but advisers charge, on average, almost four times as 
much for alternative, fee-based accounts.
    If the DOL rule forces savers into fee-based accounts, 
savers may end up paying more, not less.
    Third, none of the academic studies that the DOL uses 
addresses the core question: whether an investor's performance 
is different when her adviser is a fiduciary compared to when 
her adviser isn't a fiduciary. Thus, the DOL does not actually 
measure and cannot measure, based on these studies, whether an 
investor will get better results using a fiduciary adviser.
    Fourth, the DOL fails to identify and analyze the 
significant harm to savers that could likely result from this 
proposal. With the new burdens created by the DOL's proposed 
rule, the high minimum balances typically required for fee-
based accounts, it is inevitable that many IRA investors would 
no longer be able to obtain advice at all. Retirement savers 
will be worse off if they do not have access to assistance and 
advice.
    Finally, data show that IRA investors are concentrated in 
lower-cost funds, not higher-cost funds. The White House 
Council of Economic Advisers has widely promoted an estimate 
that IRA investors lose $17 billion a year through under-
performance largely stemming from excess fees.
    The CEA report uses a hypothetical calculation to argue 
that, on average, IRA investors pay 1 percentage point a year 
more in fund fees than do 401(k) investors.
    If we put actual fund data into the CEA's calculation, the 
difference between what IRA investors pay and what 401(k) 
investors pay is 85 percent less than what the CEA assumes.
    Now, let me be clear. The ICI has long supported the 
principle behind the DOL proposal that financial advisers 
should act in the best interests of their clients when they 
offer personalized investment advice. Unfortunately, the DOL's 
proposed rule is hopelessly complex, confused, and unworkable.
    As the subcommittee recognizes, this issue is vitally 
important to American workers and their families. Research by 
ICI and others show that the U.S. retirement system is working 
to help deliver a secure future for millions of Americans. But 
those successes depend on workers' access to advice and 
services.
    Any policy that impairs retirement savers' ability to get 
the help that they need will significantly harm the prospects 
of millions of workers. Unfortunately, the DOL proposal will do 
just that.
    I look forward to your questions.
    [The testimony of Dr. Reid follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Thank you, Dr. Reid.
    Mr. Harman, you are recognized for five minutes.

 TESTIMONY OF MR. DEAN HARMAN, CFP, MANAGING DIRECTOR, HARMAN 
            WEALTH MANAGEMENT, THE WOODLANDS, TEXAS

    Mr. Harman. Good afternoon, Mr. Chairman, Ranking Member 
Polis, and members of the Subcommittee.
    I am Dean Harman, founder and managing director of Harman 
Wealth Management in The Woodlands, Texas.
    I am here representing the Financial Services Institute. 
FSI advocates on behalf of independent financial advisers and 
independent financial services firms. FSI is a strong supporter 
of a uniform fiduciary standard. But, unfortunately, the 
Department of Labor's proposal is unworkable, complex, and 
costly.
    Let me make it plain. This proposal will harm retirement 
investors.
    Let me start by sharing one of the ways this proposal is 
unworkable. For a client to be able to pay for my services 
using a commission model, my firm would have to comply with the 
requirements of the best-interest contract exemption known as 
BICE.
    BICE requires that we give clients an estimate of all 
investment costs for one, five, and 10-year periods. In order 
to do this, I would need to predict investment performance. 
This will put me in direct conflict with SEC and FINRA rules.
    These projections may also create unrealistic expectations 
for investors.
    The proposal is also too complex. For example, BICE 
requires that firms maintain a machine-readable public website 
and update it quarterly. This website would disclose 
compensation received by the adviser, the firm, and any 
affiliates for every investment product sold.
    In the independent investment model, financial advisers 
have access to a wide variety of investment options. All of 
these investment products have unique pricing structures. Every 
single mutual fund family may offer as many as 500 or more 
versions of its fund. Compiling, presenting, and maintaining 
the required Internet disclosures would be a massive 
undertaking.
    This complexity of the project could lead to inadvertent 
errors which may result in litigation. More importantly, the 
complexity may confuse investors and discourage them from 
saving for retirement.
    This proposal is also too costly for investors seeking 
retirement services. They may encounter high costs as financial 
advisers are faced with a mountain of regulatory burdens that 
lead advisers to institute or raise asset minimums on 
retirement accounts.
    Because of this, investors of moderate means will find it 
difficult to gain access to valuable retirement advice and 
products. I do not want to turn away a potential client who 
needs my advice, but that will be the consequence of this 
proposal.
    That last point is so important. Let me give you an example 
from my own practice. I manage about $200 million in assets for 
618 clients. Of those total assets, $10 million are held by 331 
clients with an average balance of $30,000. These clients are 
mainly lower net worth, elderly, or young professionals just 
starting out.
    For these individuals, an advisory fee model does not make 
sense. A commission-based model is appropriate for them because 
it eliminates the out-of-pocket costs and provides a way to pay 
for the advice, products, and services that these clients need.
    I want to ensure that any written rule by the Department of 
Labor will make it easier for these investors to continue 
receiving high-quality retirement services from a trusted 
financial adviser, but this proposal fails them.
