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


                       PRESERVING RETIREMENT SECURITY
                         AND INVESTMENT CHOICES
                           FOR ALL AMERICANS

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

                             JOINT HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                AND THE

                  SUBCOMMITTEE ON CAPITAL MARKETS AND
                    GOVERNMENT SPONSORED ENTERPRISES

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 10, 2015

                               __________

       Printed for the use of the Committee on Financial Services
       
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                           Serial No. 114-49

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
              Subcommittee on Oversight and Investigations

                   SEAN P. DUFFY, Wisconsin, Chairman

MICHAEL G. FITZPATRICK,              AL GREEN, Texas, Ranking Member
    Pennsylvania, Vice Chairman      MICHAEL E. CAPUANO, Massachusetts
PETER T. KING, New York              EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina        DENNY HECK, Washington
RANDY HULTGREN, Illinois             KYRSTEN SINEMA, Arizona
ANN WAGNER, Missouri                 JUAN VARGAS, California
SCOTT TIPTON, Colorado
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
  Subcommittee on Capital Markets and Government Sponsored Enterprises

                  SCOTT GARRETT, New Jersey, Chairman

ROBERT HURT, Virginia, Vice          CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              STEPHEN F. LYNCH, Massachusetts
PATRICK T. McHENRY, North Carolina   ED PERLMUTTER, Colorado
BILL HUIZENGA, Michigan              DAVID SCOTT, Georgia
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
STEVE STIVERS, Ohio                  KEITH ELLISON, Minnesota
STEPHEN LEE FINCHER, Tennessee       BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             GREGORY W. MEEKS, New York
DENNIS A. ROSS, Florida              JOHN C. CARNEY, Jr., Delaware
ANN WAGNER, Missouri                 TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana                 PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 10, 2015...........................................     1
Appendix:
    September 10, 2015...........................................    59

                               WITNESSES
                      Thursday, September 10, 2015

Bullard, Mercer E., MDLA Distinguished Lecturer and Professor of 
  Law, University of Mississippi School of Law...................     9
Callahan, Caleb, Senior Vice President and Chief Marketing 
  Officer, ValMark Securities, Inc., on behalf of the Association 
  for Advanced Life Underwriting (AALU)..........................     5
McNeely, Juli, President, National Association of Insurance and 
  Financial Advisors (NAIFA).....................................    10
Stevens, Paul Schott, President and Chief Executive Officer, 
  Investment Company Institute (ICI).............................     7
Stolz, Scott, Senior Vice President, PCG Investment Products, 
  Raymond James & Associates, Inc................................    12

                                APPENDIX

Prepared statements:
    Barr, Hon. Andy..............................................    60
    Maloney, Hon. Carolyn........................................    61
    Sinema, Hon. Kyrsten.........................................    65
    Bullard, Mercer E............................................    66
    Callahan, Caleb..............................................    95
    McNeely, Juli................................................   103
    Stevens, Paul Schott.........................................   241
    Stolz, Scott.................................................   267

              Additional Material Submitted for the Record

Garrett, Hon. Scott:
    Additional comments for the record submitted by Caleb 
      Callahan...................................................   270
    Written statement of the American Council of Life Insurers...   272
    Written statement of Americans for Tax Reform................   275
    Written statement of the Credit Union National Association...   278
    Written statement of the Independent Insurance Agents & 
      Brokers of America.........................................   280
    Written statement of the Insured Retirement Institute........   284
    Written statement of the Securities Industry and Financial 
      Markets Association........................................   293
    Written statement of the U.S. Chamber of Commerce............   306
    Letter from various undersigned organizations, dated July 21, 
      2015.......................................................   310
    U.S. Chamber of Commerce report entitled, ``Locked Out of 
      Retirement, The Threat to Small Business Retirement 
      Savings''..................................................   326
Green, Hon. Al:
    Written statement of AARP....................................   339
    Legislative Alert of the AFL-CIO.............................   341
    Written statement of the AFL-CIO.............................   343
    Written statement of Americans for Financial Reform..........   350
    Written statement of Better Markets..........................   358
    Written statement of the Center for American Progress........   402
    Written statement of The Committee for the Fiduciary Standard   405
    Written statement of the Consumer Federation of America......   415
    Written statement of the National Council of La Raza.........   417
    Written statement of Save Our Retirement.....................   425
Waters, Hon. Maxine:
    Written statement of the Consumer Federation of America......   432
    Written statement of Consumers Union.........................   547
Wagner, Hon. Ann:
    Letter from Labor Secretary Perez, dated August 7, 2015......   554

 
                     PRESERVING RETIREMENT SECURITY
                         AND INVESTMENT CHOICES
                           FOR ALL AMERICANS

                              ----------                              


                      Thursday, September 10, 2015

             U.S. House of Representatives,
                          Subcommittee on Oversight
                            and Investigations, and
                Subcommittee on Capital Markets and
                  Government Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittees met, pursuant to notice, at 10:06 a.m., 
in room 2128, Rayburn House Office Building, Hon. Sean P. Duffy 
[chairman of the Oversight and Investigations Subcommittee] 
presiding.
    Members present from the Oversight and Investigations 
Subcommittee: Representatives Duffy, Fitzpatrick, King, Hurt, 
Fincher, Mulvaney, Hultgren, Wagner, Tipton, Poliquin, Hill; 
Green, Cleaver, Ellison, Delaney, Beatty, Heck, and Vargas.
    Members present from the Capital Markets and Government 
Sponsored Enterprises Subcommittee: Representatives Garrett, 
Hurt, King, Royce, Duffy, Stivers, Fincher, Hultgren, Ross, 
Wagner, Messer, Schweikert, Poliquin, Hill; Sherman, Meeks, 
Lynch, Scott, Ellison, Perlmutter, Carney, and Foster.
    Ex officio present: Representatives Hensarling and Waters.
    Also present: Representatives Barr and Clay.
    Chairman Duffy. The Subcommittee on Oversight and 
Investigations and the Subcommittee on Capital Markets and 
Government Sponsored Enterprises will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittees at any time.
    Today's hearing is entitled, ``Preserving Retirement 
Security and Investment Choices for All Americans.''
    I now recognize myself for 1\1/2\ minutes to give an 
opening statement.
    The Department of Labor's (DOL's) fiduciary proposal will 
limit Americans' investment choices. This proposal prescribes 
an unworkable framework for many lower-income Americans trying 
to save for their retirement. This is not a Wall Street issue. 
Millions of Americans in every State will find themselves the 
victims of this poorly designed regulation.
    I believe that Americans, not the government, should be 
able to make the investment choices that are right for them. 
Americans already face a retirement savings crisis, a point 
even Labor Secretary Perez has acknowledged. Why, then, would 
he want to make it even harder for Americans to save?
    This proposal would result in millions of Americans losing 
access to their trusted investment advisors as well as their 
existing retirement accounts, and make it harder for low-
balance savers to access retirement products, receive 
affordable investment advice, and ultimately to do what we want 
them to do, which is to save.
    The rule is supported by the DOL's deeply flawed economic 
analysis that points to $17 billion in lost income to investors 
because of fees charged by advisors. Not only does the DOL rely 
on incomplete, outdated data as a basis for its proposal, it 
fails to consider the numerous unintended consequences should 
this proposal move forward.
    With so much hanging in the balance, the Obama 
Administration's sprint for the finish line in this rulemaking 
puts politics above people and it should be the other way 
around.
    I look forward to our witnesses' testimony today about how 
this proposal would hurt Main Street investors, first-time 
savers, and small businesses across the country.
    With that, I now recognize the gentleman from New York, Mr. 
Garrett, the chairman of the Subcommittee on Capital Markets 
and Government Sponsored Enterprises, for 2 minutes.
    Chairman Garrett. Of New Jersey, not New York. Yes, thank 
you.
    Every day, millions of Americans look to a broker-dealer or 
investment advisor for guidance as to what to do with their 
hard-earned savings and to help them to have a secure and 
prosperous retirement.
    This was once a privilege only of the wealthy. This 
personalized investment advice and access to financial markets 
is now enjoyed by Americans of all income levels.
    Back in 2008, the financial crisis and the current market 
turmoils highlighted the importance of such advice, as numerous 
studies show that investors who work with a financial 
professional receive better and more consistent returns on 
their investment, while those who invest on their own 
oftentimes make the mistake of buying high and selling low.
    In fact, the Department of Labor estimated in 2011 that 
people who invest without the benefit of professional advice 
make errors that can cost $114 billion a year. That makes it 
all the more curious that this same Department of Labor is now 
marching forward with a regulation that will upend the ability 
of Americans to receive such guidance and which threatens the 
retirement security of the most vulnerable within our society.
    When President Obama announced the rulemaking earlier this 
year, a release from the White House stated that the rule, ``is 
taking a step to crack down on those Wall Street brokers who 
don't put the best interests of workers and middle-class 
families first.''
    But if you look at the panel before us, the witnesses 
today, and in reading through some of the 2,000 comment letters 
received by the DOL, I think it is pretty clear that the 
biggest impact of this rule is going to be felt less on Wall 
Street and more so by the millions of middle- and lower-income 
households who may ultimately have no place to go for their 
advice.
    Moreover, the SEC continues to contemplate implementation 
of a uniform fiduciary standard rule under Section 913 of the 
Dodd-Frank Act, a rulemaking that remains unsupported by 
empirical data and which could actually directly conflict with 
this DOL rule.
    So it is clear that the time is now for Congress to act, 
and by that I would commend Mrs. Wagner of Missouri for her 
continued leadership on this issue and for, again, putting 
forth what I think most of us agree is a very thoughtful piece 
of bipartisan legislation that will help to preserve access to 
financial advice for Americans of all income levels.
    So thank you, Mrs. Wagner.
    And again, I thank the witnesses as well, and look forward 
to your discussion.
    I yield back.
    Chairman Duffy. The gentleman from New Jersey yields back.
    The Chair now recognizes the ranking member of the 
Subcommittee on Oversight and Investigations, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I would like to thank the witnesses for appearing today.
    And given that Secretary Perez has been mentioned, I would 
like to thank him for his work on this rulemaking process and 
this rule that he is attempting to promulgate. And I do so 
because I was here when we took on the yield spread premium, 
and I remember how difficult it was to take action with the 
yield spread premium, which is not the same as what we are 
doing today, but which is quite similar with the same effect, 
the yield spread premium.
    And it seems to me that when we know that there are 
conflicts of interest, some of which are invidious, onerous, 
some of which are harmful, it would just seem to me that we 
would want to correct this.
    So I commend President Obama for his effort to correct 
these conflicts and to provide small businesses and people who 
are trying to retire an opportunity to avoid conflicts of 
interest that can be harmful.
    By way of edification, let me just explain to you how this 
can work. An investor, a person with a 401(k), pays an advisor 
some amount of money to assist and advise. The advisor is also 
paid by a plan or some fund that the advisor recommends to the 
investor. On its face, probably not a problem.
    But when that advisor is incentivized to recommend a fund 
that may be a high-risk fund, by being paid a higher amount 
than if the advisor recommended a conservative fund, then you 
run into possible conflicts that can be harmful to the 
investor, the person who has a 401(k).
    Secretary Perez is making an effort to try to carve out 
exceptions so that business can continue, but he doesn't want 
the people who have to depend on advice to be hurt at some 
point in the distant future because that advice was not given 
properly. And he talks about the fiduciary relationship, the 
responsibility of the fiduciary to be loyal, to be a person who 
takes the interests of the investor and places that above his 
personal interests or her personal interests.
    Now, with reference to the $17 billion, it appears that 
this is from 2013; 2013 is not that long ago in my world, and 
$17 billion is not a small amount of money. We talk quite 
regularly about how we have decided that billions don't equate 
to large losses, but I am not in that club. I think that a $17 
billion loss is quite a bit of money. And my hope is that we 
will be able to remedy this circumstance.
    Another point: Dr. King talked about the ``paralysis of 
analysis,'' how we can literally take an issue and analyze it 
to the extent that we get nothing done.
    This is a different version of the paralysis of analysis, 
the bill that we will be reviewing, because the bill would 
require that DOL not act until the SEC has acted. My contention 
is if you want the SEC to act, allow the DOL to move forward, 
and as a result of moving forward that will encourage action by 
the SEC.
    I am absolutely convinced that what we are trying to do is 
appropriate in terms of rulemaking.
    And Mr. Bullard, I have read your testimony in its 
entirety, and I want you to know that I compliment you on the 
statements that you have made. You have given us a clear 
picture of what happens when we have these conflicts of 
interest, that some people call kickbacks by the way. They are 
known by a good many people as kickbacks, these conflicts of 
interest.
    In one of your statements on page 14 of what I have as your 
report, you indicate that it is economically irrational for the 
advisor to be paid more to recommend an aggressive asset 
allocation over a conservative one. I think that is a pretty 
strong statement, and I commend you for making the statement.
    Your statement in its entirety is one that I enjoyed 
reading, and I commend you for the strong stance that you have 
taken.
    Thank you, Mr. Chairman. I am going to yield back my time, 
but I will not yield on the question of making sure that we 
protect small investors.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner, the sponsor of H.R. 1090, the Retail Investor 
Protection Act, for 1\1/2\ minutes.
    Mrs. Wagner. Thank you very much, Mr. Chairman.
    And thank you all for joining us today to discuss this very 
important issue that could potentially jeopardize the access of 
millions--millions--of low- and middle-income Americans to 
receiving investment advice for their retirement.
    Make no mistake. The chairman mentioned a bit ago that 
America is in a retirement savings crisis today. Washington 
needs to be empowering individuals to save for retirement, not 
making it more difficult. This has been one of the most 
significant issues I have taken up since coming to Congress in 
2013.
    My legislation, the Retail Investor Protection Act, will 
help prevent Washington from interfering with the ability to 
save for retirement.
    I want to thank the Members across the aisle over the years 
who have made this a bipartisan issue. We had 30 Democrats vote 
for this legislation in the last Congress, many of whom sit on 
this very committee, and this year we have seen 12 Senate 
Democrats write letters outlining major concerns about the 
Rule.
    I was also pleased to have Representative David Scott and 
Lacy Clay join with Representative Andy Barr and so many others 
on a letter to the Department of Labor at the end of July 
asking for a re-proposal
    I look forward to working with even more Members from 
across the aisle, starting with this hearing today.
    I know many of us heard from our constituents over the 
August recess, and I hope that everyone asks the right 
questions that will help protect access to financial advice for 
those back home.
    I thank you, and I yield back my time.
    Chairman Duffy. The gentlelady yields back.
    I again want to welcome our panel, our witnesses today.
    By way of brief introduction, we have Caleb Callahan, 
senior vice president and chief marketing officer at ValMark 
Securities; Paul Schott Stevens, president and CEO of the 
Investment Company Institute; Professor Mercer Bullard, MDLSA 
distinguished lecturer and professor of law, University of 
Mississippi Law School; Mr. Scott Stolz, the senior vice 
president, PCG Investment Products, Raymond James & Associates; 
and we also have last but not least Juli McNeely, president of 
the National Association of Insurance and Financial Advisors--
she is also from the great State of Wisconsin, a small town, 
has a great Member of Congress representing her in the 
committee and in the House.
    I am not biased.
    I just want to remind our witnesses that you do have three 
lights in front of you. You are going to be recognized for 5 
minutes. The green light means go, the yellow light means you 
have a minute left in your testimony, and the red light means 
your time is up.
    So with that, Mr. Callahan, you are recognized for 5 
minutes.

 STATEMENT OF CALEB CALLAHAN, SENIOR VICE PRESIDENT AND CHIEF 
 MARKETING OFFICER, VALMARK SECURITIES, INC., ON BEHALF OF THE 
       ASSOCIATION FOR ADVANCED LIFE UNDERWRITING (AALU)

    Mr. Callahan. Chairmen, Ranking Members, and members of the 
subcommittees, thank you for the opportunity to testify today. 
My name is Caleb Callahan, and I am a principal of ValMark 
Securities. I am testifying today as a member of the AALU and 
on behalf of the 2,200 life insurance professionals it serves 
nationwide.
    Our firm has roughly $14 billion in assets under care. 
These assets are split evenly between the fee-based regime and 
the brokerage regime. This is relevant because we build 
numerous financial plans which call for solutions from both of 
these models as being regularly needed and regularly used.
    My purpose today is to provide feedback on the Department 
of Labor's rule based on real-world experience, working 
directly with advisors and clients.
    I also want to convey that while well-intended, this rule 
will likely have the very opposite effect that it intends to 
have on savers.
    And finally, I want to express my strong support for 
Representative Wagner's Retail Investor Protection Act. This is 
a thoughtful piece of legislation that will lead to better 
rulemaking and avoid the unintended consequences which include 
average savers losing choice and access to professional advice.
    The first main point I want to make is that the Department 
of Labor chose not to build on the existing regulatory 
framework. Members of this committee are well aware that the 
SEC has long-tenured experience with standard-of-care issues. 
And FINRA itself commented in its own letter to the Department 
that this proposal does not reflect marketplace realities and 
will lead to a ``fractured approach'' in the market.
    But most importantly, the Department did not build on its 
own great work. Recently, it finalized final 408(b)(2) 
disclosure regulations. These regulations require advisors to 
disclose the services they provide, whether or not these 
services are provided in a fiduciary capacity, and the fees 
associated with those services.
    I can tell you in analyzing our own business data, the 
commission-based brokerage plans under this disclosure regime 
grew by a rate of 26 percent where the fee-based regime grew by 
a rate of 114 percent, nearly 4 times that.
    And in talking with advisors, they say that these metrics 
are directly the result of these final disclosure rules. So the 
bottom line is the data shows a movement towards fee-based 
plans, and yet there is a need to preserve the choice for 
access to commission-based plans.
    And so the question is, why would we not build on this new 
and great work rather than forge into uncharted waters with 
this regime?
    The second point is that the proposal conflicts with other 
key regulatory initiatives. A recent GAO study talked about the 
importance of savers analyzing whether or not they should delay 
Social Security. And I will just simply say that analysis is 
not general, it is not hypothetical; it is very unique. And the 
Department's proposal makes that advice less available in the 
market.
    In addition, for the last several years the Treasury has 
promoted the use of lifetime income annuities, but the DOL 
proposal will discourage the use of these important tools.
    And finally, the Department of Labor has not coordinated 
how expanding its own fiduciary standard into the space of 
IRAs, which already has a fiduciary standard under the SEC, 
will be harmonized.
    For example, the SEC has indicated that the fee-only regime 
is not always the best regime in all circumstances.
    The third and final point I want to make is that this rule 
will harm average savers. Small investors will lose access. And 
people want to politicize this point and question whether or 
not it is real; I am telling you, it will happen.
    In this, we are dealing with people, not just statistics. I 
was reminded of this: My mother called me a couple of weeks 
ago. Now, my mom's an incredible lady, but she has not saved 
much money. She has done a lot of volunteer work most of her 
life. Her and my dad have saved about $25,000.
    She asked me a series of questions, should I file Social 
Security? Should we file and suspend? And I was able to walk 
her through a number of scenarios.
    The point is that for 1 percent of $25,000, $250, with this 
rule professionals will not provide advice with unlimited 
liability. And my parents and people like them will lose access 
to the advice that they need.
    My final point is that consumers will lose choice. And 
consumers have the right to make informed choices, and we must 
protect this right.
    Here is a critical point: Other markets have shown us that 
clear and simple tools like standardized disclosures, good-
faith estimates, and consumer reports can empower customers to 
make informed decisions. So I challenge the committee to help 
us preserve the right for retirement savers to make choices 
that are in their best interest, but as they determine that 
best interest to be.
    I want to thank the committee for the opportunity to 
testify this morning. And at the appropriate time, I welcome 
any questions on my oral or written remarks.
    Thank you.
    [The prepared statement of Mr. Callahan can be found on 
page 95 of the appendix.]
    Chairman Duffy. Thank you, Mr. Callahan.
    Mr. Stevens, you are recognized for 5 minutes.

