[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                      IMPACT OF THE DOL FIDUCIARY
                      RULE ON THE CAPITAL MARKETS

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON CAPITAL MARKETS,
                       SECURITIES, AND INVESTMENT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 13, 2017

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-29
                           
                           
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                 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
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                  Kirsten Sutton Mork, Staff Director
      Subcommittee on Capital Markets, Securities, and Investment

                   BILL HUIZENGA, Michigan, Chairman

RANDY HULTGREN, Illinois, Vice       CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
PETER T. KING, New York              BRAD SHERMAN, California
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
ANN WAGNER, Missouri                 KEITH ELLISON, Minnesota
LUKE MESSER, Indiana                 BILL FOSTER, Illinois
BRUCE POLIQUIN, Maine                GREGORY W. MEEKS, New York
FRENCH HILL, Arkansas                KYRSTEN SINEMA, Arizona
TOM EMMER, Minnesota                 JUAN VARGAS, California
ALEXANDER X. MOONEY, West Virginia   JOSH GOTTHEIMER, New Jersey
THOMAS MacARTHUR, New Jersey         VICENTE GONZALEZ, Texas
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
TREY HOLLINGSWORTH, Indiana
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 13, 2017................................................     1
Appendix:
    July 13, 2017................................................    45

                               WITNESSES
                        Thursday, July 13, 2017

Firvida, Cristina Martin, Director, Financial Security and 
  Consumer Affairs, AARP.........................................    10
Halloran, Mark, Senior Director, Head of Industry and Regulatory 
  Strategy, Transamerica, on behalf of the American Council of 
  Life Insurers (ACLI)...........................................     7
Holtz-Eakin, Douglas, President, American Action Forum...........    11
Knoch, David, President, 1st Global, on behalf of the Financial 
  Services Institute.............................................     5
Lombard, Jerry, President, Private Client Group, Janney 
  Montgomery Scott, LLC, on behalf of the Securities Industry and 
  Financial Markets Association (SIFMA)..........................     8

                                APPENDIX

Prepared statements:
    Firvida, Cristina Martin.....................................    46
    Halloran, Mark...............................................    57
    Holtz-Eakin, Douglas.........................................    62
    Knoch, David.................................................    70
    Lombard, Jerry...............................................    89

              Additional Material Submitted for the Record

Huizenga, Hon. Bill:
    Written statement of the U.S. Chamber of Commerce............    92
    Written statement of the Credit Union National Association...    94
    Written statement of the National Taxpayers Union............    95
Lynch, Hon. Stephen:
    Written statement of Phyllis C. Borzi, Former Assistant 
      Secretary of Labor for the Employee Benefits Security 
      Administration, dated July 12, 2017........................    97
    ``Deregulators Must Follow the Law, So Regulators Will Too,'' 
      dated May 22, 2017.........................................   106
Stivers, Hon. Steve:
    ``How AARP Helped Obama Thwart Wall Street on Tougher Broker 
      Rule,'' by Secretary of Labor Alexander Acosta, dated April 
      12, 2016...................................................   108