    In conclusion, FSI supports a uniform fiduciary standard. 
We will continue to work with the Department of Labor to 
protect investors and expand access to retirement advice. 
Unfortunately, the current proposal is unworkable, it is 
complex, and it is costly.
    Thank you, and I look forward to any questions that you may 
have.
    [The testimony of Mr. Harman follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Thank you, Mr. Harman.
    Thank you to all of the panel for your testimony.
    I will now recognize Dr. Foxx, for five minutes.
    Dr. Foxx. Thank you very much, Mr. Chairman. I appreciate 
it.
    You gentlemen were all here and you heard the Secretary. Of 
course, we never have enough time to ask the questions and get 
answers that will be helpful. But I intend to ask him this 
question in follow up and hope I can get some kind of a 
specific answer.
    He kept saying that it is a structurally flawed system, but 
he never truly identifies what that is except saying he doesn't 
think the best interests of the clients is always done.
    I would like to ask, and I would love each of you to 
respond, maybe perhaps not today, but I would like to get an 
answer from each of you.
    But I am going to ask Mr. Mason and Mr. Harman if you would 
answer. Can you tell from what the Secretary has said exactly 
what the structurally flawed part of the system is? And would 
this fix that? I think you have said no already. But does it 
work except for very bad actors that might violate any system 
that is put into place?
    Mr. Mason?
    Mr. Mason. Yes. I think just on your last point, a lot of 
the horror stories that we hear that are really just upsetting 
to hear and, you know, are illegal under current law; so, I 
mean, so in terms of is this a structural flaw of present law, 
some of these horror stories, absolutely not. A lot of these 
things are illegal under current law.
    The only thing that I got out of it, and you know, I don't 
speak obviously for the Secretary, but the thing that I got out 
of it today was the core principle that advisers should act in 
the best interests of their clients. And that is an issue in 
which there is, you know, in terms of the people who have 
spoken both up there and back here, there has been unanimity.
    The one disagreement is essentially that they have come up 
with this exemption from the prohibited transaction rules that 
you have to go through in order to provide help to small 
accounts, I talk to dozens of financial institutions and there 
isn't one who can use it.
    So the issue they are either trying to correct, best 
interest, that is fine; the way they went about it doesn't 
work.
    Dr. Foxx. Mr. Harman, before you answer, I would like to 
say what I got from his comments is that they want equality of 
outcomes, they want guaranteed outcomes for everyone. It seems 
to me that is it. They want maximum benefit. Well, all of us 
want that, for heaven's sake. But there are risks associated.
    So Mr. Harman, if you would, if you have any additional 
comments to what Mr. Mason said.
    Mr. Harman. I think Mr. Mason's points are right on point. 
Currently, advisers are highly regulated as it is. So we have 
had this current structure for many years. I don't think it is 
broken. I think we need to have the ability to provide multiple 
solutions for clients based on what their individual needs are.
    So I don't think the current structure is broken at all. 
And in fact, the current structure allows us to serve clients 
in different ways based on different needs, especially the 
moderate-and lower-income clients, their needs are oftentimes 
different than what we would consider to be high-net-worth 
clients. And the options and products that they need available 
also need to be preserved.
    Dr. Foxx. I also think there is a problem with, again, who 
will ultimately decide what is in the best interest of the 
client. And I truly believe that is just going to result in a 
lot of lawsuits, because you pretend this eight-ounce cup has 
four ounces of water in it, is it half empty or half full? Who 
defines what the best interest is, is I think, ultimately, 
going to be decided in the courts and by expensive trials.
    So thank you all very much.
    I yield back.
    Chairman Roe. I thank the gentlelady for yielding.
    Mr. Scott, you are recognized for five minutes.
    Mr. Scott. Thank you. Thank you, Mr. Chairman.
    Mr. Mason, you mentioned the $4,000 fund and said a 1 
percent fee would be insufficient to make it worth your while 
to give advice. How much money would you have to get out of 
that fund to make it worth your while?
    Mr. Mason. Well, I am not in the business, but different 
financial institutions set different minimums in terms of how 
much they will require for an advisory account like that. Some 
of them, for example, are $100,000 or $50,000.
    In order to accept 365-day liability and responsibility, 
you really can't do it for $40. It is not economically sound.
    Mr. Scott. But basically--
    Mr. Mason. I am sorry, go ahead.
    Mr. Scott. Basically, the $4,000 fund amount would be 
problematic whatever you are doing.
    Mr. Mason. No, no, see, actually not because under the 
brokerage model what happens is it is a completely different 
relationship. Suppose I have to act in the best interest, but I 
am on the brokerage model. And Jack were to come to me and ask 
me for help. I could give him help on that particular 
transaction, but I would have no ongoing duty to counsel him 
with respect to what to do tomorrow or the next day.
    That is a transactional model that has worked very well to 
help the low- and middle-income individuals on a much less 
expensive basis get the assistance they need. So it is a 
completely different model. And that is why the advisory model 
doesn't work.