STATEMENT OF PAUL SCHOTT STEVENS, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, INVESTMENT COMPANY INSTITUTE (ICI)

    Mr. Stevens. Thank you, Chairman Duffy, Chairman Garrett, 
Ranking Member Green, and members of the subcommittees. I am 
grateful for the opportunity to discuss the Department of 
Labor's proposed new definition of fiduciary duty for 
retirement advice and services.
    ICI and its members strongly support the principle that 
underlies the Department's proposal. All financial advisors 
should be held to act in the best interests of their clients.
    The proposal itself, however, is deeply flawed.
    Were the rule adopted in anything like its current form, it 
would harm retirement savers by drastically limiting their 
ability to obtain the guidance, products, and services they 
need to meet their retirement goals. It also would increase 
costs, particularly for those retirement savers least able to 
afford them.
    You have my very detailed written testimony. And in this 
statement, I would just like to make four points.
    First, supporters of the proposal claim that retirement 
savers are suffering $17 billion a year in harm due to broker-
provided advice. This claim is false. It is an exercise in 
storytelling.
    The claim relies on academic studies using outdated 
statistics that simply don't reflect today's fund marketplace. 
And the Department of Labor relying upon these studies, not 
doing its own analysis, then misapplies the studies actually to 
overstate their findings.
    The Department also assumes that broker-sold funds are 
under-performing other funds and thereby harming investors. In 
fact, a simple review of publicly available data shows that 
investors who own front-end-load funds have concentrated their 
investment dollars in funds that outperform, not under-perform, 
the Morningstar category that they are part of by about one-
quarter of 1 percent each year.
    Second, the Department ignores the significant social harm 
that its proposed rule would cause. Its economic analysis takes 
no account, for example, of the costs the rule would impose on 
investors by forcing them to move from commission-based advice 
to fee-based accounts. We calculate that the higher costs of 
these fee-based accounts will total $47 billion over the rule's 
first 10 years.
    The Department also ignores the harm that investors with 
small accounts will suffer when they lose access to advice.
    Fee-based advisors typically require minimum balances of 
$100,000 or more. But three-quarters of individual retirement 
accounts hold less than $100,000. In fact, half hold less than 
$25,000. That is 20 million savers.
    Chairman Garrett, I asked my research team how many would 
that mean in New Jersey? We estimate about 120,000 people in 
your State are in that category.
    We estimate that bad decisions by investors as a result, 
who can't obtain the advice that they need, will reduce their 
returns by $62 billion over the rule's first 10 years.
    The analysis that we have done, and it is spread out on the 
record for all to see, indicates that far from reducing costs, 
the rule would increase fees and lower returns, resulting in 
$109 billion in increased costs to American workers over 10 
years.
    To make matters worse, rather than grandfathering existing 
relationships, the rule would compel many investors to pay 
twice for the same advice and services by incurring fees to 
manage assets on which they have already paid commissions.
    Such a massive overhaul of the marketplace for retirement 
investment advice should be supported by a solid analysis that 
clearly identifies a substantial problem and convincingly 
demonstrates that there are no easier or better remedies 
available. By this standard, the Department's justification 
fails utterly.
    My third point is the Department's overly expansive and 
ambiguous fiduciary definition will impede commonplace 
interactions that retirement savers now take for granted.
    In my written statement, I describe my adult son's recent 
experience consulting with the call center of a major mutual 
fund company about rolling over his 401(k) balance to an IRA. 
Following the adoption of the proposal, I believe it is highly 
unlikely that fund providers will be able or willing to provide 
the kind of help or information that he received and that is 
most needed by young people starting into their working lives, 
people of limited financial expertise, and those with modest 
retirement savings balances.
    Fourth, the best-interest-contract exception will not 
mitigate the harm caused by this expansive and ambiguous 
fiduciary definition. It is laden with burdensome contract 
requirements, an array of compliance and liability traps. In 
fact, it is quite useless.
    What is certain is that financial firms are unlikely to 
subject themselves to the BIC exemption strictures and our 
members have told us that they will not.
    As you will see in my written statement, we have offered 
the Department detailed suggestions about how to repair the 
proposal. We share with this committee and the authors of H.R. 
1090 the goal of getting this goal right. And if the Department 
continues on its current course, it will get the rule 
disastrously wrong.
    Thank you very much.
    [The prepared statement of Mr. Stevens can be found on page 
241 of the appendix.]
    Chairman Duffy. Mr. Bullard, you are recognized for 5 
minutes.

STATEMENT OF MERCER E. BULLARD, MDLA DISTINGUISHED LECTURER AND 
   PROFESSOR OF LAW, UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW

    Mr. Bullard. Thank you. Chairman Duffy, Chairman Garrett, 
Ranking Member Green, and members of the subcommittees, it is 
an honor and a privilege to appear before you today. Thank you 
for this opportunity.
    And I especially appreciate Ranking Member Green's astute 
reading of congressional written testimony.
    I am the founder and president of Fund Democracy, a 
nonprofit advocacy group for investors, and a professor of law 
at the University of Mississippi's School of Law.
    I will briefly discuss H.R. 1090 and then discuss the 
Department's fiduciary rulemaking.
    Section two of H.R. 1090 would require that the Department 
delay rulemaking until the commission has adopted fiduciary 
rules. In my view, the Department's rulemaking is long overdue 
and any further delay will continue to allow broker-dealers to 
provide improper financial incentives to financial advisors, 
making the Department's rulemaking contingent on SEC actions 
particularly inappropriate.
    One reason is that the legal standards that the Department 
and the SEC apply are quite different. Financial advisors' 
standards of conduct are lower than the standards applied under 
securities laws and the standards applied under ERISA.
    Another reason is that their jurisdiction is different. The 
Department has jurisdiction over all retirement assets, 
including non-securities, whereas the SEC has jurisdiction only 
over securities.
    In my view, Section 3's requirement for further SEC study 
and findings as a condition of rulemaking is also 
inappropriate. Such requirements create unnecessary and 
redundant regulatory burdens and undermine notice and comment 
process under the APA while not creating any material benefits.
    There are two facts about the Department's proposal that I 
suggest the subcommittees consider foremost. First, financial 
advisors have significant incentives to make recommendations in 
order to maximize their own compensation. Second, industry 
claims that the proposal is not workable are not based on how 
the proposal would actually work.
    The adverse effect of conflicted compensation is 
undeniable. If you pay more for an activity, you will get more 
of it. Financial advisors are paid more for recommending stock 
funds than for bond funds and short-term bond funds. As a 
result, more stock funds are sold than short-term bond funds.
    To put some numbers on the conflict of interest, a stock 
fund would typically charge a 5\3/4\ percent commission, of 
which 5 percent would go to a broker-dealer, and the broker-
dealer would then typically pay about 2 percent to the 
financial advisor. So that would be about $200 to the financial 
advisor for a $10,000 investment.
    If the financial advisor recommended a much safer, short-
term bond fund, the advisor would be $80. The advisor would be 
paid more than twice as much for recommending a risky stock 
fund over a safe, short-term bond fund.
    Advisors selling incentives can actually be far more 
distorted. For example, broker-dealers often pay advisors a 
substantial bonus if they reach a certain level in commissions, 
say $300,000. On the first $299,000 they would be paid 30 
percent, but if they reached $300,000, they might be paid 40 
percent. In other words, one small $10,000 investment can 
result in additional payment of $29,000.
    The advisor might recommend a short-term bond fund and be 
paid only $80 or a stock fund that gets them the $300,000 in 
commissions and be paid more than $29,000--$80 or $29,000?
    It would be helpful to know if my fellow panelists think it 
is appropriate to be paid twice as much for selling a stock 
fund than a short-term bond fund, or whether it is appropriate 
to choose between a recommendation that would pay you $80 than 
$29,000.
    My understanding is that Raymond James does not pay 
retroactive commissions. Why did Raymond James make that 
decision? Or more importantly, does Raymond James find its own 
policy to be unworkable, that avoids the conflicts of interest 
that are created by retroactive commissions?
    The Department's rulemaking is eminently workable. The 
proposal would affect compensation paid only at the advisor 
level, not at the broker-dealer level. Even then, it would not 
affect higher compensation paid to advisors, for example, for 
selling variable annuities. Advisors could be paid more for 
selling platform funds.
    The industry claims the proposal would prohibit 
commissions. There is nothing in the proposal that prohibits 
the payment of commissions.
    The industry claims that small investors will be harmed by 
the proposal. They are correct that the Department's rulemaking 
will affect small investors differently. It will provide 
greater benefits to them than to any other group. Conflicted 
compensation harms small investors more than any other group of 
investors. Small investors are paying the highest price for 
indefensible compensation practices that I have already 
described.
    Thank you again for the opportunity to appear. I would be 
happy to answer any questions.
    [The prepared statement of Mr. Bullard can be found on page 
66 of the appendix.]
    Chairman Duffy. Thank you, Mr. Bullard.
    Ms. McNeely, you are recognized for 5 minutes.

 STATEMENT OF JULI MCNEELY, PRESIDENT, NATIONAL ASSOCIATION OF 
            INSURANCE AND FINANCIAL ADVISORS (NAIFA)

    Ms. McNeely. Thank you, Chairmen Duffy and Garrett, Ranking 
Members Green and Maloney, and members of the subcommittees.
    I am Juli McNeely, NAIFA president, and owner of McNeely 
Financial Services in Spencer, Wisconsin.
    NAIFA members like me are in every congressional district 
in this country. I personally have 25 small-business clients, 
most with fewer than 25 employees, and 484 individual clients 
with an average account size of approximately $71,000.
    Most of my clients started out as new savers and most 
likely would not have started a systematic retirement savings 
without my encouragement and advice.
    The DOL proposal is well-intended, but unless substantially 
changed, it will hurt middle-income savers. People of modest 
means either cannot afford or are not comfortable with fee-for-
service advice.
    I compared the costs of commissions versus asset management 
fees for a small retirement saver and found the saver would pay 
twice as much over a 20-year period for an asset-based service 
arrangement. If left with less choice and less advice, fewer 
will take the steps needed to put in place a long-range plan to 
fund their retirement. They need more, not less, advice on 
whether and how to save for the long term.
    The best-interest-contract exemption, which almost all 
NAIFA members will need to use to provide fiduciary advice to 
middle-income clients, not only adds significant implementation 
costs, but it also will add costs due to considerable increase 
in the risk of litigation.
    The DOL minimizes the likelihood for lawsuits based on poor 
investment performance, but there will be more lawsuits. And 
while many will be resolved in favor of the advisor who behaved 
appropriately, the cost of defending and insuring against that 
risk will be substantial.
    The BIC exemption creates a barrier by requiring a signed 
contract acknowledging fiduciary responsibility both by the 
advisor and all financial institutions offering products before 
the advisor makes any recommendations. The cost to explain it 
to a client with whom the advisor is still building trust is 
likely to be prohibitive.
    The DOL proposal is complex and requires the creation and 
implementation of an entirely new compliance regime. There will 
be massive market disruption and many middle-income retirement 
savers will suffer without advice on their retirement planning 
decisions.
    Additional complexity will also adversely impact the use of 
annuities. Different sets of rules will govern fixed and 
indexed as compared to variable annuities.
    Annuities, with their lifetime income guarantees and 
ability to manage longevity risks, are the retirement planning 
vehicle of choice for many middle-income savers. Unlike their 
wealthier counterparts who can afford and are comfortable with 
fee-for-service investment accounts, middle-income savers 
cannot use their modest account balances to self-annuitize. 
They need the guarantees provided by annuities.
    And the DOL proposal governing annuities makes it more 
difficult and, for some, impossible to give advice on 
annuities.
    Many NAIFA members are agents or affiliates of insurance 
companies who primarily offer their own products or may have 
limitations on sales of other companies' products. The DOL must 
make clear that advisors who offer annuities and/or proprietary 
products do meet the impartial conduct and best-interest 
requirement of the rule.
    NAIFA supports H.R. 1090, which would prevent the DOL from 
writing new rules to govern retirement saving vehicles until 
after the SEC has studied and reported to Congress whether the 
imposition of new duties and obligations is advisable and until 
the SEC has the opportunity to issue any such rules.
    It is imperative that the rules governing investment 
products and advice in the retirement space, including IRAs, 
not conflict with the rules that govern the same products 
outside the realm of retirement savings. Only the SEC can issue 
rules that would impose a uniform standard in both contexts.
    Secretary Perez has repeatedly noted how helpful 
stakeholder input has been to date. The DOL agrees extensive 
changes need to be made. And to be sure that any such changes 
will be workable in the real marketplace, it is critical that 
we have an opportunity to comment on the revisions, and for the 
Department to incorporate that feedback into final rules if it 
proceeds.
    Thank you.
    [The prepared statement of Ms. McNeely can be found on page 
103 of the appendix.]
    Chairman Duffy. Thank you, Ms. MeNeely. The Chair now 
recognizes Mr. Stolz for 5 minutes.

STATEMENT OF SCOTT STOLZ, SENIOR VICE PRESIDENT, PCG INVESTMENT 
           PRODUCTS, RAYMOND JAMES & ASSOCIATES, INC.