 
                      IMPACT OF THE DOL FIDUCIARY
                      RULE ON THE CAPITAL MARKETS

                              ----------                              


                        Thursday, July 13, 2017

             U.S. House of Representatives,
                   Subcommittee on Capital Markets,
                        Securities, and Investment,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Hultgren, 
Stivers, Wagner, Poliquin, Hill, Emmer, Mooney, MacArthur, 
Davidson, Budd, Hollingsworth; Maloney, Sherman, Lynch, Scott, 
Himes, Foster, Sinema, Vargas, Gottheimer, and Gonzalez.
    Ex officio present: Representative Waters.
    Also present: Representative Delaney.
    Chairman Huizenga. The Subcommittee on Capital Markets, 
Securities, and Investment will come to order. Without 
objection, the Chair is authorized to declare a recess of the 
subcommittee at any time.
    Today's hearing is entitled, ``The Impact of the DOL 
Fiduciary Rule on the Capital Markets.''
    And I now recognize myself for 2 minutes to give an opening 
statement. Now more than ever, sound financial advice has 
become critical for every individual looking to invest and save 
for their future. Every day, millions of Americans are working 
to achieve financial independence by using an investment 
adviser or a broker-dealer to help them plan and prepare for a 
prosperous retirement.
    However, the Department of Labor's complex fiduciary rule 
not only fails to protect customers, it harms them by driving 
up costs and limiting investor choice. According to research by 
the American Action Forum, the DOL fiduciary rule is the most 
expensive regulatory action of 2016, and the second-most 
expensive non-environmental rule since 2015. The rule has the 
potential to increase consumer costs by $46 billion, or 
approximately $800 annual per account--$800 annually per 
account--in addition to the $1,500 in duplicative fees for 
retirement savers that have already paid a fee on their 
commission-based account.
    So not only is the DOL denying American savers and small 
business access to investment advice, and limiting their choice 
in investment products, but it is also crippling them with 
added costs. Why is the Federal Government paralyzing hard-
working Americans who are trying to save for retirement?
    Like so many big government policies, this misguided rule 
hurts the very people it supports, claiming that it would help 
low- and middle-income families. By increasing costs, the 
fiduciary rule is having a direct effect on the marketplace and 
forcing advisers to limit their services to only those accounts 
that can handle higher costs. This ultimately prices out the 
low- and middle-income savers who would benefit the most from 
having access to this information and financial advice.
    How is this in the best interest of those trying to save 
for their retirement? The Federal Government should not be 
limiting consumers' choices as Americans work towards achieving 
retirement savings goals. Instead, the Federal Government 
should be providing these investors with the tools that they 
need to build a better future.
    As the numbers rise of the millions of American families 
who are unable to save for retirement, Congress should be 
making it easier for these families to save, not making it more 
difficult. This should be an issue where Members of both 
parties can stand together. Putting the interests of hard-
working Americans first is the only way that the government can 
help all savers achieve financial security.
    I look forward to hearing from our witnesses today. And the 
Chair now recognizes the ranking member of the subcommittee--
well, actually, I think we are going to have the ranking member 
do her opening statement and then I have a couple of other 
folks on our side of the aisle. So with that, the Chair now 
recognizes the ranking member of the subcommittee, the 
gentlelady from New York, Mrs. Maloney, for 5 minutes for an 
opening statement.
    Mrs. Maloney. Thank you for calling this hearing. And I 
thank our distinguished panelists for being here today.
    This hearing addresses a very important issue: the 
Department of Labor's fiduciary duty rule. I am a supporter of 
the rule because it provides critical protections to Americans 
who are saving for retirement. And I am glad that even the 
Republican Labor Secretary, Secretary Acosta, appears to agree 
that the fiduciary rule is an important protection that should 
not be tossed out.
    The fiduciary rule is a much-needed update of the rules 
governing investment advice to retirement savers. And it will 
plug some key holes in our regulatory system. The rule advances 
a very simple principle: If you are giving investment advice to 
our retirement savers and you are being compensated for your 
advice, then you have to put your customers' interests first. 
This is just common sense and no one would oppose this 
principle.
    We should also remember that most investors already think 
it is the law, even though it isn't. So really, the DOL rule is 
simply updating the law to reflect what investors already 
believe is the law.
    When President Trump took office, he required the Labor 
Department to conduct a review of the fiduciary rule to 
determine whether or not the start date for the rule should be 
delayed, either for a short period of time or indefinitely. 
After conducting the review, the Labor Department concluded 
that it could not justify delaying the start date for very long 
and ordered that the core aspects of the fiduciary rule would 
take effect on June 9th.
    This conclusion was based on the overwhelming benefits that 
investors will enjoy under the rule. According to the Council 
of Economic Advisers, this rule will save consumers roughly $17 
billion--that is ``billion''--per year. The Labor Department 
ran its own numbers again and concluded that delaying 
implementation of the rule past June 9th would simply be too 
costly for retirement investors.
    Now, I know there were some concerns about the 
implementation of this rule when it was first proposed back in 
2015. But instead of simply opposing the entire rule, some of 
us--particularly on the Democratic side--actually engaged with 
the Labor Department and got the vast majority of those 
technical issues fixed in the final rule. I wrote my own letter 
to the DOL on the proposed rule asking for six technical fixes 
and clarifications, and DOL made all six changes that I asked 
for in the final rule.
    And I was very pleased with the final rule because I 
believe that it properly balances the need to protect 