    Mr. Scott. Now, under the rule, if you are doing just a 
transaction, are you covered by the best interest?
    Mr. Mason. Absolutely. In other words, again, Jack comes to 
me and asks me for my advice under our sort of scenario and 
under the Department of Labor's, you would have to give advice 
that is in the best interests and we would support that, 
absolutely.
    Mr. Scott. Okay.
    Mr. Kelleher, if you are doing a single transaction and 
somebody comes to you for the transaction, are you subject to 
the best interest under this rule?
    Mr. Kelleher. Yes.
    Mr. Scott. On a single transaction?
    Mr. Kelleher. I am sorry?
    Mr. Scott. On a single transaction?
    Mr. Kelleher. One of the loopholes in the current rule is 
that if it is not on a regular basis, then it falls outside of 
a fiduciary duty. And one of the things the new rule is 
intended to do is to capture actual substantive retirement 
advice, even if it is only one time.
    Mr. Scott. Okay. But if you just ordered the mutual fund, 
you wouldn't be subject to it, right?
    Mr. Kelleher. It depends on the context. As I understand 
the rule, if you were giving substantive retirement advice--
    Mr. Scott. You are giving advice.
    Mr. Kelleher. Right.
    Mr. Scott. Okay.
    Mr. Kelleher. It is very clear on education and call 
centers. Not every person that works in a call center is going 
to become an adviser. In fact, there is a very broad 
description as to all sorts of advice that people can use at 
call centers and elsewhere.
    And in fact, the rule on that point is specifically 
tailored to the input by the industry on this very issue. It 
hasn't taken away their complaints, notwithstanding they have 
been addressed rather extensively.
    Mr. Scott. Okay. Now, Chairman Roe mentioned an investor 
who was very satisfied because the size of their investment 
went up over the years. He didn't say how the investment 
measured compared to an S&P 500 fund. If you can evaluate 
advice over the years, what should you compare it to?
    Mr. Kelleher. Well, one of the things that this is focused 
on is if you put the clients' best interests first, then you 
can actually evaluate on a level playing field the Chairman's 
example as well as the Secretary's example. The problem now is 
that with the very low suitability standard, which allows the 
broker or the adviser to act in their own best interests above 
the best interests of their clients, you don't actually know 
whether the--and I can't remember the chairman's example, I 
think it was $365,000 the account grew to--that may or may not 
be actually a good return.
    If it is a return and the broker ended up getting 5 percent 
at the front end and they lost, as Jack Bogle would say, the 
tyranny of compounding costs and every year he lost x percent 
where a similar product he could have been put into, he well 
could have had $495,000, $500,000 or more. You don't know 
because no one is required currently to act in their best 
interest.
    And that is the core of the problem. Many of the problems 
and complaints go away if everyone is required to put the 
clients' best interests first.
    Mr. Scott. And let me ask Mr. Haley a question. As I 
understand your testimony, you are comfortable with the best-
interest rule, you just want it administered in a way that can 
be easily administered. Is that right?
    Mr. Haley. That is correct.
    Mr. Scott. And can you help write the language where the 
best-interest standard is used, but it does not have the 
complications that you see in the present rules?
    Mr. Haley. Yes.
    Mr. Scott. I yield back.
    Chairman Roe. Thank the gentleman for yielding.
    Just for clarification, that IRA was my wife's.
    [Laughter.]
    It did beat the S&P. And I happen to know it very closely 
because it was in my own family.
    Mr. Allen, you are recognized for five minutes.
    Mr. Allen. Well, just for the record, I am a little nervous 
that a department of the federal government that owes more than 
$18 trillion would be working on a rule that overreaches about 
fiduciary responsibilities. That would make us all nervous, I 
think, sitting here.
    But Mr. Harman, as you said in your testimony, as an 
investment adviser, based on this rule, you would have to 
predict what your client would earn?
    Mr. Harman. Yes. It is my understanding under the current 
BICE exemption that in order to be able to predict fees on an 
account for a 1-, 5-, and 10-year period, you also have to make 
assumptions as to the returns that the asset allocation--
    Mr. Allen. So basically under the current interest rate 
policy of this government, you would have to recommend that 
your folks have a 60 basis point earnings in their programs.
    Mr. Harman. You would have to--
    Mr. Allen. To guarantee.
    Mr. Harman. Yes, you would have to come up with some 
assumption that the portfolio would return at a certain rate.
    Mr. Allen. And Mr. Mason, if this rule eliminates the 
brokerage side of the business, how big is that business? What 
percentage of the total financial industry, can you guess on 
that?
    Mr. Mason. Ninety-eight percent of the IRAs under $25,000 
are held in brokerage accounts. So the damage that would be 
done to the small investor is incalculable; 98 percent of the 
IRAs under $25,000.
    Mr. Allen. That is unconscionable to me that--I mean, I sit 
here and I just cannot believe. You know, I wish you all had 
gone first because I think I am a little more educated about 
what really is going on here.
    [Laughter.]
    Mr. Haley, you said that, again, you answered the question 
as far as support of best-interest regulatory rule. In your 
mind, did the Department of Labor come to any industry experts 
and ask them what they thought about what might be in the best 
interests of the investor in this situation?