    Mr. Stolz. Thank you, Chairman Duffy, Chairman Garrett, and 
members of the subcommittees for giving me the opportunity to 
testify here today.
    I am Scott Stolz, senior vice president for Private Client 
Investment Group for Raymond James.
    On behalf of the 6,500 advisors and 10,000 employees who 
work hard every day to take care of the financial needs of our 
1 million clients, I want to express our appreciation for 
giving me the opportunity to share our thoughts on this very 
important topic.
    From our home base in St. Petersburg, Florida, Raymond 
James has grown to a national firm based mainly on a retail 
business model that serves the individual investors. Our firm's 
core principle is service first. We believe that if you take 
care of the client, everything else will take care of itself.
    This emphasis on taking care of the client, along with our 
focus on long-term results as opposed to the next quarterly 
earnings cycle, has served us very well.
    Now, most of those in favor of the Department of Labor's 
proposal want to frame this debate solely on whether or not a 
financial advisor should put their clients' best interests 
first. After all, who could possibly argue with that?
    But this debate is really about the road we take to get 
there. Once one fully understands the hundreds of pages of 
proposal the Department has put forth to achieve this mutually 
agreed-upon goal, there is only one possible conclusion, which 
is that the rule, as written, is overly complex, would be 
incredibly expensive to implement, and would expose the 
hundreds of thousands of trusted and well-meaning financial 
advisors to unfair legal liability.
    On more than one occasion, Secretary Perez has cited the 
case of the Toffels as an example of why this rule is 
necessary. The Toffels had accumulated much of their savings in 
Vanguard mutual funds. Their bank recommended they cash out 
their mutual funds and purchase what the Secretary has called a 
very complex variable annuity with $650,000 of the proceeds.
    This recommendation has been criticized for being too 
costly. According to Secretary Perez, this conflicted advice 
most certainly caused the advisor to put his interests before 
that of the Toffels.
    Whether or not the advice the Toffels received was in their 
best interests is open to debate. But what I do know is the 
Toffels case can actually be used as an example of the flaws of 
the current proposal.
    Subsequent to the recommendation the Toffels received, Mr. 
Toffels' health unexpectedly deteriorated. Not surprisingly, 
financial flexibility became their biggest financial need. It 
seems obvious to me that the annuity recommendation didn't work 
out, not because it wasn't in the Toffels' best interest, but 
because their circumstances significantly changed.
    Yet here we are not only second-guessing the 
recommendation, but condemning it and labeling it a tragic 
story, to use the Secretary's words.
    And this is exactly what will play out time and time again 
if the DOL proposal is adopted as is. The complexity, 
ambiguity, and legal requirements of the rule will ensure that 
well-meaning advisors who work hard to put their clients' best 
interests first will be subject to Monday-morning 
quarterbacking.
    Faced with this potential, advisors will make investment 
recommendations based in part on how they can best limit their 
potential future liability. It is inevitable, therefore, that 
they will move to a one-size-fits-all pricing model so they can 
avoid any possibility of being accused of making a 
recommendation based on how they were compensated.
    Under such a model, many will either pay more than they do 
today or will get no advice at all. This is particularly true 
for the smaller investors, the very ones the Department of 
Labor is trying to protect.
    Current security laws and regulatory practices protect 
advisors from unwarranted Monday-morning quarterbacking to some 
degree. Unfortunately, the Department's proposal will strip 
these protections and open a Pandora's box of litigation based 
on investment outcomes that can never be predicted with 
certainty by even the best-intentioned advisor.
    We stand ready to continue to work with the Department of 
Labor to craft a final rule, and we believe that if the 
Department adopts the changes we have outlined in our comment 
letter, they can accomplish this goal with minimal disruption 
to the financial system.
    However, since they have indicated that there will not be a 
re-proposed rule, we are understandably concerned that the 
final rule will be no more workable than the current one.
    In addition, we believe that the SEC's deep industry 
knowledge puts them in a much better position to craft a 
workable rule. And for these reasons, we support the Wagner 
bill.
    In closing, I want to emphasize that Raymond James has long 
been a supporter of a common fiduciary standard. Long before 
the Department of Labor first proposed a rule, we instituted a 
client bill of rights that is given to every client when they 
become a client of Raymond James. Amongst these rights is the 
right to expect recommendations based solely upon the client's 
unique needs and goals, as well as the right to know all costs 
and commissions associated with a recommendation.
    We just don't think it takes a hundreds-of-pages proposal 
in order to accomplish this goal.
    I would like to thank the committee for this time. And I 
would be happy to answer any questions you may have.
    [The prepared statement of Mr. Stolz can be found on page 
267 of the appendix.]
    Chairman Duffy. Thank you, Mr. Stolz.
    The Chair now recognizes himself for 5 minutes for 
questions.
    Listen, I think we are all on the same page. We want to 
make sure that Americans are incentivized to save for their 
retirements, and we want to make sure they get good advice, 
that they invest well, and that they are able to pick products 
and services that best meet their needs.
    I have to tell you, I have been in this town for 4\1/2\ 
years, and bureaucrats who sit in really fine offices and 
buildings don't always know what is best or what families 
consider best in Spencer, Wisconsin; or Wausau, Wisconsin; or 
Hayward, Wisconsin.
    And I think to have the opportunity to get good advice 
should be made by the individual investor.
    We have heard claims, not to bring up ``Obamacare'' but I 
will, that if you like your doctor you can keep your doctor, if 
you like your health insurance plan, you can keep your health 
insurance plan; and so, too, if you like your financial advisor 
and your financial plans, you can keep those as well after this 
rule.
    Both of them, all of them are wrong.
    What concerns me the most with the way this rule is crafted 
is that if you are wealthy, if you have a fat account, you are 
going to get great advice, you are going to be the one who can 
find professional help in how you invest to get the best return 
on your investment.
    But if you are a lower-income or smaller saver, this rule 
isn't going to allow you to get professional advice. You are 
going to be now relegated to robo-advisors. I am stuck with my 
computer, putting in random data and letting the computer print 
out what the computer through algorithms thinks is best for me?
    Ms. McNeely, in the last month you have see the markets 
swing, like the rest of us have. By chance, did you get more 
calls in the last month than you have in previous months?
    Ms. McNeely. Generally, I do. However, I have found that if 
I do proper planning with my clients, we have protected them 
from that downside with the use of annuities. But yes, 
absolutely, when the market fluctuates they call me, we talk 
through it, we calm them down, and they move forward.
    Chairman Duffy. When people see a large downturn in the 
market, do they sometimes become afraid and want to sell?
    Ms. McNeely. Without question.
    Chairman Duffy. And do you think that is the best thing for 
your clients to do?
    Ms. McNeely. It is the exact wrong time to be selling, sir.
    Chairman Duffy. And you are able to counsel them through 
that, right?
    Ms. McNeely. I actually call it, ``telling them not to jump 
off the bridge.'' So yes, we do counsel them through it.
    Chairman Duffy. I would have to argue that talking to a 
financial advisor in these downturns as opposed to getting a 
text through your robo-advisor on your computer is far more 
soothing and probably offers a little better advice and 
sounder, long-term strategic planning, yes?
    Ms. McNeely. Absolutely, and specifically because I know 
their entire situation. We have spent countless hours talking 
through their specific issues, and so I know them personally 
and can give them much better advice.
    Chairman Duffy. What happens to your clients if this 
Department of Labor rule goes through? Do they still, in the 
same capacity, get access to your advice, do you think?
    Ms. McNeely. As it is written right now, my feeling is that 
likely I would not be able to work with a large number of my 
clients because I do have a very small asset base with a lot of 
my clients, they are new savers, so it will likely preclude me 
from working with them because I will be subject to some asset-
based limits.
    Chairman Duffy. Yes, we don't come from a very wealthy 
area, do we?
    Ms. McNeely. No, sir.
    Chairman Duffy. Yes, I would agree with that.
    Mr. Stevens, I was intrigued by the analysis that you all 
have done in regard to the true cost of this proposal. The cost 
isn't a $17 billion cost, it is much higher than that if this 
rule was to go through, is that correct?
    Mr. Stevens. Yes, Mr. Chairman. And I think we have spread 
this analysis on the record in comment letters, in testimony up 
here on the Hill and to the general public.
    And what I would say to you is that no one, no supporter of 
this proposal has yet to come to the ICI and said, here is why 
your numbers are wrong; that includes the people at the 
Department of Labor who have been working on the bill, as well 
as the academics whose studies the Department of Labor was 
relying upon.
    So if we have this wrong, we would like to know. But no one 
has challenged our numbers yet, and I think they are exactly 
right because the Labor Department process was deeply flawed.
    Chairman Duffy. So what are the biggest flaws of their 
analysis? And what are the biggest numbers that they missed, in 
your opinion?
    Mr. Stevens. First of all, as I say, they have predicated 
the whole thing on studies that were out of date, depicting a 
market that doesn't exist anymore.
    Chairman Duffy. How old?
    Mr. Stevens. One that is typical of 10, 15 or 20 years ago. 
In fact, that is one of the critiques I would have with 
Professor Bullard's analysis, as well.
    The truth is, over the past 10 years virtually every penny 
that has gone into a mutual fund has gone into a no-load fund. 
In fact, the funds that have sales charges associated with 
them, front-end sales charges which is the subject of what the 
Department of Labor talks about, have had outflows, very 
substantial ones, for all of the past 5 years.
    On average, for those funds that actually do have a load, 
and that is a small part of the market now, what an investor 
paid is .9 percent as a sales charge on a hybrid fund or a 
stock fund, that is the average, and on a bond fund .7 percent. 
So there is not this vast disparity, there are not these huge 
costs embedded here.
    All of this is publicly available information that the 
Labor Department didn't take into account.
    Chairman Duffy. The costs have not gone up in recent years; 
they have actually down, I think.
    Mr. Stevens. Oh, it has gone down. The costs of fund 
investing and 401(k) funds has gone down for a generation.
    Chairman Duffy. I have to interrupt you. I was going to try 
to run a tight gavel, which I talked to the ranking member 
about. We have a lot of witnesses today and I have violated the 
first rule by going over by 40 seconds. I apologize.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    I want to thank all the witnesses for your willingness to 
come before the committee and testify. This is an important 
issue.
    I do agree that the greatest danger here is leaving the 
small investor without advice. That is the greatest danger. And 
so I think the goal of the committee is to try to find that 
balancing point where the small investor, as Professor Bullard 
has described, is protected from the irrefutable conflict of 
interest that is out there to steer certain products because of 
the greater compensation afforded to financial advisors.
    This is especially important, I think, the private-side-
retirement industry is so important because of the impending 
and long-term weakness in the Social Security system. So we 
have to try to optimize and maximize the benefits to retirees 
just because of the demographics here. We have to figure that 
out.
    And I know there are a lot of great financial advisors out 
there who do the right thing every single day. There are some 
bad actors and they get a lot of the attention, but look, I was 
an iron worker for 20 years and if we did not have financial 
advisors who helped us plan for the future, there would be a 
lot of families who wouldn't have that protection, so we have a 
really keen interest in finding the right balance here.
    The DOL, and a number of you have said it, I think their 
intent is, I think their incentive here is well-intended. There 
is a situation out there with conflict of interests that does 
disadvantage small investors and future retirees.
    And Professor Bullard, I want to ask you, there is a 2013 
GAO report that talked about IRA rollovers and that at least in 
that small instance that a lot of folks were getting bad advice 
and that it wasn't necessarily in their best interest about 
rolling over their IRAs.
    Can you tell me what type of retirement advice or services 
would be prohibited under the rule that the Department of Labor 
is now proposing?
    Mr. Bullard. I am glad you mentioned the GAO study. For 
those who are interested, you can actually listen to some of 
the calls that they recorded where registered representatives 
were essentially lying about IRAs not imposing fees. And that 
is exactly the kind of abuse that the DOL is trying to put an 
end to.
    Now, the effect will be that when somebody makes a call to 
one of these call centers and, subject to FINRA rules, they are 
already required to ensure the recommendations they make are 
suitable, that they are not allowed to make recommendations 
when those recommendations would result in the call center 
personnel being paid more for recommending one thing than 
another.
    There is no effect on what the broker-dealer gets paid, it 
has no effect on what the branch manager gets paid. You only 
have to make sure the call center employee does not have an 
incentive to get paid twice as much for selling the stock fund 
than the short-term bond fund, and that would be the effect of 
the rule. So they wouldn't have the incentive to misrepresent 
IRAs being cost-free.
    Now, there is still the problem that they have an incentive 
to move them out of the 401(k) and that is going to obviously 
put money in the pocket of the advisor, that they wouldn't 
otherwise get if the money was still in the 401(k).
    Ultimately, you can't address that conflict. That is 
inherent in asking for advice. And the Department's rule 
unfortunately would not prevent that. But there really isn't a 
way to prevent that. But at least it would make sure that you 
had to disclose fully what those conflicts are and how they are 
getting compensated and that you had to make sure that person 
did not have a direct financial incentive to recommend one 
thing over another.
    Mr. Lynch. What about a number of very good companies that 
have been in business for a long time and have done great work 
in helping individuals with retirement plans? A lot of those 
groups have come up with alternatives for this best-interest 
standard. Tell me why their approaches are inadequate?
    Mr. Bullard. In some cases, they have actually taken the 
same steps that the Department would require, while saying at 
the same time that they are unworkable. Raymond James has 
eliminated retroactive payout grids. Apparently, other firms 
think that is unworkable.
    Some have put caps on commissions paid, for example a 4 
percent cap on the amount that a financial advisor can be paid 
for selling a fund. The industry says that is unworkable.
    Some have product-neutral payout grids, in other words you 
don't get paid anything more for selling one product or 
another. The industry says that is unworkable, but there are 
broker-dealers that are currently out there doing that.
    There are some that actually have gone much further than 
what the Department would require. They have had neutral 
compensation for variable annuities versus non-variable 
annuities. The Department does not require that. They have 
neutral compensation for platforms and proprietary funds and 
other funds. The Department does not even require that, yet 
there are industry members whom FINRA has documented are 
already engaged in those practices.
    So when the industry says things are unworkable, what I 
would like to know is how is it that a number of broker-dealers 
are making them workable without even already being required to 
do so?
    Chairman Duffy. The gentleman's time has expired.
    Mr. Lynch. Thank you.
    Mr. Chairman, my time has expired. I thank you for your 
indulgence.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from New Jersey, not 
from New York, Mr. Garrett, for 5 minutes.
    Chairman Garrett. Thank you. Right. Thanks again.
    I will start with you, Mr. Stolz. So you have heard the 
testimony that I have heard so far from the professor.
    Mr. Stolz. Yes.
    Chairman Garrett. Talking about the conflict of interest 
here, how does that actually play out in reality, however? 
There are other rules that you have to go by, right?
    So in other words, Mr. Callahan, you were talking about 
your parents, $25,000.
    I think, Mr. Stevens, you said there are over 100,000 
people in that category in the State of New Jersey, in that 
level.
    So you have somebody coming to you with $25,000. I am not 
going to guess how old your parents are, Mr. Callahan. My 
parents, my mom is 91, so if she comes to you with $25,000 and 
that is her life savings to invest, now, the professor is 
suggesting that the only thing that they are going to be 
looking at is the $80 versus the thousands of dollars. But 
aren't there other rules that apply? Isn't there, without 
saying what the rule is, well, I will, suitability that applies 
there that would counter any of those other incentives?
    Mr. Stolz. That is correct. The part or the piece of the 
puzzle the professor is leaving out is that there are 
procedures in place to make sure that the recommendations are 
based on the needs of the client and not on the compensation 
plans that the individuals have. And we have entire compliance 
Departments whose role is to oversee these things, then they 
will run reports that will indicate if any advisors are over-
concentrated in different areas or going too far in one way, et 
cetera.
    Chairman Garrett. Right. And if there is a violation of 
that, don't we have years of case law to go and look at this to 
say what suitability is and what suitability isn't?
    Mr. Stolz. That is correct. And the example the professor 
gave where individuals lied about the IRAs, current law would 
take care of that. If somebody misrepresented the way that the 
product works or the plan works, that would be covered under 
current law. We don't need the Department's rule in order to 
add to that.
    Chairman Garrett. So we know what the rule is today, right?
    Mr. Stolz. Correct.
    Chairman Garrett. We know what the standard is today, 
right? We know the courts have interpreted this, right?
    Mr. Stolz. Correct.
    Chairman Garrett. But now we are going down a whole new 
road with the DOL, aren't we? They have something as far as 
what is reasonable instead as far as their proposal. Do we 
know--let us go down the road. Is reasonableness defined in the 
DOL-proposed rule?
    Mr. Stolz. The current proposal states that compensation 
must be reasonable. It is not defined.
    Chairman Garrett. Right.
    Mr. Stolz. And that will certainly be one of the issues. 
What is reasonable to you might be very different to someone 
else.
    Chairman Garrett. Right. And so if it is not in the 
statute, it is not in the rule, it certainly, therefore, has 
not been defined by any courts at this point in time, so it is 
just totally ambiguous to all parties involved. How does that 
play out then for the investor going into it?
    Mr. Stolz. Put yourself, I guess, in the shoes of the 
advisor. Knowing that any recommendation you make is subject to 
be second-guessed, you are going to make those recommendations 
in part on what is going to reduce the chances it could be 
second-guessed.
    It is kind of like a doctor submitting tests that may or 
may not be necessary in order to make sure that they cover 
their bases for any potential lawsuit.
    What that means is I am not going to be making the 
recommendation always solely on what is the right choice for 
the client because I have to consider what would happen if my 
recommendation is wrong and what would that lead to as far as 
potential litigation.
    Chairman Garrett. Exactly. And let me give you a real-life 
example. We are losing a good guy over at the SEC, Dan 
Gallagher. And he said recently, talking about the DOL rule, 
``Their rule is grounded in the misguided notion that charging 
fees based upon the amount of assets under management is 
superior in every respect to charging a commission-based fee.''
    In the next 25 seconds, let me just give you a real-life 
example. And maybe I will go to Mr. Callahan. You gave the 
numbers.
    So you have a guy who is 30 years old, a young guy coming 
in with $25,000 to invest or something like that to his 
advisor. And he says, let's put it into a low-cost strategy, 
such as into a fund, and we will re-look at this every few 
years during the course of your life, if you get married or 
some other things or there is turmoil in the markets, what have 
you.
    If you are going on an assets-based manner of doing it, you 
will be paying, what, so much amount each year on that with the 
money basically just sitting, not in the bank, but sitting in 
the fund. Right?
    Mr. Callahan. Right.
    Chairman Garrett. Conversely, if you do it the way you 
might do it now on commission, you will be just paying it once. 
Right?
    Mr. Callahan. That is correct. So it depends on how long 
they are going to hold the investment. And let me take a step 
back just to show you how challenging this rule would be in 
practice in that scenario.
    Chairman Garrett. Okay.
    Mr. Callahan. So you took the ERISA framework of fiduciary 
definition and apply it to an IRA, just for the sake of 
argument, where there already is SEC oversight with the 
fiduciary. So you have two fiduciary standards competing that 
are not clear.
    Chairman Garrett. Yes.
    Mr. Callahan. The SEC has actually come out to us, we are 
regulated under a best-interest standard already with the SEC, 
and said, hey, there are times when you should not put a 
client's money in the fee-based account, you should put it in 
the commission account because over the long run it will cost 
them less money.
    Chairman Garrett. Right.
    Mr. Callahan. So here you are sitting--so the SEC with the 
best-interest standard is telling you, hey, you need to put it 
in this bucket and now this new rule under ERISA comes in and 
says, oh, no, you need to put it in that bucket. You say, okay, 
there is math, there is economics and now there is regulation 
and they are all saying different things.
    Chairman Garrett. Right. Bottom line, unworkable.
    Thank you.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott, for 5 minutes.
    Mr. Scott. Okay, thank you, Mr. Chairman.
    Ladies and gentlemen, I see this rule as sort of like 
putting our financial system, our financial advisors in a 
straitjacket. That is what this does.
    And let me just point out some very salient points that 
disturb me about the rule. One, to remove and to replace the 
compensation package for financial advisors from being 
commissioned to a fee for service will directly have a 
devastating impact on those folks at the low- and middle-income 
ends of our economic stream.
    Secondly, this business about the best-interest contract is 
well-intended, but when you put the word ``contract'' out 
there, that has legal sanctions and it will bring untold 
lawsuits on the one hand, and on the other hand, it will 
frighten basically the very consumers that you are trying to 
reach, those with low and moderate incomes, who could be 
suspicious.
    For example, when you go and you approach a client and you 
say, well, we would like to work with you and your investments 
for retirement, they say, okay, fine. First of all, you have to 
pay me a fee before I can go any further. And then, oh, really? 
Yes.
    Then second, you have to sign a contract.
    Now, I would even run away from that because those things 
have a devastating impact, particularly in the African-American 
community.
    I was able to get a letter that was written to Secretary 
Perez at the Labor Department. And the letter was from the 
African American Chamber of Commerce. And here is what it said, 
``We continue to be very concerned that the Department of Labor 
has proposed a rule that will severely restrict African 
Americans in this country and also low- to moderate-income 
Americans' ability to save for retirement. And the new 
regulation also will make it difficult for our members, as 
small-business owners, to sponsor retirement savings plans for 
themselves and for the benefit of their employees.
    And as a small-business owner myself, I relate so well to 
this.
    Ms. McNeely, you work with small businesses, small-business 
owners and helping them establish retirement saving plans. Do 
you agree with what the African American Chamber of Commerce is 
saying?
    Ms. McNeely. Wholeheartedly, sir. They definitely have hit 
it right on the head.
    Mr. Scott. Right. And let me go in my next time, I want to 
get to the best-interest contract.
    Mr. Stevens, was I correct in my analysis of what would 
happen with the best-interest contract? And I know that the 
Labor Department senses that as well and that is why they 
offered this exemption for the best-interest contract.
    But when you look at this exemption, it is an 
extraordinary, complex, complicated puzzle which requires an 
untold amount of work. Give us your opinion on this best-
interest contract, the devastation it would have and also how 
unworkable this exemption is?
    Mr. Stevens. Congressman, I think you have hit the nail 
right on the head. The problem with this exemption is that 
every bell and whistle imaginable has been added to it. And for 
the life of me, as I look at it, I believe it is an exemption 
that perhaps the Labor Department doesn't think anyone will 
ever take advantage of.
    It will be so cumbersome, so expensive. It is not just the 
three-way contract they have proposed between the call center 
representative or the individual representative plus the 
customer plus the firm that has to be entered into, massive 
disclosure obligations are associated with it, some of which 
actually involve violations of the securities laws because you 
have to predict performance out into the future in order to 
provide those disclosures.
    There are massive potential liabilities, including new 
class action lawsuit potential brought under State law that 
does not exist now.
    Mr. Scott. Right.
    Mr. Stevens. In fact, in addition I would tell you that 
when they did the economic analysis, they essentially said one 
of the things that will be good about this rule is that there 
won't be anymore commissions paid.
    That signals to me that they really don't think anyone is 
going to use this best-interest contract exemption and they 
wrote it with that in mind.
    Mr. Scott. Right.
    I want to say in my conclusion, Mr. Chairman, if I may, a 
similar approach to this was taken in the United Kingdom and it 
resulted in 11 million people going without investment 
advisors. This is not something we want to see happen in the 
United States.
    Chairman Duffy. The gentleman yields back, and point well 
made.
    The Chair now recognizes the vice chairman of the Capital 
Markets Subcommittee, Mr. Hurt, for 5 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    I thank you, sir, and Chairman Garrett, for hosting this 
important hearing.
    I represent Virginia's 5th District, a rural district in 
southern Virginia, central Virginia. Over the last month we 
have had the opportunity to travel across this large district 
and spend a lot of time on Main Street in all the localities 
that we represent.
    And I guess what I bring to the table today is certainly 
the idea that so much of what comes out of Washington, while 
well-intended, so often ends up making things more difficult, 
whether it is the President's health care law and the costs, 
the unimaginable costs that are being now imposed on so many 
Americans, whether it is the Dodd-Frank Act and the limiting of 
consumer choice and the rising costs of accessing capital.
    All these things hit our Main Streets particularly hard 
and, frankly, harder than places like Wall Street.
    And so what I hear from the people that I represent is we 
need to be looking for every way to make things easier, not 
more difficult. And I fear that this rule, as proposed, is 
going to do just that. It is going to make it more difficult, 
more costly, with fewer choices and less innovation.
    In August, after Mrs. Wagner led a letter to Secretary 
Perez, he responded. He said, ``We have received your letter of 
July 29th regarding the DOL's proposed conflict of interest 
rule which would require that retirement advisors put your 
constituents' best interests before their own profits.'' And 
then he goes on with a government-knows-best tone and says, 
``This is a simple premise presented with an open mind.''
    And so I guess my first question would be to Mr. Stevens 
for your comments as it relates to the Secretary's statement 
that this is a simple premise and that it is presented with an 
open mind, because from everything that I have heard today and 
everything that I have read about this subject, it is neither 
simple, nor does it seem that the Department of Labor is 
approaching this with an open mind.
    Mr. Stevens. Congressman, I must say we have worried about 
the process that has been followed here. You must remember this 
is the second time a proposal of this sort came out. They 
worked on one, proposed it 4 years ago and it received enormous 
criticism and they withdrew it.
    And they then went back to their Department and for 4 years 
it was a black box. They weren't consulting with people about 
what the rule proposal would be. There was really no 
transparency into what then emerged after a 4-year period.
    Our members are very concerned that there is a march-to-
the-sea potential here, despite what the Secretary may be 
saying. And remember, there is no grandfathering so every 
existing relationship between a financial advisor and a 
retirement saver is implicated in this proposal. And they have 
proposed an 8-month implementation period for a massive 
overhaul of this part of the retirement market. Why? Because it 
coincides with the end of the Administration.
    So there is an agenda at work here, we fear, and frankly 
that is why we have been positively inclined towards 
Congresswoman Wagner's bill.
    The worst possible thing that could happen is that this 
proposal be adopted in anything like its current form. And in 
order to forestall that, if we have to say let the SEC go 
first, we think that is infinitely preferable.
    Mr. Hurt. Excellent.
    Mr. Callahan?
    Mr. Callahan. I would echo Mr. Stevens' remarks so much so 
that I believe that letter was sent by Secretary Perez during 
the middle of the public hearings. And what could be more 
indicative of the mindset than during the middle of the hearing 
before you have gathered all the information, you have sent a 
letter making a conclusion?
    So I would agree that it is not a light touch, so much that 
the CEO of FINRA says this is not business-model neutral and 
will result in a fractured approach. That is the regulator of 
the existing regime disagreeing with Secretary Perez.
    But I go back to the nature of what we are doing. Does this 
sound simple to you? We are taking a framework of fiduciary 
duty that was established for ERISA plans, corporate plans, 
sponsored plans, where the main goal was saving money, 
minimizing fees in these big plans. We are parlaying that over 
into the individual retirement space, very different needs, 
very different needs of access.
    And we admit right from the beginning that a lot of the 
tools that we use are prohibited. That is why we need 
exemptions. So we are starting with a rule that says things are 
prohibited and from day one we begin peeling the onion 
backwards to fit it in an arena that it doesn't belong.
    I would just challenge the committee to help send a message 
to the Department that the problem that we are trying to solve 
is providing consumers more access, giving them this robust 
framework that is confusing and complex, that arguably could be 
strong on the back end for fixing remedies.
    Why would we not simplify it, follow the 408(b)(2) 
disclosures that the Department has modeled, give them on one 
piece of paper the key points of information they need to make 
better decisions up front to prevent decisions from needing to 
be unwound?
    Mr. Hurt. Thank you. Thank you, Mr. Callahan.
    My time has expired.
    Mr. Bullard. If I could just add to correct some of the 
actual misstatements and misrepresenting what the law is.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. Thank you, Mr. Chairman.
    About 13 of us over on this side supported a similar bill a 
couple of years ago. And that bill was a little narrower in 
that it simply told the SEC to go first. It didn't then lay out 
a bunch of things that the SEC would have to do, which would 
make the SEC operate more slowly. It is a little harder to get 
support on this side of the aisle to tell the SEC to go first 
and then tell them to go slowly.
    This process has lasted, like everything in government, far 
too long.
    We have this bizarre circumstance where you have a choice 
between do we want to give investors freedom or protection. And 
one might argue for protection, one may argue for freedom. But 
what is absolutely absurd is to have one rule for my mother who 
inherited money from my father and is 86 years old, and one for 
a lot of people in this room who have IRAs and 401(k)s and 
similar programs.
    If you are going to provide more protection and less 
freedom, you would think you would do that for my 86-year-old 
mother rather than for me. But we have a circumstance where the 
Department of Labor is providing the least options, they would 
say the most protection, not for those who don't have IRAs and 
401(k)s and are 86 years old, but for people in this room.
    It is absurd for us to have two different rules. But if we 
had two different rules we should reverse it and have the 
greater protection for those in their most senior years.
    The other problem I have with this rule is it is written by 
economists who have this absurd belief that everyone else in 
the country is an economist and everybody they work with is an 
economist, and if everyone was an economist, I would be in 
favor of the rule.
    And so we have no hand-holding, no help, nobody gets paid. 
You get to save as much money as you decide to save if you call 
the 800 phone number and tell them which index fund to put the 
money in. That is going to lead to a decline in total savings 
for retirement because everyone in my district who is not an 
economist wants to invest where they can talk to a person, who 
does need to be paid, where they have options, they will save 
more if they are allowed to invest in this or that or to make 
changes.
    And to say that we are trying to sell ice cream, but we are 
only going to sell vanilla is not a way to sell a lot of ice 
cream.
    I am concerned about the smooth transition for existing 
customers.
    Mr. Stevens, I believe you have addressed that. You have 
talked about grandfathering, you have talked about the 
implementation period, and you have talked about existing 
clients. Are we supposed to have tens of millions of clients 
who have already, in many cases, paid the commission, be told 
that they have to jump through a bunch of hoops to see if they 
can still get what they have already paid for and to continue 
to save money for their retirement as they are successfully 
doing? What kind of implementation period and grandfather 
ruling would we need to be effective?
    Mr. Stevens. Congressman, was that a question for me?
    Mr. Sherman. Yes.
    Mr. Stevens. I am not sure that if the rule remains 
unchanged, any implementation period is going to solve the 
problems it creates. We would need a long implementation period 
for a good rule. Eight months is certainly going to be 
ridiculously short.
    Mr. Sherman. Let us say the rest of the rule was a little 
better than it is now. What grandfathering and implementation 
provisions would you call for?
    Mr. Stevens. I think one very simple approach would be to 
simply say existing relationships are not affected by this 
rule.
    Mr. Sherman. Okay.
    Mr. Stevens. That solves the double charging going forward.
    Mr. Sherman. At least with the amounts that have already 
been invested.
    Mr. Stevens. New relationships that are established could 
be affected by it. That would certainly narrow its impact.
    Mr. Sherman. I want to sneak in one more question. That is 
basically, is robo-advice going to work for the less-tech-
savvy, for the elderly and for people who are just a little bit 
reluctant to save for retirement when that means they can't buy 
a boat?
    Mr. Callahan?
    Mr. Callahan. No, it will not. And the data supports that. 
You talk about a 1 percent cost in this $17 billion. If you 
look at the Dalbar study that says what does the average 
investor without advice earn compared to any single asset class 
that they could invest, it is far more than 1 percent, it is 4, 
5 or 6 percent depending on which asset class.
    And why is that? It is behavioral. It is behavioral finance 
and a robot is not going to deal in the emotional side that 
drives behavior of selling at exactly the wrong times and 
buying at the wrong times.
    Mr. Sherman. Thank you.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the chairman of the House Foreign 
Affairs Committee, the gentleman from California, Mr. Royce, 
for 5 minutes.
    Mr. Royce. Mr. Chairman, thank you very much.
    Last May I asked FINRA, the CEO there, Richard Ketchum, 
about the negative effects of the 2013 rule enacted by the 
British government that had such an impact on low- to moderate-
income consumers in the U.K. and on whether enacting a similar 
rule, as the DOL has proposed, would have those impacts here in 
the United States.
    Now, this is a point that Mr. Scott referenced. But there 
is a study in the U.K. which found that during the first 3 
months of 2014, 310,000 British clients stopped being served by 
their brokers and the reason was because their wealth was too 
small for the broker to advise profitably, and an additional 
60,000 investors were not accepted for the same reason.
    And Mr. Ketchum concluded that, ``the statistics here are 
certainly concerning. Moving to an environment where only 
advisory accounts are the only effective way to operate in the 
United States is a very bad step. And that with respect to 
middle-class investors, the availability of the choice between 
fee-only and commissions is important.''
    And since I spoke with Mr. Ketchum, the British government 
embarked on an official review of the impacts of its rule, all 
while the DOL claims that there is little evidence that 
investment advice has decreased significantly in the United 
Kingdom. That is the Department of Labor's argument while the 
British are in the middle of trying to get to the bottom of 
this impact.
    And so, Mr. Stevens and Ms. McNeely, what caused the U.K. 
to initiate the review? Are they investigating whether the 
regulation has created an advice gap cutting off lower- and 
middle-income servers from investment advice? Is that your 
understanding of what they are looking at there?
    And let me ask you that question.
    Mr. Stevens. That is my understanding, Congressman, that 
they are looking at a species of the same problem that we 
predict might happen under the DOL proposal. Remember, in my 
opening statement I mentioned 20 million individual retirement 
account holders who have balances of $25,000 or less, that is 
20 million people for whom the economics of a fee-based model 
are highly questionable.
    It is interesting that Labor Department Secretary Perez has 
touted the idea of the robo-advisor as a solution here. The 
robo-advisors are a fairly new innovation. We love innovations 
in the marketplace and they may be delivering very good 
services, but it is hard for me to believe that an 8-month 
implementation period, this new approach to the provision of 
advice is going to suddenly be able to manage a 20-million-
person-strong investor base that no longer has access to a 
commission-based model.
    The other thing to say about robo-advisors is this is the 
same Department of Labor placing its faith in that won't allow 
retirement plan sponsors or service providers to use email to 
deliver plan documents.
    So on the one hand we have this huge digital divide that 
requires us to continue to put out paper, and on the other 
hand, my gosh, let us have millions of people rely upon robo-
advisors. It does not make sense.
    Mr. Royce. And Ms. McNeely?
    Ms. McNeely. I would concur and just say that I know 
advisors who are currently working in the U.K. and many of them 
had to let go of all of the small accounts that they had in 
their book of business simply because it wasn't allowed for 
them to be paid via commission.
    And quite frankly, the smaller accounts, the smaller 
retirement savers, without question, it is far more cost-
effective for them to use a commission-based model. And if they 
don't have that choice, we will see some significant challenges 
in continuing to give advice to the very people, from my 
perspective, who need our advice the most.
    Mr. Royce. And Secretary Perez has stated unequivocally 
that the DOL's proposed rule would not have similar impacts to 
that of the U.K. rule. Let me ask you if you agree with that?
    Ms. McNeely. I do not agree with that.
    Mr. Royce. Okay. And I would ask the same question of Mr. 
Stevens.
    Mr. Stevens. I would not agree with it either, Congressman.
    Mr. Royce. Ninety-eight percent of IRA accounts with less 
than $25,000 are in commission-based brokerage accounts. 
According to FINRA's comment letter, ``Under the DOL proposal, 
many broker-dealers will abandon these small accounts. They 
will convert their larger accounts to advisory accounts and 
charge them a potentially more lucrative asset-based fee.''
    They will do so largely because of the ambiguity of the 
best-interest-contract exemption included in the DOL rule.
    Do you believe these smaller savers, investors will--I 
think my time has expired, Mr. Chairman.
    Chairman Duffy. Your time has expired, Mr. Chairman.
    Mr. Royce. Thank you. I will yield.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    And I thank the witnesses.
    Mr. Chairman, I share some of your concerns about the 
fiduciary rule, so I am not being argumentative. But I am 
concerned about the fact that for something of this 
significance, why we wouldn't have someone here from the Labor 
Department. I had hoped to be able to raise questions with the 
agency and individuals who are in fact designing this rule. And 
so I am not fully happy that we don't have someone here.
    This has nothing to do with those of you who are here. I 
just think that it would be infinitely more meaningful to me to 
be able to raise my questions with the folks who are in fact 
designing the rule.
    And I actually was so concerned about it I talked with the 
Secretary last evening because I thought maybe they had refused 
to come or that the Department is on vacation or something.
    So I don't understand why we couldn't have someone here, 
because I may have more concerns than you about this, but as 
eloquent as they are and nice and eloquent and very 
attractive--
    [laughter]
    Chairman Duffy. Will the gentleman yield?
    Mr. Cleaver. --but they can't answer the questions that I 
want answered by the Labor Department.
    Chairman Duffy. Would the gentleman yield?
    Mr. Cleaver. Yes, please.
    Chairman Duffy. Listen, I think the ask coming from your 
side of the aisle to Secretary Perez would have been maybe a 
little better received, and you did have an opportunity to 
invite him. And we would have been open to having you guys 
extend an invitation to him. You make a very good point. I 
don't dispute the claim.
    Mr. Cleaver. Thank you. I am not mad; I just wish I could 
ask him some questions.
    Professor Bullard, Mr. Callahan mentioned in his comments 