    Mr. Haley. I am not aware of that. We have had 
conversations with them in response to their proposed 
regulations.
    Mr. Allen. The rules.
    Mr. Haley. And we are waiting to hear what their response 
is.
    Mr. Allen. Okay. So you have any idea what--I guess I 
should ask the Secretary of Labor. That is why I wish he had 
gone last. Where did they come up with this rule? Does anybody 
know that? I mean, who wrote this thing? If it was not the 
industry, who is actually responsible for this?
    Mr. Mason. I think that what happened was back in 2010 they 
thought that, well, these rules are out of date. And I think 
that the one piece that was really overlooked in this 
calculation was essentially, and again, I hate to use this 
term, but the prohibited transaction rules, they are also out 
of date.
    Mr. Allen. Right.
    Mr. Mason. Because it is those rules that prohibit the 
brokerage model from functioning. And so what happened is they 
updated one piece of it and updated it in a way in which we 
have very grave concerns about. And then they really haven't 
updated the prohibited transaction rules and those are the 
rules that cut off low- and middle-income individuals and small 
businesses from help.
    So if they could update those to accommodate the new 
system, that is how we can achieve the best of both worlds, a 
best-interest standard with workable rules that allow access to 
low- and middle-income individuals.
    Mr. Allen. So the consensus would be is that the rule does 
need to be updated?
    Mr. Mason. I don't think the industry has any concerns 
about updating a rule to ensure a broader best-interest 
standard. We are absolutely fine with that. It is really if 
that is going to be the case, we absolutely have to update the 
prohibited transaction rules to make them workable for the 
world that does exist today. Because right now, this would, 
just as you said, I mean, this would be a terrible development 
for the small accounts and the small businesses.
    Mr. Allen. Mr. Haley, how do we solve this problem?
    Mr. Haley. Well, the first thing is the exemptive relief 
under the BICE does not apply to small businesses. So if you 
think about Fidelity, how do we serve small businesses? Number 
one, we have over 8,000 small businesses with less than $100 
million in assets or less than 100 employees.
    Today when that 401(k) comes to us, they give us a request 
for a proposal. They are looking for the lowest fees. They are 
also looking for a prototypical document.
    We do that. They ask us, what type of investments would you 
like, you know, in the portfolio? We are an open-architecture 
firm, so when you think about it, one of our divisions is 
Fidelity's Funds Network. That is the largest mutual funds 
supermarket in the world. We have $1.4 trillion on our platform 
of non-Fidelity assets. So I am not conflicted. We give them a 
lineup.
    I actually like to tell the story. I am the largest 
distributor of Pimco's mutual funds, okay? In addition to 
being--
    Chairman Roe. Mr. Haley, Mr. Allen's time is expired.
    Mr. Allen. I yield the time I don't have.
    [Laughter.]
    Chairman Roe. Ms. Bonamici, you are recognized.
    Ms. Bonamici. Thank you very much, Mr. Chairman.
    And thank you to the witnesses. You have been here a very 
long time and I am glad you are all here. It has been a very 
enlightening conversation.
    I have always found that consumer confidence is really an 
important part of economic growth. It is good for businesses 
large and small when their customers know that they are being 
treated fairly and honestly.
    If you look back at the history of where the SEC came from, 
you know, after the Great Depression the SEC was formed and 
those securities rules were written in order to bring that 
confidence back to the market. So it is a critical part, that 
consumer confidence.
    And it is important as we have this conversation about the 
critical issue of retirement security that consumers have that 
confidence in their advisers and their transactions.
    So I am really glad to hear of industry's support for the 
best-interest standard.
    And let me just clarify something real quickly, because I 
want to make sure I am understanding what you are saying. Some 
of you have said the best-interest standard and some of you 
have said the best-interest fiduciary standard. Does everybody 
agree that the best-interest standard is a fiduciary standard? 
Does anybody not agree with that?
    Mr. Mason. I think we agree.
    Ms. Bonamici. Okay, great. That is really helpful.
    And I want to ask a couple of questions and save time for 
Mr. Kelleher.
    But Mr. Mason, you and Mr. Harman sort of brought up the 
same thing. I thought maybe for a minute you were law partners, 
you were like Mason & Harman.
    [Laughter.]
    Mr. Harman. There is no relation.
    Ms. Bonamici. So Mr. Mason, you said something about the 
brokerage model doesn't work under this rule for small 
accounts.
    And Mr. Harman, you basically said the same thing, that 
this proposal will, I think you said, fail the lower-net-worth 
clients who pay on commission. And I am confused about why, 
because the Secretary sat here and said commissions will be--
there will be the ability to charge commissions under this 
rule.
    So can you briefly tell me why you say that the brokerage 
model won't work? And then I want to save time for a question 
for Mr. Kelleher.
    Mr. Mason. I am happy unless you want to--
    Ms. Bonamici. Go ahead, Mr. Mason. Go ahead.
    Mr. Mason. Okay. I am happy to do it. Briefly, it is going 
to be a challenge because what it is there is a long, long list 
of requirements that essentially are unworkable. I will give 
you one example.