that it may not in fact be cost-effective to provide fee-based 
services to the smaller retail investors. So I am wondering if 
you believe that the impact of the rule will be an increase in 
the fee-based services as opposed to the commission-based?
    Mr. Bullard. The industry's criticism along those lines is 
premised on banning commissions, which is what the U.K. did, 
but what the Department decided precisely not to do. So the 
U.K. took a very different approach, and I disagree with, which 
is why the effect won't be the same.
    That is one reason that it will have no effect on asset-
based fees, but those accounts have been growing relentlessly, 
regardless of the DOL's proposal.
    It is also false that the industry is unable to provide 
cost-effective fee-based accounts. Edward Jones has rolled out 
a plan that in the first 6 months of 2015, brought in more 
assets to its mutual funds than all but three mutual fund 
providers. Now, this is a broker-dealer based in St. Louis that 
is selling more funds than most fund complexes.
    The way that they are doing it is they have introduced a 
low-cost, fee-based account that charges 1\1/2\ percent and 
then puts you in funds from which they have removed all the 
traditional conflicts of interest that proprietary funds have 
that range from 31 basis points, .31 percent, to about .55 
percent.
    In other words, they are offering a full-in, full-service 
program, the total all-in costs of which are going to be less 
than 2 percent. And Edward Jones should get credit for that. 
But at the same time, they are arguing that it would be 
impossible to offer affordable fee-based accounts.
    In any case, the rule will have no effect on that because 
it doesn't ban commissions. But I do applaud the industry for 
continuing to show innovation and proving that yes, eventually 
there are going to be very affordable, full-service, fee-based 
accounts, and I think some other competitors in the same city 
really should be looking into that because Edward Jones is 
eating their lunch.
    Mr. Cleaver. With 27 seconds remaining, I am not going to 
have time to get to my next question, I don't think, Mr. Stolz, 
so I will yield back the balance of my time.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Stivers, for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman, for holding this 
important hearing, and for making sure that we got a chance to 
ask this panel some questions.
    I want to sort of take off on some of the questions that 
Mr. Royce from California asked when he talked about the U.K. 
proposal.
    So it is widely accepted from public data in the U.K. that 
advisors refused to provide services to individuals with about 
less than 20,000 pounds in assets, which is the equivalent of 
$31,000 in assets here in the United States.
    I am curious, and I will start with Mr. Stevens or Ms. 
McNeely, if you think that would happen here?
    Ms. McNeely. Yes, I do. Currently, my minimum required 
balance for a fee-based account is $50,000 through my current 
broker-dealer. So I would not be able to accept a fee-based 
arrangement with any client unless they have at least $50,000. 
There has already been some speculation that amount may go 
higher as a result of the added liability.
    Mr. Stivers. Yes, I was going to say with the additional 
liability won't that actually potentially go up?
    Ms. McNeely. There has been some talk of that, and I would 
expect that would happen to at least a hundred, I have even 
heard as high as 250.
    Mr. Stivers. And there were--so let me just tell you what 
some of the response in the U.K. was. HSBC only provided advice 
for folks with over $80,000 in assets, Lloyd's, over $160,000 
of assets, World Bank of Scotland charges $800 to set up and 
makes changes based on your net worth of what kind of services 
you get face-to-face versus non-face-to-face, and Barclay's 
only provides investment advice for people over $800,000 in 
assets.
    Avia ceased offering face-to-face investment advice. AXA 
ceased offering face-to-face investment advice; advisor firm 
AWD, deVere, clients over $80,000 in assets, and the advisor 
firm Towry was over $160,000 in assets.
    So that is what happened empirically in Europe. I know it 
is not exactly the same model, but it certainly has the same 
implications, and so the numbers may be a little less than that 
here, but it will have some of the same effect, in my opinion.
    Thanks for that.
    Mr. Stevens, I had a follow up on, do you think the 
Department of Labor's economic analysis justifies this re-
proposed rule?
    Mr. Stevens. As I have explained, we actually think it 
results in a very substantial increase in costs over 10 years, 
both in terms of lost investment performance for people who 
won't be able to access the advice that they need. And we 
estimate the total to be in excess of $100 billion.
    So if that is the cost, you have to ask yourself, what is 
the benefit of this massive overhaul and its very expensive new 
set of arrangements?
    And I think that the kind of cost-benefit analysis that 
goes into does not suggest that there is any real benefit for 
it.
    I am struck by the comments from my friend, Professor 
Bullard, talking about innovations in our marketplace.
    Mr. Stivers. That was my next question.
    Mr. Stevens. People are trying to deliver these services in 
a different way, and I think we all ought to celebrate that. 
But recognize that under this new regime with the best-
interest-contract exemption and the like, there is going to be 
a huge set of new costs and obstacles to that kind of 
innovation.
    Mr. Stivers. Thank you.
    So Mr. Stolz, I want to take off on that point a little 
bit. Professor Bullard just made an impassioned plea for how 
innovation is helping solve this problem. Doesn't that sort of 
make the point that this isn't necessary?
    Mr. Stolz. You could certainly, I could certainly agree 
with that. And I think it is important that we understand when 
we say that it is unworkable, what is unworkable. It is not 
about being able to change compensation packages and schemes. 
That's the easy part. It is the fact that when you have to sign 
an individual contract that you are going to be personally 
liable for and you have all these disclosures that you have to 
do is the part that is unworkable.
    And while advisors have an option under the proposal to 
have a commission option--
    Mr. Stivers. I want to do one more question, but I 
appreciate your innovation and Edward Jones and all the people 
who are innovating.
    And my last question is for Professor Bullard. I am really 
concerned. So the individual contracts, you have to sign before 
you provide advice. I am a soldier, and have been a soldier for 
30 years. I happen to use USAA for a few things. Their business 
model explodes under this plan, doesn't work because soldiers 
are deployed all around the world. What do you say to those 
soldiers who can't get advice because they can't sign a 
contract?
    Mr. Bullard. I agree on this issue, and I think the DOL has 
at least suggested, and I wish they would be more forthcoming, 
that they are not going to require you to send out the 
contract, they are not going to require that it be returned 
signed, and they are not going to adopt a number of the 
proposals they have made.
    This is a proposal. What H.R. 1090 would do is essentially 
prevent an administrative agency from making proposals. And I 
would like to see what they actually finally adopt before we 
decide to try to throw the SEC interference in front of it.
    Chairman Duffy. The gentleman's time has expired.
    Mr. Stivers. I yield back my nonexistent time, Mr. 
Chairman.
    Chairman Duffy. The Chair now recognizes the gentleman from 
Minnesota, Mr. Ellison, for 5 minutes.
    Mr. Ellison. I thank the chairman and the ranking member.
    Should retirement advisors be able to put their own profit-
seeking before the best interests of their client?
    Ms. McNeely. I would be happy to answer that.
    Mr. Ellison. I wish you would answer it directly.
    Ms. McNeely. I promise I will.
    Mr. Ellison. Do you say yes or no?
    Ms. McNeely. They should not be. And they don't.
    Mr. Ellison. Okay, so you think best interest is the right 
thing.
    Ms. McNeely. Absolutely, and I already operate in the best 
interest.
    Mr. Ellison. Does everybody agree with that? Everybody is 
for best interest?
    Mr. Stevens. Yes.
    Mr. Ellison. Now, let me tell you. I talked to the people 
at DOL, and they told me that this thing about having to sign 
before you talk has been misrepresented. They said that you can 
talk, but before money starts passing then there is going to 
have to be a contract, which I am familiar with. I practiced 
law for a long time. We have retainer agreements. And you can 
talk to your client about the case, but then when they start 
talking about paying you, you have to sign up so they can know 
what they are getting and what they are not getting.
    So I really believe this thing about, oh, you have to sign 
up before you talk is a red herring.
    So let me ask you this question. Much has been said about 
the U.K. example. And is that fair, Mr. Bullard?
    Mr. Bullard. I don't believe it is. I quote, for the 
members of the subcommittees, the provision in the U.K. 
proposal in a footnote in my testimony. And it is very clear 
what they banned was product-set compensation--
    Mr. Ellison. Now, Mr. Bullard, let me ask you this 
question, too. So here is the other thing. You talked about 
Edward Jones offering products that were innovative. Does the 
fact that they are innovating in trying to meet the needs of 
certain market participants, is that somehow evidence that this 
rule, this fiduciary rule is unnecessary?
    Mr. Bullard. No, not at all. In fact, what I would like to 
see is more innovation such as attempts to mitigate or 
eliminate the conflicts that the Department is going after. And 
firms like Raymond James, to their credit have done that with 
respect to some products. They have eliminated retroactive--
    Mr. Ellison. Now, forgive my lack of being polite. But Mr. 
Stevens seemed to, and I don't want to mischaracterize Mr. 
Stevens' point of view, but it seemed that--I will scratch that 
one because I have so limited time.
    Let me ask you this question. What is the cost of not 
putting a best-interest standard in place? I am sure that 
most--Ms. McNeely makes the point that most advisors are great 
people, and I believe that. Certainly in the 5th Congressional 
District, they are all awesome.
    But my point is, what is the cost? Because the DOL says 
that there is a cost to people having hidden fees and all kinds 
of stuff and the status quo has its own cost. Could you 
elaborate on that?
    Mr. Bullard. Yes, there is no question the costs would be, 
and this is where an advisor makes a recommendation, in part or 
in whole, because it pays them more money and it is not in the 
best interests of the client. And there is plenty of data that 
show, for example, that is a motivation in some cases. It is 
empirically proved.
    There is a study of a retirement plan in Oregon that shows 
explicitly you can show that the allocations where there is 
additional compensation being made going more often to the ones 
that pay a higher compensation.
    But you don't really need a study to show you that. That is 
a rational requirement of economics that if you pay more for 
something you get more for it.
    The question is, how big is it? We could figure that out if 
the industry would provide the data. We know how many crib 
deaths there are in America because that industry will provide 
that data. The industry refuses not only to provide the data 
where we could determine the effects of the conflicts of 
interest, they won't even provide the data of the studies they 
put forward on which they base their analysis.
    Mr. Ellison. Mr. Bullard, forgive my interruption again. So 
back in the day when my dad and his dad were working at the 
auto plants, they could get into a pension and you had somebody 
who knew how to manage a portfolio for them as they were busy 
making cars. We don't have that. We have it today, but it is 
shrinking and it is changing to defined contribution, we are 
moving to that now.
    Who is helping you make good investment decisions now? You 
are basically on your own, right?
    Mr. Bullard. That is right. And a big impetus behind this 
is that the money has now moved from 401(k)s to IRAs where 
there is now more money than in 401(k)s.
    And Mr. Callahan says that it is the Department that is 
imposing ERISA to IRAs. That is not true. It is Congress that 
imposes ERISA standards on IRAs. And virtually all the 
criticisms is a question for Congress to take up with its own 
statute. The Department is simply doing what it is required to 
do, which is to impose a higher standard for retirement assets 
than on our other assets.
    Mr. Ellison. Thank you, I am out of time.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner, for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman.
    I have lots to cover, so we are going to do some rapid-fire 
here. And I thank you all for being here.
    Mr. Callahan, I would like to first start off with a quote 
that Secretary Perez stated at the Senate HELP hearing back in 
July, where he said that the DOL is listening to industry 
concerns and will make, ``material changes in a final rule.''
    Given your experience, would you say they are prepared to 
make the necessary and significant changes to prevent average 
retirement savers from losing choice and access to financial 
advice?
    Mr. Callahan. No. And when I testified at the public 
hearing they were very clear that they do not intend to do so. 
Their fixes would be tweaks operationally. And it is very clear 
that--
    Mrs. Wagner. Operational tweaks on a nearly thousand-page 
proposed rule. Thank you.
    The DOL has already said they wouldn't re-propose the rule, 
as we have talked about, which would seem to be necessary if in 
fact material changes were to be made.
    I have had numerous letters back and forth with all sorts 
of folks in the Department of Labor. I can't get Secretary 
Perez to return my call like Mr. Cleaver can.
    But Secretary Perez himself responded to me in a letter 
saying so before the public hearings at DOL even began.
    I want to submit this, Mr. Chairman, for the record. This 
is a letter that I received on August 7th saying they would 
consider no re-proposals, no material changes whatsoever. 
August 7th it is stamped as received in my office. I don't know 
when he sent it. But the hearings didn't begin until August the 
10th.
    So I ask unanimous consent to submit it for the record.
    Chairman Duffy. Without objection, it is so ordered.
    Mrs. Wagner. Would it seem from that response, that the DOL 
is in fact listening to industry and investors' concerns when 
they have completely ruled out a re-proposal of the rule before 
the comment period had even ended, Mr. Stevens?
    Mr. Stevens. It seems as though the issue has been 
prejudged. The agency is supposed to, under the Administrative 
Procedure Act, be sorting through what is a vast administrative 
record before them prior to making decisions of that nature.
    Mrs. Wagner. I agree. And is the Secretary's decision to 
that ruling out of a re-proposal during the comment period 
consistent with the Administrative Procedures Act, Mr. 
Callahan?
    Mr. Callahan. No.
    Mrs. Wagner. Mr. Stevens?
    Mr. Stevens. As a lawyer, I would say no.
    Mrs. Wagner. Mr. Bullard?
    Mr. Bullard. Yes, they can.
    Mrs. Wagner. I can't imagine how you can say yes.
    Ms. McNeely?
    Ms. McNeely. No.
    Mrs. Wagner. And Mr. Stolz?
    Mr. Stolz. I will make it the fourth no.
    Mrs. Wagner. All right.
    Ms. McNeely, if the DOL can't be counted on to produce a 
working final rule, given the significant comment and feedback 
they have received on their proposal, it seems that a 
legislative solution would be needed. How will the Retail 
Investor Protection Act help prevent these market disruptions?
    Ms. McNeely. I think it will hopefully eliminate some of 
the confusion out there, both for brokers and for consumers. 
And quite frankly, for me it will provide a lot of 
clarification as to how I can operate and continue to serve my 
clients.
    For 20 years, I have been doing this. And I would love to 
continue to serve every client who walks in the door, 
regardless of the size of the account that they have to invest.
    Mrs. Wagner. And we in fact have a ruling through Dodd-
Frank in Section 913 that the SEC could move forward on this, 
not the Department of Labor, not in their lane, not their 
purview.
    Mr. Callahan, how will the Retail Investor Protection Act 
help prevent these market disruptions?
    Mr. Callahan. I think it empowers the agency that has a 
long-tenured experience with currently overseeing IRAs in a 
fiduciary capacity to take the lead and require them to do the 
analysis that will help quantify the problem in a way that the 
solution or the prescription is more clear and targeted in what 
exactly it is trying to solve as opposed to this blanketed 
approach with a number of unintended consequences, which my 
fellow panelists have testified to today.
    Mrs. Wagner. We have heard some discussion here, in my 
limited time, about the U.K. And considering that the 
implementation date for the rule is 8 months, when can we 
potentially start seeing signs of the same thing we are seeing 
in the U.K. right now, which is what they are calling the 
advisory gap, here in the United States, Mr. Stevens?
    Mr. Stevens. I think the nature of the proposal is such 
that if it were adopted without material change, you would 
begin to see that almost immediately, because firms will have a 
very short period of time in which to alter their business 
models with vast potential liabilities 8 months hence.
    Mrs. Wagner. I thank you very much.
    Mr. Chairman, I have so many more questions. I would only 
say to my colleagues that if anyone would like to yield me some 
time, I would be ever so pleased to accept it.
    With that, I will yield back my 5 seconds.
    Mr. Sherman. Mr. Chairman, I yield the gentlelady all of my 
remaining time.
    [laughter]
    Chairman Duffy. I think yours has expired.
    [laughter]
    Mrs. Wagner. Mr. Sherman.
    Chairman Duffy. The gentlelady yields back.
    The Chair now recognizes the ranking member of the full 
Financial Services Committee, the gentlelady from California, 
Ms. Waters, whom I am sure will consider yielding you some 
time.
    [laughter]
    Ms. Waters. Thank you very much, Mr. Chairman.
    This question I will address to Professor Mercer Bullard: 
H.R. 1090 requires that before the SEC can harmonize the 
fiduciary standard for brokers and dealers with that of 
investment advisors, the SEC must first publish a report 
finding whether retail investors are being harmed by the 
different standards of conduct.
    Can you discuss the level of confusion faced by investors 
regarding the duties owed to them by investment advisors versus 
financial advisors who work for broker-dealers? Do customers or 
consumers understand that these financial advisors aren't 
subject to the same fiduciary duty to act in their best 
interests? Has the SEC considered this question to date?
    And given your understanding of the evidence on this issue, 
can you describe what Congress did under Dodd-Frank related to 
this and why the SEC to move forward to raise the standard of 
care owed to customers by broker-dealers?
    Mr. Bullard. The source of confusion is that when you 
receive personalized, professional services from doctors, from 
lawyers, when you give a confession to your priest, they do not 
have a financial incentive, and are not allowed to have one, to 
change the advice they give you based on how much they get 
paid. But investors naturally assume that they would be 
protected by fiduciary duty. They are not.
    The confusion is exacerbated by the industry which 
consistently represents their representatives as financial 
advisors and they state that they hold themselves to a best-
interest standard.
    But Payaba has produced an interesting document that shows 
time and time again that in arbitration the industry takes 
exactly the opposite position and it includes quotes where you 
will see in every single arbitration case where broker-dealers 
deny that they owe a best-interest standard or that they are 
fiduciaries.
    Now, the effect of that confusion is that they rely and 
have placed trust and confidence in broker-dealers that are not 
held to the standard that should apply to them.
    And I agree, the SEC should, some time ago, have done a 
rulemaking. And I think probably everyone on the panel agrees. 
But the SEC, as I document in my written testimony, for the 
last 15 years has exhibited a level of rulemaking paralysis 
that is unprecedented.
    And for the Capital Markets Subcommittee to want to delay 
anything while the SEC does rulemaking, I think is the height 
of hypocrisy. This subcommittee knows better than anyone that 
the SEC on these types of issues appears to be incapable of 
doing rulemaking and their only formal positions on this issue 
have been to oppose a fiduciary duty.
    They adopted a rule that stripped the fiduciary duty from 
broker-dealers that charge asset-based fees, and they take the 
position of the advisors that commission-based broker-dealers 
are not subject to fiduciary duty.
    So if you were going to delay rulemaking, at least the SEC 
is the last agency on earth for which you should be waiting for 
anything to be done.
    Ms. Waters. Well said. Having explained that very 
thoroughly, I will tell you what I am really worried about. I 
am worried about the wealth gap that exists between minorities 
and whites. And it is growing.
    And for those small investors who are depending on good 
advice and don't understand that they may be getting advice 
from people who are conflicted because they are steering them 
into investments that will harm them oftentimes. What else can 
be done except insist on fiduciary for all advisors or people 
who are literally saying to folks, I am helping you to 
determine your future, I am helping you to determine your 
retirement?
    And given what you have just described about the SEC and 
this committee, what other advice could you give to us and the 
public about how we can protect the most vulnerable people in 
our society?
    Mr. Bullard. I encourage the committee to support the 
Department of Labor's efforts. But otherwise, if it disagrees 
with the Department's approach, then to answer the question I 
posed earlier, which is, do you think it is appropriate to get 
paid twice as much for selling a stock fund than a short-term 
bond fund? If you think that is appropriate, do nothing.