    I think there was a great discussion this morning on the 
contract rule about how you have to enter into a contract 
before you even enter into a relationship and then the 
secretary indicated openness to sort of work on that.
    Ms. Bonamici. Right.
    Mr. Mason. But I will mention one other that was mentioned 
by one of the members here this morning, which is one of the 
disclosures is to provide detailed information on every piece 
of direct and indirect compensation earned by the adviser, the 
financial institution and every affiliate on every single asset 
that could be purchased by any retirement investor in the 
country.
    Well, there are thousands and thousands of different mutual 
funds.
    Ms. Bonamici. Of course.
    Mr. Mason. Did you want to say something?
    Ms. Bonamici. No. I just wanted to make sure that I have 
time left.
    Mr. Mason. Yes, I apologize.
    Ms. Bonamici. And thank you for pointing out that.
    Mr. Mason. But that is one of, say, 10 things.
    Ms. Bonamici. I am going to reclaim my time for some other 
questions.
    Mr. Mason. Go ahead.
    Ms. Bonamici. That was very helpful.
    And Mr. Haley, you brought up the contract before the 
conversation. But that is not what Secretary Perez said.
    So Mr. Kelleher, you heard the discussion both with the 
Secretary and the discussion here today about this problem that 
has been raised or this issue that has been raised about the 
best-interest contract exemption would require signed contracts 
before any conversations. But that isn't what the Secretary 
said.
    So it seems like we are talking about two different things 
here.
    Mr. Kelleher. Well, I mean, first, let's look at the facts. 
In 2010 the Department of Labor proposed a rule and the 
industry says we are for best-interest standards and they 
killed the rule. And here we are again.
    What they said at the time is the rule is unworkable, 
withdraw it, consider our input and re-propose it. The 
Department of Labor did exactly, and I could give you the 
quotes from 2010, 2011, and 2012, from the titans of the 
industry who said that; so they withdrew the rule. They have 
done extensive outreach, unprecedented outreach over the years 
with the industry.
    They have accommodated the industry. The industry said the 
world will end if we can't charge commissions. So working with 
the industry, the Department of Labor for years has figured out 
how to accommodate that complaint.
    They could have done what the U.K. did, ban commissions. 
And by the way, the statement earlier about the U.K. isn't 
accurate in terms of the response of the industry to that 
fiduciary standard without commissions. But they have 
accommodated the commission interest here. And yet, 
nonetheless, the industry is against it.
    So they say they are for a fiduciary standard, but they are 
never actually for the one that is pending.
    And it is interesting because every major labor, consumer, 
investor, and senior citizen group supports this rule. And a 
letter went to the chair and ranking member of this committee 
today from I don't know how many, 40 or 50 of them, detailing 
that support.
    And you started with trust and confidence of the American 
people and investors. That is what this goes to. Put their best 
interests first and you will restore trust and confidence.
    Ms. Bonamici. And I see my time is expired. I just wanted 
to note that there are other areas where there is a fiduciary 
duty that we can get this done. And if you are all in agreement 
that we need to have this fiduciary standard, I don't see any 
reason why we can't make this happen.
    Thank you, Mr. Chairman.
    Chairman Roe. Thank you for yielding.
    Mr. Grothman, you are recognized.
    Mr. Grothman. Sure. Well, I have two short questions, keep 
it short here.
    The first one--and I had another committee hearing, so 
maybe I missed if you dealt with it, Mr. Harman.
    I had a little discussion about an hour ago with the 
Secretary as to whether or not compensation paid to people was 
going to wind up on a public website. And I was citing your 
testimony here and it was our testimony. Yes, this testimony 
that it wouldn't be.
    Could you comment on that? Or do you believe that under 
this rule, you know, kind of an interesting thing, that, say, 
if I worked for a brokerage firm or whatever, that someone can 
get on a website and see how much I am making?
    Mr. Harman. I am sorry. Could you repeat it again? I was 
having a hard time hearing it.
    Mr. Grothman. Okay, this is the deal.
    Mr. Harman. Thank you.
    Mr. Grothman. I asked a question before of the Secretary, 
and I asked a question off of your expected testimony. It 
appears to me in your testimony here that you are under the 
belief that if this rule goes into effect you will be able to 
get on a website and see how much individual people are making. 
If you want to look on page 18, the website must be in machine-
readable format and include the direct and indirect 
compensation payable to the firm, each individual adviser and 
each individual affiliate of the firm for each asset available 
the last year.
    Okay, which looks to me like if I am an employee of, you 
know, you name it, somebody can get on a website somewhere, has 
the chance to get on a website somewhere and see I made $40,000 
last year, $140,000 last year, whatever I am making.
    Now, the Secretary implied that is going to be confidential 
and the website is only for, I don't know, not public use.
    But could you give me your opinion as to what is going on 
there?
    Mr. Harman. Yes, absolutely. Thank you for the question.
    I guess one of the concerns about the website, my 
understanding is that it would be public under BICE. But one of 
the big concerns is context and information around context. I 
am concerned that this will create additional confusion for 
investors because they don't know necessarily how to interpret 
this data and that.
    Then the other thing from a performance reporting 
standpoint that is concerning is every client has different 
objectives. And so back to kind of benchmarking that was 
mentioned earlier today, it is difficult to know one client 
from the next whether that was successful or not based on the 
fact that different people have different goals and different 
objectives for their portfolio. And their portfolios are 
managed differently to achieve those goals.
    Mr. Grothman. Okay. And when I read your testimony, I take 
it to mean if I am an agent for a captive industry or whatever, 
somebody can get on a website, and maybe that is fine, maybe we 
should all know what everybody else is making. It is just kind 
of an interesting thing, the proposal is, that I can get on a 
website and see that John Jones made X amount of dollars last 
year. Is that the way you read that?
    Mr. Harman. I do. And again, the public nature of that has 
been, you know, concerning from a confidentiality standpoint.
    Mr. Grothman. That is just an interesting thing.
    Now, my other question will be for Dr. Reid and then we 
will let you guys be.
    The administration claims that advice is costing $17 
billion a year. Could you elaborate one more time as to how 
that figure is arrived at or whether you think it is accurate?
    Mr. Reid. Both the Council of Economic Advisers and the 
Department of Labor have argued based on their reading of the 
academic literature that individuals in brokerage accounts are 
under-performing by at least a full percentage point a year, 
the Department of Labor says perhaps 2 percentage points.
    This is actually a fairly easy task. You can go into the 
Morningstar data, you can look and see where the assets are 
holding for the types of funds that they are talking about in 
their analysis, you can actually find that the assets are 
concentrated in low-cost funds that outperform their 
Morningstar average.
    And so the claim that they do under-perform by this 1 
percentage point is not based in data or in actual experience.
    Mr. Grothman. Thank you.
    I yield the rest of my time.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Sablan, you are recognized for five minutes.
    Mr. Sablan. Thank you very much.
    Mr. Harman, you actually got me there in your testimony. 
But then the statement that investors would be under-served 
because they don't really know where to go to, who is that 
investor you are talking about?
    Mr. Harman. Which investors am I talking about? I am 
talking about lower net worth and midsize clients, midsize 
investors as well. So people--
    Mr. Sablan. How much wealth do they have invested?
    Mr. Harman. Really, anyone with less than $50,000.
    Mr. Sablan. Okay. I am just curious because I was very 
pleased with the response Mr. Haley provided Ranking Member 
Scott that there could be a way to work this thing out. After, 
Mr. Kelleher--Mr. Kelleher, right--said that actually the 
Department, this isn't the first time we have had this, I just 
got into the subcommittee, but that 2010, 2011, or 2013, so 
that every time--why don't the industry get together with the 
Department of Labor and work something out that works for all 
of us?
    I mean, I don't think any one of you will say that you 
don't want to be known as not having the best interests of your 
client. But then why is it so difficult to get there when Mr. 
Haley says that we can without actually without writing a rule 
that doesn't--it makes negligible any offenses to it. I am just 
curious.
    I am from the Pacific islands, so I don't really know these 
things. Educate me, please.
    Mr. Kelleher. The way to align that would be to support a 
best-interest rule. There are a lot of people running around 
saying we support the best interest, we just don't want it to 
be in the rule. And they don't say it that way, and that is the 
problem.
    You know, today there are 90,000 certified financial 
planners, there are 10,500 registered investment advisers with 
the SEC representing 200,000 individuals, all of whom provide 
services in the clients' best interests.
    The sky hasn't fallen. They are making plenty of money. 
They are doing right by their clients. And it proves, the 
market proves that is not only possible for the client to 
thrive, but for the business to thrive.
    And we also have these new entrants that were mentioned 
earlier. Rebalance IRA, Wealthfront, Personal Capital, their 
entry is coming in from small businesses across the country, 
technology and otherwise, to serve small savers, small 
businesses as well as large savers and large retirement 
accounts with a fiduciary duty.
    The only question is, is the rule going to put the clients' 
interests first of the brokers' interests? That is what we are 
talking about. That is the choice.
    And if everybody is going to say I support the best-
interest rule for my clients, then stop saying it, step up and 
support a rule that actually does it.
    Five-plus years of warfare against the rule doesn't quite 
coincide with the pretty words.
    Mr. Sablan. But now, let me get this straight. We have 
spent five years trying to work out this rule. And whose fault 
is it that it isn't yet a rule?
    Mr. Kelleher. Well, I think if you look at what--the 
Department of Labor has undertaken unprecedented outreach. 
Better Markets has participated outreach. Better Markets has 
participated in the rulemaking process across--
    Mr. Sablan. I have another question, Mr. Kelleher. This is 
just out of curiosity because, again, I need an education to 
catch up on all of this. How much exactly is it costing the 
industry for government oversight over this investment? How 
much is the cost of government oversight to the industry that 
they have to get their lawyers paid so that they could make 
sure everybody is following the rules?
    Mr. Kelleher. You mean how much today?
    Mr. Sablan. Yes. Say, is there an average on industry 
standards, say, 10 percent, 15, whatever?