    Is it appropriate to choose between getting paid $80 and 
$29,000 based on the recommendation you make? If that is 
appropriate, do nothing. But if you think that is not 
appropriate, then propose a fix.
    If you disagree with a higher standard for retirement 
assets than non-retirement assets, then change ERISA because 
that is the source of that law and it misrepresents what the 
Department is doing to claim it is the Department that is 
imposing that standard on IRA assets. That was Congress' 
decision and it is doing what it is required to do.
    And if we want to use examples of Mr. Stevens' son or Mr. 
Callahan's mother, let me tell you about my father-in-law. He 
was a Captain in the Navy, he served 30 years. He was put into 
non-traded REITs in his IRA. And I looked them up and they 
charged 10 to 15 percent in commissions right off the top. He 
was also put into about a dozen mutual funds, the amounts of 
which showed that the intent was to get below breakpoints that 
would have allowed him to get lower commissions.
    Now, I think he wanted to leave my wife more money than was 
allowed because of the standards that Congress has allowed to 
stay in place and that FINRA and the SEC have no problem with. 
But I think after 30 years serving this country, he deserved 
better.
    Chairman Duffy. The gentlelady's time has expired.
    Mr. Bullard. Excuse me for--I came to this hearing to be 
able to speak. And I know you are not interested in what I have 
to say, but I have never been cut off like this before in the 
22 times I have testified, Chairman Duffy.
    Chairman Duffy. The gentlelady's time has expired.
    Ms. Waters. Thank you very much. So what in essence you are 
saying is this deal or proposal makes good sense.
    Mr. Bullard. Absolutely.
    Chairman Duffy. The Chair now recognizes the gentleman from 
Illinois, Mr. Hultgren, for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Thank you all.
    We are limited to 5 minutes, and it is the only time we get 
to ask questions. So I appreciate all of you being here. This 
is a very important discussion certainly facing all American 
families. Almost 40 million households have not saved anything 
for retirement and 62 percent of Americans age 55 to 64 have 
less than one year's savings.
    As we have heard today, instead of appropriately 
coordinating with the SEC, the Department of Labor is 
aggressively pushing a flawed rule which might be a political 
win for the Obama Administration, but would come at the expense 
of retail investors trying to save for retirement.
    The proposal would restrict access to investment advice and 
put in place obstacles that would discourage hardworking 
families from preparing for the future.
    Furthermore, the Department has chosen to completely ignore 
the benefits of financial advisors, including relatively simple 
advice such as not making any irrational decisions in volatile 
markets like those we have recently observed.
    Less-sophisticated investors, the investors who would be 
most impacted by the rule, may not receive the advice they need 
if the Department's proposal goes into effect.
    In fact, many of my constituents tell me they save more 
because of the advice that they get.
    I want to first thank my 43 colleagues who signed a letter 
that I sent to the Labor Department, which underscores one of 
the many flaws of the proposal, listed options would no longer 
be permissible in retirement accounts, however they would 
remain permissible in non-retirement accounts.
    Subsequently, Democrats such as Congresswoman Maloney and 
eight Democrats in the Senate have made the same point. Options 
are an effective risk-management tool for people saving for 
retirement.
    The Department's treatment of options is just one of the 
many glaring mistakes that would not have been made by the 
financial regulator with primary jurisdiction over these 
products, the SEC.
    My first question I want to address to Mr. Stolz. Are there 
low-risk retirement investment strategies that make use of 
options?
    Mr. Stolz. Absolutely. Most options are used as a hedging 
strategy to protect against swings in markets, similar to what 
we have just seen. And so prohibiting those within IRAs would 
actually make the returns more volatile for clients.
    Structured contracts would be another product that is very 
similar in nature. They are more conservative investments and 
give individuals a way to participate in the market without 
some of the downside.
    So clearly, we have been in favor and our comment letter 
suggested that have wholesale product exclusions is not the 
appropriate way to go. If we just have the proper disclosures, 
that should do it.
    Mr. Hultgren. So Mr. Stolz, why would the Labor Department 
proposal discourage saving for retirement, other than that they 
simply do not understand this market and existing regulations 
as well as the SEC?
    Mr. Stolz. I guess it is up to interpretation. Did they 
leave these securities out because they didn't think they were 
appropriate? Or did they leave them out because they didn't 
understand how they were used? My guess is it was a little bit 
of both.
    And no matter which answer it is, I find it a little bit 
alarming because an agency that would understand our business 
would know that they should leave investments like that as 
available for individuals who want to use them.
    Mr. Hultgren. Thanks, I absolutely agree.
    I want to address this next question to Mr. Stevens. And I 
want to thank my colleagues from Illinois. I thank my 
colleagues, 43 throughout Congress, but also the Illinois 
delegation, which worked with me on a letter to Secretary Perez 
that underscores a number of the important points about access 
to investment advice and products such as making clear, as 
directed by Section 913 of Dodd-Frank, that the exclusive sale 
of proprietary products or services should not be viewed as a 
violation of any best-interest standards.
    I wondered, again, Mr. Stevens, do you think limiting the 
scope of investments is in the best interest of the people 
saving for retirement?
    Mr. Stevens. No, I certainly do not. And I think we are in 
a marketplace where choice and competition are important as 
disciplines.
    From where I sit, many aspects of this rule proposal are 
describing a marketplace that doesn't exist. If there were some 
massive failure in this market, you would not see mutual fund 
fees and expenses trending downward over 20 years as they have. 
You would not see the fees and expenses that people pay in 
401(k) plans for mutual funds going down even further to 
represent, in fact, a universe of the lowest-priced funds 
available for investors in any jurisdiction in the world, 
something that is working in this market that I think has been 
overlooked.
    Mr. Hultgren. Yes. I appreciate that. A follow-up question, 
if the SEC moves forward with rulemaking under its authority in 
Section 913 of Dodd-Frank, do you think the broker-dealer 
industry will be faced with two burdensome and redundant sets 
of rules that sometimes conflict?
    Mr. Stevens. There is no question about that. In fact, if 
you think about the ecosystem for advice here, you have the 
retirement tax-advantaged accounts that we are talking about 
through DOL. You actually have a somewhat larger universe of 
retail assets. And for many people, they are bringing to the 
same advisor or broker needs in both areas.
    And so in any rational policy universe, you would have a 
consistent regime proving appropriate protections to be sure 
that would apply to each.
    Mr. Hultgren. My time has expired. Thank you all for being 
here, again. We have to fight to protect families and help them 
save for retirement.
    I yield back.
    Chairman Duffy. The gentleman's time has expired.
    And I would just note again, you all on the panel can't see 
behind you, but there is a clock that we can see as the time 
runs down from 5 minutes to zero, then it starts to count 
backwards. And I have tried to allow the panel time to finish 
up their comments, but when we get near 40 seconds, I am 
starting to gavel you down. That has been my loose-gavel policy 
today to the whole panel.
    Mr. Bullard. I apologize, Mr. Chairman.
    Chairman Duffy. But just so you know, when it turns red the 
time has expired and please finish up your comments.
    With that, the Chair now recognizes the gentleman from 
Colorado, Mr. Perlmutter, for 5 minutes.
    Mr. Perlmutter. Thanks, Mr. Chairman.
    First, I would like to say thank you to the panel.
    I want to make a quick statement and then, Professor 
Bullard, let you finish your answer. And then I am going to 
yield my time to my friend, the gentlelady from Missouri, 
because I am sympathetic with her position, and I am 
sympathetic with the desire to have the SEC address this.
    But I have been waiting for 4 years for the SEC to address 
this and they haven't. So the train has left the station. And 
people need to understand that.
    I sent a letter to the Secretary of Labor and he did return 
my call. Last night, we talked for 20 minutes. We talked about 
the way this forces a change in business models on some 
companies and some industries. Exactly when do you present the 
contract to be retained, in effect? We went over a number of 
things.
    And I would urge interested parties to continue to reach 
out to the Department of Labor. I do think that they are 
listening, and I am happy to make that phone call with my 
friend from Missouri to the Secretary.
    So that is the first thing I would like to say, because he 
was not invited to participate in this panel despite his 
apparent desire to do so.
    So Professor, if you would take 1 minute to finish your 
answer, so then I can give the balance of my time to the 
gentlelady from Missouri, whom I sympathize with, and I have 
co-sponsored her bill in the past. That train has left the 
station. But I want her to finish her questions.
    Mr. Bullard. I was at the end of my comment when I was cut 
off.
    Mr. Perlmutter. All right.
    Mr. Bullard. And I agree. Representative Wagner has been 
more committed to this issue than probably anyone in Congress, 
so I would be happy to give her more time, too.
    But your point about the SEC, I think maybe everyone in the 
room agrees on this. We all would have been better off if it 
had dealt with this issue when DOL proposed a rule in 2010, 
which, as you know, I opposed.
    Mr. Perlmutter. Okay, it is 5 years, not 4 years.
    Mr. Bullard. Five years. And it is not just that. They have 
made proposals repeatedly that deal with exactly the same 
compensation practices that bothers the Department and they 
have done nothing. And I wish that they had addressed this 
issue and the Department probably would not be where it is now. 
But the SEC has failed to do so.
    Mr. Perlmutter. All right.
    Mr. Chairman, I would like to yield the balance of my time 
to the gentlelady from Missouri.
    Mrs. Wagner. I thank the gentleman very, very much.
    And I would like to direct this question to Mr. Stolz. 
Representative Ellison, I thought, brought up a point and said 
that advisors can still talk to clients before signing a 
contract. But I understand this proposal greatly limits 
``investor education.'' And could you please elaborate on the 
effects of this provision of the rule?
    Mr. Stolz. Sure, I would be happy to. The contract has to 
come in place as soon as they move from education to 
recommendations. And the big question on the table is, where is 
that line drawn?
    Mrs. Wagner. Correct.
    Mr. Stolz. And we would love to see it drawn on the side of 
education, because clearly clients need way more education than 
they have. Right now, it looks like it is way too close on the 
recommendation side where I could get to a point as soon as I 
start saying, well, it looks like you should be 60/40, 60 
percent equities, 40 percent, I am now making a recommendation. 
And before I do that, I have to give you this contract to sign. 
And I am literally going to stop the conversation and say, all 
right, next, please sign this, and then I will talk to you some 
more.
    Mrs. Wagner. Given the faulty economic analysis with the 
DOL rule and it is beyond fuzzy math is all I can say for them 
to have taken $1.7 trillion in the entire value of mutual funds 
and annuities in 2013 and say that savers lose about 1 percent 
based on some academic literature that they don't even 
reference and is not found I any kind of study is beyond fuzzy 
math.
    But given this analysis with the DOL rule, is the 
additional analysis required of the SEC under the Retail 
Investor Protection Act appropriate?
    Mr. Stevens?
    Mr. Stevens. There should not be any agency rulemaking in 
this area that is not predicated upon sound economic analysis. 
The Department of Labor's proposal is not. Any SEC proposal 
certainly should be.
    Mrs. Wagner. I have said over and over again it is a 
solution in search of a problem.
    I probably don't have enough time to get into a couple of 
other areas that I have, so I will yield my time back to the 
gentleman, Mr. Perlmutter, and again, I am always in search of 
more time, so I thank you and yield back.
    Mr. Perlmutter. I yield back the balance of my time.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton, for 5 minutes.
    Mr. Tipton. I thank the gentleman, Mr. Chairman, for the 
time to be able to be here.
    My colleague and I from Colorado agree on a couple of 
things on this issue in support of the legislation that Mrs. 
Wagner is putting forward.
    I do have a question, Mr. Stevens, if you would maybe 
address this and it is regards to with DOL, just the amount of 
experience that they have in terms of regulating securities, 
putting forward these rules compared to the SEC, is there a big 
difference?
    Mr. Stevens. The Labor Department's focus is on a slice of 
this universe. The SEC's is more comprehensive; it is certainly 
longer established and they work with the SRO in this area and 
its rulemaking, as well.
    I would say, without intending to slight the Department of 
Labor at all, that there is deeper expertise at the SEC on 
these issues. And that having been said, I would agree with 
colleagues here they should have been to this ball more 
quickly.
    Mr. Tipton. And I would agree with that, along with my 
colleague from Colorado, to be able to get to it more quickly. 
But do you see a disturbing trend? We see it across-the-board, 
particularly as we see the expansiveness of Dodd-Frank 
implications, that we are seeing a broadening net of 
overlapping regulatory bodies moving into the space of 
investments.
    Mr. Stevens. What I worry is about a dynamic that demonizes 
an entire profession and an entire marketplace. We certainly 
have abuses in this market and they need to be rooted out. I 
think everyone should agree, we certainly do, that the clients' 
best interests needs to come first and we need appropriate 
standards in place that are rigorously enforced for that 
purpose.
    But as we look at the market at large and as we think about 
certainly our part of it, the mutual fund part of it, there is 
a lot that is working very, very well for ordinary Americans 
trying to save for retirement.
    So we need to size the problem, and we need to devise 
solutions that are appropriate to the problem, not demonize one 
and all associated with it.
    Mr. Tipton. I would agree with that.
    Ms. McNeely, in your experience--we had heard the professor 
talk about risky stock funds versus safe bond funds putting in. 
When you are working with your clients, is one of the first 
questions you ask, what is your risk tolerance? Is that a 
standard for the industry?
    Ms. McNeely. Absolutely. And not just the risk tolerance, 
but everything about them. We spend a significant amount of 
time gathering facts and data specifically about their 
situation. And I think the risk that we run, any regulation 
that causes us to use a one-size-fits-all simply based on 
product fees or product type is a mistake, because truly the 
only thing that we should be concerned about is what is in the 
best interest of the client.
    And if the best interest of the client is to use a broad 
approach and use multiple different products, I think that is 
what we need to continue to push for.
    And so, my experience has not ever been that I choose a 
mutual fund based upon the amount of money I get paid. I choose 
a group of mutual funds based upon what is right for the 
client.
    Mr. Tipton. And Mr. Stolz, maybe you would like to speak. I 
think that you had talked about some of the complexity, the 
liability, the expense that is going to be associated. And 
again, I will go to the professor's example of that risky stock 
fund versus the safe bond fund.
    We have a 25-year old who starts making investments, 
putting it in, and we go with that safe bond fund, and then 20 
years down the road, 30 years down the road, we compare that 
return to that risky stock fund which will more than likely 
outperform if statistics tend to hold.
    Would you have a lawsuit that 20-year old now 50 could file 
saying you did not work on my behalf to be able to get the 
highest, best-potential yield for me?
    Mr. Stolz. Very potentially true you could, because you 
would look at it after the fact and say you should have known 
that I as a younger individual should have been able to have a 
higher risk tolerance and, therefore, I should have been more 
heavily weighted into equities and, therefore, you put me too 
much into bonds, I was not able to accumulate enough money for 
retirement, and now I have a problem.
    ``Risk'' is a relative term. And don't confuse risk with 
volatility. Clearly, in the long run, equities will return more 
than bond funds do. And so you have to take that in 
consideration.
    Mr. Tipton. Ms. McNeely, your experience professionally 
representing and caring about your clients, do you take that 
into consideration as a client moves through their years to be 
able to make those sort of recommendations to look at for them?
    Ms. McNeely. Without question. And I would say that I think 
it is extremely important that they have an advisor. As they 
move through the years, we meet on a regular basis, in 
particular as they get closer to retirement. Their needs 
change, their scope changes. And the transition from the 
accumulation phase to the distribution phase is such a critical 
transition. And if you don't have an advisor moving you along 
the spectrum and potentially moving you from different products 
as you make that switch, you could make some real missteps.
    Mr. Tipton. Thank you.
    I thank the panel for being here.
    And I yield back, Mr. Chairman.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks, for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    Let me just say first off, coming from my background, the 
first thing I realize is that most Americans are not financial 
experts. And millions are often not even financially literate. 
And I think that becomes part of the problem that we are trying 
to get folks to become more financially literate. And so 
therefore, they must make some decisions that are complex 
financial products and try to steer them to what we want them 
to do, to be able to plan for retirement and choose from what 
is seemingly an infinite number of products. And it is hard for 
them to navigate what those products are.
    So on the one hand we need to make sure that Americans 
continue to have access to financial education on their 
retirement products and options, and thereby have access to 
financial professionals.
    And on the other hand, because these average Americans are 
vulnerable, we need to protect them from people who are just 
trying to sell them products so that they can make themselves 
more money.
    So we have to make sure that we have a balancing act here.
    As a result, for me, this DOL fiduciary rule is far too 
important and we must absolutely strike the right balance 
between access to financial services and consumer protection. I 
think if you tip the scale one way or the other we could try to 
do one thing and hurt the other. And we can't do it. We have to 
make sure that this is really a balanced situation.
    I looked at what took place and what happened recently in 
the U.K. And in the U.K., we saw how their new proposed rule or 
fiduciary rules greatly diminished access. I have to make sure 
that does not happen.
    So with that and some of the stuff that we are going back 
and forth, maybe I will address this question to Mr. Stevens. 
Some of the alternatives proposed by industry stakeholders 
claim to establish a more ``workable fiduciary duty.'' Can you 
please elaborate on what is workable and what is not workable 
under this DOL proposal?
    Mr. Stevens. Thank you, Congressman. We actually in our 
comment letters have outlined a whole series of things that we 
think could be done to the DOL proposal to make it workable, to 
make it a sensible regime that would serve investors 
effectively.
    You start with the need to draw a clear common-sense line 
between the provision of fiduciary advice on the one hand and 
information and education on the other, because there is a huge 
need among all sorts of people for information and education 
and help which is short of the fiduciary advice and the 
relationship of trust and confidence that implies.
    And we need to have a line between them. The one is held up 
to a very high standard, the highest under the law, the other 
ought to be encouraged if we are going to get that balance 
correct, as you had said.
    We need, in this BIC exemption, this best-interest-contract 
exemption, to do all sorts of things. Secretary Perez has said 
we need to take a principles-based approach to this. We would 
agree with that. But when we look at that exemption, it is 
anything but a principle-based approach. It is more like an 
Internal Revenue Code of all sorts of compliance requirements.
    We need to avoid retroactive application of any new rule, 
too, because of the huge disruption it has for existing 
relationships. That, it seems to me, is very sensible. As I 
have said before, we need a meaningful, orderly implementation 
period.
    So we go into greater detail in each of these in our 
comments, but those are some ideas about how to make this a 
workable proposal.
    Mr. Meeks. Thank you.
    Mr. Bullard, in your testimony you stated that many of the 
alternatives put forth by the industry do not address 
conflicted compensation arrangements. Can you discuss what some 
of those conflicted compensation arrangements are?
    Mr. Bullard. Some of the arrangements are the ones that I 
have outlined where, for example, rather than it being an issue 
of how you should allocate among funds, the question that I 