    Mr. Kelleher. I don't know if anybody has put a number on 
it. But I think everybody has conceded that it is a very highly 
regulated industry, and I think everybody concedes it is 
appropriate to be a highly regulated industry when you are 
dealing with people's retirement money--
    Mr. Sablan. Oh, sure.
    Mr. Kelleher.--which isn't only tax-advantaged, but 
incredibly hard-earned.
    Mr. Sablan. Yes.
    Mr. Kelleher. And so it is appropriate that we have for 
everybody the right rules and the right laws in place so that 
the money from hardworking Americans is treated appropriately 
in their best interests where they get the best return, lowest 
cost, best outcome.
    Mr. Sablan. All right. And again, you know, I am just 
afraid that Mr. Haley's agent will close shop if he is 
concerned about, yes, the additional cost for defaulting--
    Mr. Kelleher. There is also a cost, by the way, of no 
oversight. A rule that puts the brokers' interests first is 
costing the American people a fortune.
    Mr. Sablan. I understand that.
    Mr. Kelleher. So there is actually a cost for poor 
regulation or no regulation.
    Mr. Sablan. I understand. I think the five-years spent, you 
know, time spent on trying to come to an agreement and we have 
no agreement. So I agree.
    I yield back.
    Chairman Roe. Thank the gentleman for yielding.
    We have mentioned, I will finish the questions briefly, we 
have mentioned the word ``trust'' and the secretary did. And 
all due respect to the Secretary, who do I trust more, the 
Department of Labor or my financial adviser? And I can 
guarantee you it is my financial adviser who is looking after 
my interests a lot more because he just texted me during this 
hearing.
    [Laughter.]
    I just got a text from him. So I do, and I sincerely mean 
that. I have great trust in him, and I have a great 
relationship, a 20-year relationship with my financial adviser. 
And we will continue to do so as long as he is doing that 
business, and I am doing it.
    I think a few of the things I think we agreed on today, and 
I think this has been a great hearing by the way, from the 
Secretary is the best-interest standards and to update the 
rules that will make it, and Mr. Sablan mentioned this, about 
making this happen. I think this can happen, I really do. I 
think everybody here at this hearing thinks it needs to be 
updated.
    It ought to be done, but it also ought to accommodate 
without the onerous--I mean, look, do you ever read, that is 
where the details are, not the little one sentence, but this is 
where the rubber hits the road. Believe me, as a doctor having 
to deal with Medicare--and by the way, I wish the Secretary 
would ask Medicare to be as transparent as he is asking these 
financial people to be. That would help me a lot in my work.
    But I think that I heard Mr. Carter say it, I have heard 
others say it here is that we don't want this to get so 
unmanageable because somebody pays the bills here and it is 
always me, the client, that does that.
    And I want Mr. Harman to answer this question if he would, 
just a second ago. And he mentioned a minute ago that confused 
me a little bit. In the new rule, it says you have to predict 
future earnings. And every time I have ever picked up any 
mutual fund or looked at it at all--in full disclosure, 
Fidelity has some of my retirement account, I will make that 
public--past performance doesn't predict future returns. I hear 
it every time.
    Is that a conflict? Or how do you reconcile those two 
things?
    Mr. Harman. It is a tremendous conflict, I think. And you 
mentioned trust in your statement here. And that has the 
potential to significantly undermine trust, simply that alone 
by putting that in there. Because as we know, things are not 
static, they don't always end up 10 years from now exactly as 
we might think they would today, even though we are making the 
best recommendation for the client at that point. So that is 
problematic.
    And it is problematic that it crosses current FINRA and SEC 
regulations as well.
    Chairman Roe. I think it absolutely does. I think you 
cannot now go out and my adviser can't go and say, yes, I am 
going to guarantee you or you are going to probably make this 
much money. He has never said that, in my life I have never 
heard him say that.
    The market is volatile. We certainly saw it in--look, I 
have been through the recession of 1981, through the later 
recession of the later 1980s, in 2000, and it will come again. 
This is not the last recession we will have. Hopefully it won't 
be as bad.
    Let me ask one other question. Is it true that higher-cost 
plans, Dr. Reid, always yield a lower cost?
    And Mr. Kelleher mentioned a minute ago about it happened 
to be a family member's IRA that was a managed account like 
that. Look, I don't care if I pay 3 percent on a load if I make 
12 and my net is 9. I am looking at my net return and not just 
what I pay in a fee because I may get a better return, I may 
not.
    Is there data out there in the industry to show that?
    Mr. Reid. So Mr. Chairman, I think this obsessive focus on 
fees alone, and even a fiduciary standard doesn't say that it 
has to be the lowest-cost fund, can really be blinding so much 
so that the train can leave the station and you are not on it.
    And what do I mean by that? What I mean is that investors 
who were not properly allocated to the market, who didn't have 
enough equity exposure completely missed the market run-up 
since 2008.
    We have been in the most vigorous, bull market in the stock 
market probably in the last 100 years, and yet as one of the 
panelists has indicated, 45 percent of government employees in 
the TSP are in the G Fund, which basically makes just enough to 
get above inflation.