would like Ms. McNeely and Mr. Stolz to answer is, should you 
get paid more for selling a stock fund than a short-term bond 
fund? That is the straightforward question. There is no 
rational basis for paying somebody more for recommending one 
over the other. And I don't think they would defend that.
    I also think it is extremely abusive to have what I view as 
ratcheted payout grids where simply by making a very small 
additional sale you can literally go from choosing between an 
$80 commission to a $29,000 commission.
    And I mentioned this probably going over more than an hour 
ago, so no one has answered the question here as to whether 
they think it is appropriate to be paid twice as much for 
selling stock funds over short-term bond funds, or to have a 
choice between $80 and $29,000.
    And lots of broker-dealers, to their credit, have decided 
it is not appropriate and they have already put in place 
procedures to deal with those conflicts.
    And the DOL, they are trying to deal with those kinds of 
conflicts and they have been left unaddressed by FINRA and the 
SEC for decades.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin, for 5 minutes.
    Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very 
much.
    And thank you all very much for being here today. This is 
such an important issue.
    When I was in the pension management business 30 years ago, 
the business was so much different than it is today. Look at 
the different products that our investors have to choose from. 
And the costs have plummeted. And so markets go up, markets go 
down, but our broker-dealers and our financial advisors are 
always there to help our middle-class families who are trying 
to make it through this recession and save for their kids' 
college savings or their retirement.
    I don't worry about our workers at Bath Iron Works, which 
is part of General Dynamics, abutting my district, the Maine 
2nd District. I don't worry about the folks at L.L. Bean. These 
are big companies and they have access to the best investment 
advice that you could possibly want.
    What I worry about are the small-business owners in our 
district in Down East Maine, the fellow who pulls traps and is 
one of the best lobster men you could ever find in Down East 
Maine and provides a product that we all want, we all enjoy. If 
you haven't been to Maine, fall is a great time to go there.
    And I worry about those people. They are struggling through 
the worst recession we have had in 70 years. They are trying to 
put aside a little bit of money so they can retire on it. And 
they know deep down in their hearts somewhere, somehow, the 
government is not going to be there for them.
    Let's face it, Social Security is a $15 trillion unfunded 
defined benefit pension plan. So we should have a government 
here, all of us, that helps our small investors, a government 
that works for them, not against them.
    And so I really worry about that. We had a fellow coming in 
our office, a fellow by the name of Doug Curtis from Edward 
Jones down in Rockland, which is midcoast Maine. And he has a 
book of business of maybe 200 clients. And they are small 
investors just starting out and they are trying to make sure 
they have enough money to augment what they hope will be Social 
Security down the road.
    But he comes in and he says, ``Bruce, if this rule goes 
through in its current form, costs are going to go up, the 
product offerings are going to go down, the rates of return are 
going to go down for my clients, and I am not going to be able 
to offer them advice at all.''
    So here is my question. If you are a great logger or a 
trucker or you are working in a paper mill or you are a nurse 
or a teacher, you know your business really well, but you don't 
know the financial services business very well, as Mr. Meeks 
said. So do you put your money in stocks or in bonds or in 
cash? Do you buy annuities? What about the asset allocation? 
What about my age? How much should go in stocks, how much 
should go in bonds? What if I have a home mortgage, what if I 
paid it off? What if I have a second kid going to college, what 
if I don't?
    Who is going to provide this advice if the FAs and the 
broker-dealers do not?
    I am really worried about them. And I think that we ought 
to make sure that any rule that is passed is one that helps our 
small investors and not hurts them.
    So I frankly think that this is a classic example of big, 
intrusive government trying to create regulations that are not 
needed.
    Everything is based on trust in your industry, right? If 
your clients don't trust you, they are not going to hire you. 
They are certainly not going to trust you with their money. So 
that in itself is a very positive development in this industry, 
especially with all the competition out there.
    So Ms. McNeely, I would like to ask you a question. I get a 
little bit concerned when I hear about, well, if this goes 
through and all of a sudden the advice that we could give to 
the folks saving for their retirement is going to dry up and 
now you are going to have to rely on robo-advice.
    Now, can you imagine? My mother is 87, my dad is 85 and I 
love them to death. And they have a little bit of money saved 
aside. My parents don't log on, they barely can use a 
cellphone. So how is mom at 87 going to get robo-advice on 
maybe a mutual fund that she has and maybe she would have 
fixed-income investment, at her age maybe she will be in cash? 
But she is not getting anything in cash, so what does she do?
    So tell me, Ms. McNeely, in real life what that would look 
like?
    Ms. McNeely. They might actually come to you for advice. I 
hope you are prepared for that.
    Mr. Poliquin. I am not. I never give advice to my parents, 
but they give it to me all the time.
    [laughter]
    I will say that you have described exactly what my biggest 
concerns are. Those individuals are the very people who need 
our advice. And when you went through your list of all the 
questions that need to be asked and taken into consideration 
before you make any recommendations to your client, we do that 
each and every day with our clients back in Spencer, Wisconsin.
    So I will wholeheartedly agree with your concern. And I 
will also tell you that it would be extremely detrimental if 
your parents were not able to get the advice that they need at 
that time in their life.
    Thank you all very much. Keep pushing, let us get this 
right. It is a great thing we are trying to do. We have to make 
sure we get it right.
    Thank you, Mr. Chairman.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Delaware, Mr. 
Carney, for 5 minutes.
    Mr. Carney. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    And I thank all of the the panelists for being here today.
    I can't believe we are still talking about this issue, 
frankly. When I first came here in 2011 this was a big issue, a 
complicated issue for me, and we are still talking about it 
nearly 5 years later.
    In the small State where I come from, we would put all the 
people who had interest and knowledge about an interest like 
this, put them in a room, form a task force, get them to work 
together, and come up with a proposal that works best for 
everybody.
    This process that we have is beyond me. I don't think we 
should, with all due respect to my colleague from Missouri, 
kick the can down the road anymore. We need to come up with a 
solution.
    I hear some common themes here that it seems like people on 
both sides of the issue could agree around to get something 
where we can move forward.
    When I talked to the Secretary of Labor on this issue 
sometime ago when he presented to a group of us, he indicated 
that he was interested in giving the small investor a tax cut, 
if you will, or a reduction in fees and so that, in some ways, 
is an objective of his.
    I share the concerns that Mr. Lynch articulated sometime 
ago about the effect of this rule, where we are headed on the 
small investors. I think Mr. Stevens mentioned that there are 
20 million accounts out there of $25,000 or less.
    So let me focus my questions on those people.
    What do you expect will happen if this rule goes into 
effect, Mr. Stevens, Ms. McNeely, to those investors in those 
accounts? What is the worst-case scenario? And what are the 
potential unintended consequences for that?
    And then, Mr. Bullard, I will give you an opportunity to 
give your view of that.
    Because I think a lot of where you come down on this issue 
is what your expectation is about what is going to happen after 
it goes into effect. And a lot of that, in my view, is 
speculation.
    Mr. Stevens?
    Mr. Stevens. It will decisively affect business models of 
firms across the country who are trying to serve small 
investors.
    Mr. Carney. How so?
    Mr. Stevens. It is going to increase costs, it is going to 
increase liability. It will involve massive changes in the way 
they have to interact with their clients if we can negotiate 
this rule.
    Mr. Carney. Does that mean it won't be cost-effective for 
those clients to be served? Is that what you are saying?
    Mr. Stevens. You might incur substantially increased costs 
of doing business, but you would expect to be doing it on a fee 
basis for larger accounts because you will get more money. And 
so the idea of servicing a $25,000 account or a $10,000 account 
on 1 or 1/2 percent in light of the new requirements of the 
rule, it is just not economical.
    Mr. Carney. So they will be left without, that is what I 
have heard.
    Mr. Stevens. That is our fear. That is exactly right.
    Mr. Carney. Ms. McNeely?
    Ms. McNeely. I would concur with that statement and also 
let you know that we included a chart in our written comments 
that basically talks exactly about that person that you are 
discussing, a small saver putting away an amount of money on a 
monthly or an annual basis. And if they choose a current model, 
a commission-based model right now and we are forced to look at 
a fee-based model as a requirement of potentially getting moved 
to a different model, they would probably have to pay about 
double the amount that they would currently be paying if they 
stayed in that commission-based model.
    So my concern is that we may not be able to continue to 
serve those individuals. And if we could serve them, it would 
be at a much higher cost to them.
    Mr. Carney. Professor Bullard, your view of that?
    Mr. Bullard. I am getting paid by hedge funds to tell them 
what the effect of the rule is going to be, so I have been into 
the guts of the rule, and none of my analysis assumes that the 
people are moving to asset-based fees.
    Mr. Carney. So what is your assumption? My time is running 
out.
    Mr. Bullard. So my assumption is, well, first, what is 
going to happen is you are going to see a flattening of 
compensation across the short-term bond fund and the stock 
fund. That is inevitable, that will be at the financial advisor 
level. But the DOL is not affecting branch manager compensation 
at all, which I think is a problem. But it definitely does not 
affect the broker-dealer level where nothing will be changed.
    Another effect is going to be, under the current proposal, 
there is going to be a big shift of the people who are selling 
non-traded REITs to fixed indexed annuities, which is 
unfortunate because fixed indexed annuities are not even 
subject to the securities laws, and I hope that they will 
change that in their final proposal.
    Another change is you are going to see some shift in asset 
allocations. They are going to become a little more 
conservative, because at the margins it is inevitable that 
there are some recommendations that are probably a little more 
aggressive than they would be if you had flat compensation. So 
statistically that will happen, but we don't really know 
exactly what the magnitude is going to be.
    And then in the revenue-sharing space, that is where it is 
going to be fairly complicated because revenue sharing varies a 
lot. Even within broker-dealers, they have different revenue-
sharing arrangements with different complexes. What will happen 
is, because revenue sharing trickles down to financial 
advisors--
    Mr. Carney. Okay, I have to stop you there because I have 8 
seconds.
    Thank you all for your participation. This has been a 
complicated and frankly frustrating exercise for somebody who 
comes from a State where my constituents expect us to get 
things done.
    Thank you, Mr. Chairman. I yield back.
    Chairman Duffy. The gentleman yields back.
    Without objection, members of the full Financial Services 
Committee who are not members of either subcommittee may 
participate in today's hearing.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill, for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. Thanks for having this 
hearing. I appreciate the time and I appreciate what I have 
heard today. I come at this hearing from the fact that for 35 
years I have been in this business, both as an investment 
manager on the fiduciary side running a bank trust Department, 
being a CEO of a FINRA-registered broker-dealer, and so I have 
a lot of opinions, as you can imagine, on this topic.
    But I want to make some general comments first, and that is 
we should be encouraging savings in this country through public 
policy, and not have a war on savings like proposals that we 
have had in the past to do away with 529 plans that were beaten 
back, or to raise capital gains taxes, or to punish people who 
have saved their whole life and tax away their IRA benefit if 
it is over a certain amount.
    Fifty percent of Americans in this country don't have a 
will, 41 percent of Americans over 55 years old don't have a 
will. And more time should be devoted to planning. And I think 
we all know in the financial services industry that people 
spend more time planning their vacation than they do planning 
for retirement and saving every year.
    And so we should be supporting, as Mr. Meeks talked about, 
financial literacy. And one way we do that is consultative 
relationships between the financial advisory community and the 
client community. And anything that gets in the way of that 
conversation or tries to put it in a box is a bad idea.
    And my view is that the DOL should, at the very least at 
this moment, re-propose this rule based on the additional 
comments.
    Further, Secretary Lew and Director Donovan at the OMB, in 
my view, should carefully look at this rule. Is this in the 
interest of government efficiency, government accountability?
    And as my colleague Mr. Carney said, this has been working 
along for 5 years. It is absolutely not the way to run anything 
and it is an embarrassment to our country that we can't come 
together the way Dodd-Frank suggested, which was to have the 
SEC study this issue and put it out, put it out. And instead, 
we are trying to skip steps here and run around on the other 
side of the field and go through the DOL for retirement 
accounts.
    So to me, it is an example, it is a classic of Phil Howard, 
the famous New York lawyer, who wrote a book called, ``The Rule 
of Nobody.'' This is more--we have robo-rulemaking now, much 
less robo-investing, and that is not the way. We want managers 
to do their job by their clients and to adopt suitability 
standards and adopt fair-dealing standards and do things the 
right way.
    So I am distressed that this has taken this long. And I 
call on the SEC to do their job here and not waste people's 
time for another 5 years on this project.
    I would like to yield the balance of my time to my 
distinguished colleague, the gentlewoman from St. Louis.
    Mrs. Wagner. Thank you. I thank the gentleman from Arkansas 
for his consideration and for the time here.
    I wrote and introduced the Retail Investor Protection Act, 
the second Congress that I have put this forward because I care 
deeply about the retail investor, especially the low- and 
middle-income investor.
    I also care deeply about just about everyone that you all 
represent, which is an industry. And I am absolutely disgusted 
at the fact that we have an Administration that has villainized 
and disparaged an entire industry and even in public forum 
called them snake oil salesmen.
    My broker-dealers, my financial advisors, they are friends. 
They were there when my first baby was born. They were there 
when we baptized that child, when we put them in school, when 
we married that child. To villainize an entire industry is 
absolutely wrong.
    And I have to put that out there and say also that I love 
stories and I would love to have the time to tell a story about 
a Missourian in Blue Springs, Missouri, a story about a 
financial advisor who describes this married couple 15 years 
ago who were in their late 40s and 50s, IRAs of about $10,000 
conservatively invested. After providing financial advice to 
the couple, they now have over $100,000 in the account and the 
client is debt free, including the mortgage.
    Mr. Stolz, if DOL's fiduciary rule were final and effective 
today, would this married couple be able to receive the same 
financial advice that they did? In 2 seconds.
    Mr. Stolz. In 2 seconds, no.
    Mrs. Wagner. All right. I have more about this family. To 
be continued.
    I yield back my zero time.
    Mr. Fitzpatrick [presiding]. The Chair recognizes the 
gentleman from South Carolina, Mr. Mulvaney, for 5 minutes.
    Mr. Mulvaney. I thank the gentleman. I will move very 
quickly because I want to hear the end of the story.
    Mr. Stolz, it is already against the law for me to churn an 
account, isn't it?
    Mr. Stolz. That would be correct.
    Mr. Mulvaney. It is already against the law for me to put 
somebody in an unsuitable account, isn't it?
    Mr. Stolz. That would also be correct.
    Mr. Mulvaney. It is already against the law for me to lie 
to somebody about the funds in an IRA, isn't it?
    Mr. Stolz. Yes.
    Mr. Mulvaney. So all the horror stories we have heard today 
that we are trying to fix are already against the law, aren't 
they?
    Mr. Stolz. Yes.
    Mr. Mulvaney. Yes.
    Mr. Bullard, you have mentioned twice, I think, in your 
testimony that if you spend more on something, you get more of 
something. I happen to believe that is true. There are a couple 
of corollaries to that, which is if you spend less, you get 
less, and if you spend none, you get nothing.
    And my fear is what we are moving to is a circumstance 
where some people are not going to get any advice at all and 
other people are going to get really, really lousy advice. And 
I am glad to hear that there is some bipartisan pushback on 
moving down that road.
    The last thing I want to read is an article, very briefly, 
from 2014. The head of the Department of Labor's Employee 
Benefit Security Administration gave an interview and she 
talked about the advantages of regulation versus legislation. 
And I will read it very quickly.
    ``Back in the day when people wanted to make changes they 
passed legislation. And when a major bill like ERISA was passed 
there was always the opportunity to come back and make some 
technical corrections. Today you can't get Congress to pass a 
Mother's Day resolution.''
    This is Phyllis Borzi.
    ``So what we have done is we have shifted from the way that 
social change and legal change and financial change is 
accomplished through congressional action to two different 
avenues for making changes, the main one being regulation. One 
advantage of regulation is that the agencies writing the rules 
are able to receive input from the public, something that 
doesn't often happen with Congress.''
    The irony of getting a letter from the Department of Labor 
on their position before--
    Mrs. Wagner. Three days before.
    Mr. Mulvaney. --the input was received, in light of that 
comment from the same Department, is not lost on us.
    With that, I will yield my remaining 3 minutes to my good 
friend from Missouri.
    Mrs. Wagner. Thank you. I appreciate that very, very much.
    Mr. Stevens, regarding my story about the Blue Springs 
couple I described earlier, there clearly were some benefits to 
having access to financial advice. Does the Labor Department's 
economic analysis incorporate those benefits at all, sir?
    Mr. Stevens. I think the analysis is incorrect in important 
ways, Congresswoman. One is that if that couple or whomever has 
to go to a fee-based account, which is what we are talking 
about--
    Mrs. Wagner. Correct.
    Mr. Stevens. --migrating in that direction, that seems to 
be what the Labor Department's intent is, they are going to be 
incurring fees and as a substantial percentage year-on-year of 
what their account is.
    The Labor Department didn't consider any of those costs in 
coming up with their regulatory impact analysis.
    Mrs. Wagner. Does the Department of Labor factor in the 
costs of not having access, this is exactly what my next point 
is, to the financial advice in regard to retirement savings? 
That has not been put in the equation at all and I believe you 
just did elaborate.
    Mr. Stevens. And that is a somewhat different point. But to 
the extent that people don't have access to advice after the 
new rule is adopted, the likelihood is that they are going to 
make some bad investment decisions that will be costly to them. 
We actually estimate that is in the tens of billions of 
dollars.
    So if you add all of these things up, these new costs, it 
is about $109 billion in new costs to American investors and 
savers.
    Mrs. Wagner. A hundred-and-nine-billion dollars in new 
costs--
    Mr. Stevens. That is correct.
    Mrs. Wagner. --with them not having access to financial 
advice with regard to their retirement savings.
    Mr. Stevens. Or paying fees that they hadn't been paying 
before.
    Mrs. Wagner. Mr. Callahan, considering the extent that 
unintended consequences could result from this rule and the 
faulty economic analysis supporting the rule, how important is 
the Retail Investor Protection Act in preserving low- and 
middle-income access to financial advice?
    Mr. Callahan. It is critically important. And let me 
clarify a point. Congressman Carney asked Professor Bullard 
about what will happen to lower-income investors and he 
speculated about a number of things.
    I am not going to speculate; I am going to tell you what we 
have already done. We have met off-site as a firm. In light of 
this rule, we will form a separate business to serve IRAs and 
we will make the minimum of that somewhere between $100,000 and 
$250,000. That is what we are doing, not a speculation.
    The other point I would make--
    Mrs. Wagner. That is the answer I am looking for. Could you 
elaborate? You have the rest of my time, sir, 40 seconds.
    Mr. Callahan. The other point I would make is that I have 
heard about this perceived tradeoff between access and 