    That is evidence, when you don't get help and advice, how 
much you can lose out. It is a cheap alternative, it is low 
cost, but they missed the train.
    Chairman Roe. But someone just mentioned briefly the 
website. That was confusing me what the Secretary said. Who 
would have access to this website with all this data? Would you 
have to sign the contract? Is that how we would get access to 
the website? How does that work? Because you heard him say 
that.
    Mr. Mason. For example, every participant in an entire 
plan, so if you have 100,000 participants in a plan, every 
single participant would have access to the information that is 
stored.
    Chairman Roe. In that website.
    Well, I want to thank you all very much for your 
participation. You have been very patient sitting through a 
long first panel.
    And I will yield to Ms. Bonamici for closing remarks.
    Ms. Bonamici. Thank you very much, Mr. Chairman.
    And first, I would like to enter into the record the letter 
referenced by Mr. Kelleher dated June 16, 2015, from various 
organizations in support of the rule. I would like to enter 
that into the record.
    [The information follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Roe. Without objection, so ordered.
    Ms. Bonamici. Thank you very much, Mr. Chairman.
    And I am going to give the opening statement on behalf of 
the Ranking Member. But I want to say that I am an optimistic 
person. And when I hear everyone has the same goal, the best-
interest fiduciary standard, and there are some definitional 
differences about how we get there, I am confident that we can 
get this done. And I get to say this because I also serve on 
the Science Committee, it is not rocket science to get this 
done.
    [Laughter.]
    So we are a long way, 40 years away from the days when most 
people had traditional pensions to rely on in retirement. This 
shift away from defined benefit plans has exacerbated 
retirement insecurity in this country. And the proposal we 
discussed at length today modernizes this outdated fiduciary 
rule that was developed when the defined benefit plans were the 
standard, which is certainly not like today.
    At the end of 2014, $7.4 trillion in U.S. retirement assets 
could be found invested in IRAs. Much of that had been in 
ERISA-covered plans before being rolled over. And $6.8 trillion 
could be found in private, employer-sponsored, defined 
contribution plans like a 401(k).
    Individuals with little to no financial expertise must 
determine their own retirement strategy as well as make 
complicated investment decisions in order to prepare for 
retirement.
    Too many middle class and working families are worried 
about saving enough for retirement, and it is critical that 
when these individuals seek advice from professionals they 
receive recommendations and advice that is in their best 
interest rather than conflicted advice that is in the best 
financial interest of their adviser.
    Unfortunately, conflicted advice has been permitted under 
the standard we have been operating under for the past 40 
years.
    The Department's proposal, which they have been working on 
for years with input from the industry, is reasonable and 
affords participants the access to all the necessary 
information available to help them make informed retirement 
decisions.
    We look forward to continuing to work with the Department 
to ensure that the final rule appropriately addresses concerns.
    Thank you very much to the witnesses for such an 
enlightening hearing.
    Chairman Roe. Thank you very much for yielding.
    And in conclusion, we do have a situation in America today 
where not enough people save for retirement. We know that. 
Twenty-nine percent of people over 55 don't have any savings at 
all. That is frightening when you think about it. It means they 
are going to have to--and life expectancies are going up and up 
and up, so it puts great strain on social services.
    So we need to, and I believe this, the day I started 
practice we had a pension plan for every employee that was in 
our practice, and we still do to this day. And many of you, and 
certainly, Mr. Harman, you do have individuals, small 
investors.
    Fidelity is a huge company; you are a smaller business, of 
course. But you provide a tremendous service for people and 
advice that help people who are not sophisticated investors 
gain knowledge about how to invest their money and how to save 
for the future and give them a lot of confidence about how they 
are going to live when they get older.
    I can assure you, having a mother that will be in assisted 
living right now, and knowing those costs and so forth, you 
can't save enough money. I don't know if anybody ever said they 
have saved too much money. And that is obviously a challenge 
that we all have.
    We have a big problem that we worked through on multi-
employer pension plans. You remember, that is still a serious 
problem we haven't completely solved. So saving for our future 
and for our retirement is a national problem. We need to make 
that easier, not harder.
    I certainly heard very encouraging things here today from 
the secretary and from industry about the best-interest 
fiduciary standard. I think all of you support that. No one 
supports conflicted advice, no one that I know of does.
    So I think we need to hopefully work this out. And the BIC 
exemption is not workable. I mean, I have tried to sit down and 
figure it out, and I have already heard from Mr. Haley--again, 
full disclosure--our small business isn't going to be able to 
get advice because Fidelity is our brokerage service for our 
business.
    And I just realized when he said what he said that we won't 
be able to get advice from Fidelity with this new rule. That is 
ridiculous for a group that is trying to do the right thing by 
employees and its folks that work for them.
    So I thank you all. This was a great hearing.
    [An additional submission by Secretary Perez follows:]
    

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    [Questions for the record and there responses follow:]
    

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    
    If there are no further comments, the hearing is adjourned.
    [Whereupon, at 1:21 p.m., the Subcommittee was adjourned.]