protection, and I don't believe that those are mutually 
exclusive. The whole idea that the choice is either this best-
interest standard or nothing is a false choice.
    And Congressman Mulvaney made a great point in that the 
existing regulatory framework, the horror stories we hear, most 
of them are breaking existing law.
    I work under a best-interest standard with the SEC, I work 
under FINRA, and I can tell you on a day-to-day basis taking 
money and putting it into investments, the FINRA regime is far 
more rigorous.
    And I will leave you with one final question, and that is 
this. We are going to go to bed at night and think that this 
fiduciary standard is going to solve all the problems. There is 
not a world void of conflict and bad people will break the 
rule. And let me ask you, which regime was Bernie Madoff under 
when he stole money? The best-interest regime.
    Mrs. Wagner. I thank you all very, very much.
    Mr. Fitzpatrick. The Chair recognizes the gentleman from 
Indiana, Mr. Messer, for 5 minutes.
    Mr. Messer. Thank you, Mr. Chairman.
    I was raised by a working person, a single-parent mom, who 
just retired from the Delta faucet factory. I represent a 
district full of working people, the kind of investors who 
would be impacted by this law.
    And I am reminded of an adage in life: we are not just 
responsible for our intentions; we are responsible for our 
results. And as much as I respect the broker-dealers and all 
those who work within the industry, my concerns with this rule 
are, of course, related to that industry, but they are more 
importantly related to the individual investors and what the 
results of this could be for the working people who need this 
retirement to get to the finish line.
    And this Administration, often the policies that they are 
putting forward end up hurting the very people that they are 
designed to help.
    And so I wanted to explore with you a little bit, Mr. 
Callahan, Mr. Stevens, and Ms. McNeely, the Obama 
Administration has a stated priority of promoting policies that 
would make guaranteed lifetime-income products more widely 
available to help middle-class Americans save for retirement.
    Do you believe that this fiduciary rule standard that they 
are putting forward will make that more likely to happen for 
middle-class families or less likely?
    Mr. Callahan. As I said in my opening testimony, it will 
make it less likely. Those products are prohibited.
    I will give you an example. Treasury has talked about the 
importance of using lifetime-income annuities. We have been 
through volatile markets in 2008 and 2009. We have had a good 
run until a few weeks ago. People forget what it is like to see 
their account values go extremely up and extremely down.
    But what is interesting is that the Treasury issued final 
regulations last year on qualified longevity annuity contracts 
that were designed to put these lifetime-income annuities 
inside retirement plans, and yet this rule, on the face of it, 
would prohibit the very use of the products the Treasury just 
finalized the rule encouraging them to use 12 months ago.
    And that is a perfect example to me of why it absolutely is 
not encouraging; it is actually prohibiting.
    Mr. Messer. Mr. Stevens, Ms. McNeely?
    Mr. Stevens. Just very briefly, one of our recommendations 
is that if we do have this BIC exemption that it be expanded in 
its scope to include a whole range of products as opposed to 
the kind of legal list that the Department of Labor has come up 
with.
    Ms. McNeely. I would also just echo what has already been 
said, but also just to add that Mr. Ellison discussed the fact 
that pensions are really not much in existence any longer. And 
really, there are three things that provide guaranteed income 
stream that are available to any American. The first is 
pensions, which are going away; the second is Social Security, 
which has some issues; and the third is an annuity that can 
provide a guaranteed income stream.
    And the lower- and middle-income consumers are definitely 
the ones who are going to be best served to look at an annuity 
so that they can at the very least provide a guaranteed income 
stream to cover their basic living expenses.
    Mr. Messer. And again, under the theme you are not 
accountable only for your intentions, also for your results. 
All financial products are not the same, they offer different 
options, guarantees, benefits for consumers to choose based on 
their individual needs. For example, products like annuities 
have higher fees due to the guarantees they provide to 
consumers.
    Will the rule limit a consumer's choice in access to these 
products? Will it skew the market towards certain products 
based solely on fees, regardless of the overall benefit to the 
consumer?
    Mr. Stolz. I will take that one if that is okay.
    Mr. Messer. Yes. Yes, Mr. Stolz, sure.
    Mr. Stolz. There is no question that one of the criticisms 
of annuities in general, and we heard it in Secretary Perez's 
stories, is that they are costly. They come with guarantees, as 
you have said, that are important and those cost something.
    There will be a bias against any investment that has 
appeared to be costly, and by nature that is going to mean 
advisors are going to be less likely to recommend products like 
that.
    Mr. Messer. Who will be hurt most by that?
    Mr. Stolz. Clearly, the individuals who need that lifetime 
income. Nobody wakes up in the morning and says, hey, I have to 
go buy lifetime income today. They need to talk to an advisor 
who is going to say based on your current situation, here is 
how to solve that problem. And anything that gets in the way of 
that is going to be a problem for those individuals.
    Mr. Messer. Mr. Callahan?
    Mr. Callahan. Yes, I would just add the fact that we are 
even talking about a BIC exemption implies that it is 
prohibited from the beginning, and that is the idea of bringing 
this framework to IRAs.
    The SEC, in its fiduciary standard, you can do what is in 
the best interest, but bringing this other framework over has 
the prohibited transactions, one is self-dealing. And at face 
value the fact that you will be paid a commission for giving 
advice would make that prohibited, and then you need to use 
this door of an exemption to get there.
    And as we have testified, that exemption is unworkable. So 
by the very nature of the rule the way that it is written, it 
prohibits the use.
    Mr. Messer. In my limited time, I would just say we all 
want to see low-income and retail investors do well in this 
market. We want to see them protected. The reason we are 
concerned about this rule is it may give them less protection 
than they have in the current marketplace.
    I yield back the balance of my time.
    Mr. Fitzpatrick. The gentleman from Kentucky, Mr. Barr, is 
recognized for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman.
    I have heard from constituents throughout my district in 
central and eastern Kentucky time and again that this rule will 
negatively affect them, they are very concerned about the fact 
that employers would not be able to bring in financial advisors 
to provide kind of basic educational information to their 
employees, including not-for-profit organizations.
    Investors with small accounts will not be able to receive 
advice for 401(k) plans. No simple rollovers will be 
accessible. Middle-class investors are losing access to 
professional advice. More and more Americans will be forced to 
seek information on the Internet.
    And to me, when the Secretary of Labor says that robo-calls 
can fill the gap, are we serious about that? Do we really think 
that replacing flesh-and-blood advisors with robo-calls and 
Siri as a stock picker on your iPhone is really a better 
outcome with this rule? Is that really investor protection? 
That is the rhetorical question.
    Let me share with you four stories from my constituents and 
then have you react to them, about what they think this rule 
would preclude.
    The first example is a retired sheriff's deputy who made 
$38,000 a year for most of his professional life. He had a 403 
plan that was rolled over into an IRA, into diversified mutual 
funds. He watches the market, he calls his broker once a year, 
maybe twice a year about the asset allocation. He calls his 
stockbroker and he gets a tip and he says, should I move all of 
my diversified portfolio into this single grocery store stock 
market because my neighbor said this is a really hot tip? 
Thirty-eight-thousand dollars a year, rollover into an IRA.
    Obviously, the stockbroker prevented that kind of a 
misallocation of his retirement resources. And what the 
investment advisor or what the stockbroker told me is that he 
would no longer be able to serve that individual. That would 
have been a disaster for that retired sheriff's deputy.
    Another one. A working-class guy, very fiscally 
responsible, saved money every single year, and said I am going 
to retire when I have a million dollars in savings. Not a big 
income, but over the course of a fiscally responsible, 
financially responsible, working lifetime, he gets that million 
dollars. But because he has a lot of dependents, he needs a 
guarantee. So he goes to his stockbroker and he says I need a 
guarantee, I need an annuity. And he paid for the annuity, but 
he was satisfied because he needed that guarantee.
    The investment advisor, the stockbroker says to me if this 
rule goes into effect I would no longer be able to serve that 
client.
    Third example. Not-for-profit company, not-for-profit 
organization has a retirement plan, the proposed DOL rule would 
preclude the advisor from going in and providing individual 
investment advice for the employees of a very vanilla 
retirement plan for those not-for-profit employees.
    And finally, a fourth example. In rural Kentucky, a factory 
worker who goes into a stockbroker's office for free advice, 
basically gets free advice on the asset allocation of his 
retirement plan, in the anticipation that one day there will be 
a rollover. That kind of free advice based on accountability 
would no longer exist under this proposed DOL rule.
    In the minute remaining, comment on these vignettes and 
whether or not you agree that under the proposed DOL fiduciary 
proposal, you wouldn't have these scenarios where retail 
investors would have access to basic services where the rule 
would hurt the very people it is supposed to protect?
    And keep in mind, as we hear Professor Bullard talk about 
the cost of investment advice under current law being high, 
what my constituents are telling me is that if you think the 
cost is high now for professional advice, wait until you see 
the cost of amateur advice or no advice.
    Feel free to comment on that.
    Mr. Callahan. I would agree. And I would comment that 
Professor Bullard's analysis doesn't represent the funds that 
we use or the marketplace that we work in.
    But to your point on the stories, I would have to know more 
facts about each of them, but in general, yes, I would agree 
that will be the consequence, they will lose advice.
    And it goes back to the brilliance of Congresswoman 
Wagner's bill on requiring analysis, when you are quantifying 
what the problem is you are trying to solve you can build a 
better solution. We have proposed to the SEC those 408(b)(2)-
like disclosures that put on one piece of paper what are you 
doing, what are you getting, what does it cost you.
    And I would say if you had two funds and on one piece of 
paper one was twice as expensive as the other one and the 
services that you were going to receive for that were the same, 
people are smart and they would look at that and say, wow, in a 
simple, one-page document I can see that versus thousands and 
thousands of pages on a website that they will never read.
    And make it practical, make it actionable, make it 
preventative, not how do we rig this thing to unwind it in the 
future.
    Mr. Fitzpatrick. The gentleman's time has expired.
    The Chair recognizes the gentleman from Texas, Mr. Green, 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Again, I would like to thank the witnesses for appearing 
today.
    And I especially am grateful that, Mr. Bullard, you decided 
to come knowing that you would be outnumbered, understanding, 
however, that the rules permit this to take place, not because 
there are not others who would agree with your position who are 
experts, but because of the rules that we have here at the 
House.
    So I do understand some of the exasperation that you may 
experience. But notwithstanding this, I understand also that 
you are here because you care about small investors, and you 
care about small businesses. You care about them because you 
don't want them to make investments that are based upon a need 
or a desire by the advisor to put himself ahead of the 
investor, the people who are in need of good advice.
    So let us go back to the question that you wanted everyone 
to answer. Would you pose your question again, and that is the 
question of the $80 I believe versus $29,000?
    Mr. Bullard. It is whether it is appropriate to get paid 
more for recommending, for example, a stock fund or short-term 
bond fund, more than twice as much, or in some cases have to 
choose between an $80 payment or a $29,000 payment if you are 
on the brink of reaching one of those bonus-triggering payout 
grids.
    Mr. Green. My assumption is that all of you have understood 
this question. He has reiterated it several times. So let us 
just start with the person who is to my far left and ask, do 
you believe that the person that Mr. Bullard has referenced 
should be put in a position where he can get $80 versus 
$29,000? And I am going to ask for a simple yes or no. If you 
cannot answer yes or no, just simply say you pass.
    Mr. Callahan. I pass.
    Mr. Green. Thank you.
    Let us move to the next person.
    Mr. Stevens. I am not sure I understand the question, and 
so I can't answer yes or no.
    Mr. Green. Let us do this, then. I have a few seconds left.
    Mr. Bullard, explain the question one more time please.
    Mr. Stevens. Could I just ask what I don't understand? Mr. 
Bullard is talking about the compensation arrangements within a 
broker-dealer with respect to its own people. Is that correct?
    Mr. Bullard. Yes, it is a trickle down from what they are 
paid by the fund.
    Mr. Stevens. Okay. My own personal view, this is not an 
investment company institute policy issue, so I would agree--
    Mr. Green. I take it you will pass since you cannot answer 
yes or no, and I will go to the next person.
    Ms. McNeely. I would need more than one word, so I guess I 
will pass.
    Mr. Green. You will pass, yes.
    Mr. Stolz. I will say no because Mr. Bullard has said on 
numerous occasions that we have already fixed that at Raymond 
James.
    Mr. Green. You have fixed it at Raymond James, but you do 
agree that we have not fixed it industry-wide. Is that a fair 
statement?
    Mr. Stolz. I am going to limit my comments solely to 
Raymond James and our position.
    Mr. Green. I understand. So you have no knowledge of what 
is happening industry-wide.
    Mr. Stolz. I didn't say I didn't have any knowledge of what 
is happening industry-wide, but I am not familiar with the 
compensation structures.
    Mr. Green. Is it fair to say then that you are not going to 
answer because you are concerned about the response you might 
get from the rest of the industry?
    Mr. Stolz. I am simply not familiar with the compensation 
arrangements of the other broker-dealers.
    Mr. Green. I see. All right, well you have done well.
    Let us go back to Mr. Bullard. Mr. Bullard, you see what we 
are dealing with. Not all advisors are bad. But we do want 
those that are to know that they have a fiduciary 
responsibility and that they should put their clients above 
themselves. That is simply what this is all about, requiring 
investment advisors to put their clients first, not themselves.
    And my suspicion is that most Americans within the sound of 
my voice believe that is a pretty good idea to put the clients 
first.
    Mr. Bullard, what will happen if they don't put the clients 
first? Because we have had many people to talk about what 
happens if the rule goes into effect, what happens if we 
continue to allow them to not put the clients first?
    Mr. Bullard. There are two things that would happen. One is 
at the margins you will consistently have products that are 
sold that are not in the best interests of the client, and that 
will have a marginal, incremental, negative effect on all of 
those people.
    And then the other category will be some people will have 
devastating consequences. And Mr. Stolz used the example of the 
Toffels and defended the sale of that product. I looked up what 
that product was and this is the Prudential sheet that shows 
that was an L Series class of variable annuities. And this is 
one of the largest sellers of the annuities deciding it is 
getting out of the business because they are inherently abusive 
given the kinds of riders and the length of period for 
redemption.
    And this is an article that cites FINRA that specifically 
cited those L share series as being a target of their reviews. 
So that is an example that it is anecdotal, it doesn't really 
tell you much about the industry. But that was a case where, if 
you are a financial advisor and you could not have anticipated 
that an elderly person might get ill and that was unexpected, 
that is malpractice. You have to expect that an elderly person 
might get ill and need the liquidity that a variable annuity 
wouldn't provide.
    Mr. Fitzpatrick. The gentleman's time has expired.
    Mr. Green. Mr. Chairman, if I may, I have a statement that 
I would like to enter into the record, if there are no 
objections.
    Mr. Fitzpatrick. The statements will be admitted under 
general leave at the conclusion of the hearing.
    Mr. Green. I shall wait. Thank you, Mr. Chairman.
    Mr. Fitzpatrick. The Chair now recognizes himself for 5 
minutes, and I am going to yield my time to the sponsor of the 
Retail Investor Protection Act, the gentlewoman from Missouri, 
Mrs. Wagner.
    Mrs. Wagner. I can't thank my colleagues enough for their 
3- to 4-years' indulgence in my absolute passion on this issue, 
all those in industry and, most importantly, that retail 
investor, that low- and moderate-income investor who is every 
member of my family, every person in my cul-de-sac, every 
person with whom I go to church. They will be impacted by this.
    And yes, every single investor and saver for retirement 
deserves the best--the best--information, the best advice that 
they need.
    And I would remind the ranking member and others that there 
are rules and regulations currently already on the books that 
are dealing with many of these issues, problems and faults. But 
to put in another thousand pages of rules and regulations that 
does not harmonize with the SEC, that stands to run in 
different paths of the SEC is just simply wrong.
    Secretary Perez and the Department of Labor have framed 
this proposed rule as simply requiring advisors to work in a 
client's best interest. And if advisors are already doing this, 
then there should not be any problems, he says.
    Is this an accurate statement? And if not, can you please 
explain why the marketplace reality is much more complex?
    Mr. Callahan?
    Mr. Callahan. It is far more complex and goes to the point 
of this false choice, that the choice is this regulation or 
nothing. And even Professor Bullard testified FINRA took action 
under the existing regulatory framework--
    Mrs. Wagner. Correct.
    Mr. Callahan. --to correct something in the marketplace, a 
schedule that was approved and filed with the SEC, just to be 
clear. The advisors didn't make up these products. They are 
filed and in practice the rulemaking framework worked. FINRA 
came in and corrected the measure, as he testified.
    So it is far more complicated than that. And to think that 
our only choice is this standard as drafted by the Department, 
which pre-defines what is best and what is not best and takes 
some solutions off the table because they are prohibited and 
then begins to try to work them back in with exemptions, to me 
is so clear that it is a square peg in a round hole and far 
more complicated than the light touch that the Department 
claims that it is.
    Mrs. Wagner. Mr. Stevens?
    Mr. Stevens. If it were quite that simple it wouldn't have 
required hundreds of pages in the Federal Register.
    Mrs. Wagner. Correct. As I said, every investor deserves 
the best information they need. I care deeply about the retail 
investor and the low- and moderate-income investor. I care 
deeply about an industry that I think is full of good actors 
that help families save and invest for their retirement and for 
their future.
    Congress has already provided the avenue in Dodd-Frank to 
look at issues between different standards of care under 
Section 913. That analysis and rulemaking is being done by the 
SEC, which is the regulator that is familiar with current 
securities law and has a much better understanding of the 
stakeholders and the market.
    SEC Chair Mary Jo White hasn't directly criticized 
Secretary Perez, but this spring she said the SEC is working on 
its own rule. Commissioner Gallagher, a Republican on the SEC, 
says in a letter to Mr. Perez that the rule currently as 
proposed and as not willing to be re-proposed or changed in any 
way, shape or form, as my correspondence has demonstrated here, 
says that it is clear that the DOL rulemaking is a fait 
accompli and the comment process is merely perfunctory.
    This rulemaking from the Department of Labor makes their 
inexperience in this area crystal clear. And this hearing has, 
I think, today showcased and further demonstrated the proper 
avenue for further regulation, which is the Retail Investor 
Protection Act.
    I thank you all for your indulgence.
    I thank the Chair and so many of my colleagues for yielding 
their time. And we will fight on. Thank you.
    I yield back.
    Mr. Fitzpatrick. The gentlelady yields back.
    I would like to thank the witnesses for their testimony 
here today.
    Mr. Green?
    Mr. Green. Yes, thank you, Mr. Chairman. I would like to 
submit without objection a statement from the Honorable Ranking 
Member of the Capital Markets Subcommittee, Carolyn Maloney. 
And without objection, I shall submit it.
    Mr. Fitzpatrick. Without objection, it is so ordered.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is adjourned.
    [Whereupon, at 12:35 p.m., the hearing was adjourned.]

                            A P P E N D I X


                           September 10, 2015
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