retirement investors with the need to streamline compliance 
costs. Unfortunately, this hearing will also address yet 
another legislative proposal that would repeal the fiduciary 
rule. I am disappointed that we are going through this exercise 
again.
    How many more times do these efforts to repeal the 
fiduciary rule need to fail before my colleagues on the other 
side of the aisle realize that this is not a productive use of 
time and that the only realistic way to make changes to the 
rule is to engage with the Labor Department on reasonable 
changes that don't harm investors? Believe me, they are 
responsible. Every issue that I am aware of that my 
constituents raised, the DOL addressed, and they took care of 
six that I raised myself.
    By repealing the fiduciary rule, this bill would leave 
millions of Americans saving for retirement without the 
protections that we have seen time and time again are 
necessary. According to a letter from the Consumer Federation 
of America, this bill will, ``dramatically weaken existing 
protections for retirement savers without providing meaningful 
new protections for investors in non-retirement accounts.''
    I would like to enter this letter into the record, and the 
letter that I wrote myself that achieved the changes.
    Chairman Huizenga. Without objection, it is so ordered.
    Mrs. Maloney. So I am very concerned that by repealing the 
DOL rule, and replacing it with a watered-down vague standard 
that wouldn't even take effect for a year-and-a-half, this bill 
would undermine the retirement security of millions of middle-
class Americans, but I look forward to a robust debate and to 
hearing from our witnesses. And I do want to note that this was 
one of President Obama's major goals, because he felt like it 
would help and protect people.
    I yield back. Thank you.
    Chairman Huizenga. The gentlelady's time has expired. The 
Chair now recognizes the gentleman from Illinois, the vice 
chairman of the subcommittee, Mr. Hultgren, for 1 minute.
    Mr. Hultgren. Thank you. I would like to thank Chairman 
Hensarling for his help in getting this hearing today, but 
especially Chairman Huizenga for all his work of convening this 
and pulling together a great panel to be able to present to us. 
I have been proud to work with them and others to fight for 
retirees in my district and across the country to protect their 
access to retirement advice and the investment products that 
will help them build their nest egg that they will need.
    As someone who is a licensed financial adviser, I am 
extremely concerned with the overly prospective regulatory 
framework that the Department of Labor has proposed for 
retirement accounts. As I said before and as we have discussed 
in this committee over and over, the Obama Administration's 
fiduciary rule is not workable. My constituents, especially 
those with low retirement account balances, cannot afford for 
this rule to go into effect as currently proposed.
    If we are going to institute a fiduciary standard, we need 
to do it right. That is why I have supported efforts such as 
the legislation sponsored by my colleague, Ann Wagner, for the 
Securities and Exchange Commission, the primary investor 
protection regulator, with the proper expertise and resources 
to act first and be generally more engaged in this process.
    I look forward to the witnesses' testimony today so this 
committee can understand the compliance challenges that are 
underway and so we can hear recommendations on what actions 
Congress can take now that the Labor Department's rule is 
finalized.
    Chairman Huizenga. The gentleman's time has expired. I now 
recognize the gentlelady from Missouri, Mrs. Wagner, for 2 
minutes. She is the author of the discussion draft that in the 
first article repeals it, but in the second then puts in an SEC 
regime. And with that, the gentlelady is recognized for 2 
minutes.
    Mrs. Wagner. Thank you, Chairman Huizenga. This is a very 
important hearing today focusing on a critical issue that 
threatens the access of affordable and reliable retirement 
investment advice for millions of low- and middle-income 
Americans.
    America is in a retirement savings crisis today. And 
Washington needs to be empowering individuals to save for 
retirement, not making it more difficult. The current 
Department of Labor fiduciary rule will leave Americans who are 
just starting to build their retirement savings without access 
to financial advice or paying more for fewer options and 
decreased service.
    Republicans on this committee have for years been warning 
about the harmful effects this rule will have. And 
unfortunately, we are starting to see those with the rule now 
partially in effect on June 9th. I look forward to hearing our 
witnesses discuss their experiences and observations of the 
market leading up to and after the rule's implementation.
    To remedy these issues we have seen develop, I have 
prepared, in fact, a discussion draft as the chairman has 
noted, for consideration that would apply a workable best-
interest standard for broker-dealers when providing investment 
advice without losing access for such advice for millions of 
low- and middle-income investors.
    This legislation would also keep this issue under the 
jurisdiction of the SEC, the expert regulator who has the 
experience of overseeing the industry. Broker-dealers should 
provide advice that is in their customers' best interest. And 
this draft bill will make that absolutely clear with a standard 
that applies to both investment and retirement accounts, unlike 
the Department of Labor's rule.
    Mr. Chairman, this has been a bipartisan issue in the past, 
and I would like to thank my colleagues on this committee 
across the aisle who have worked with me in the past on this. 
And I hope that we can all work on this draft bill together 
going forward. I yield back.
    Chairman Huizenga. The gentlelady's time has expired.
    Today, we welcome the testimony of a great panel in front 
of us here. First, we have Mr. David Knoch, president of 1st 
Global, on behalf of the Financial Services Institute.
    Second, we have Mr. Mark Halloran, senior director, head of 
industry and regulatory strategy for Transamerica, on behalf of 
the American Council of Life Insurers.
    Third, we have Mr. Jerome Lombard, president, Private 
Client Group at Janney Montgomery Scott, LLC, on behalf of the 
Securities Industry and Financial Markets Association.
    Fourth, we have Ms. Cristina Martin Firvida, director of 
financial security and consumer affairs for AARP.
    And last but not least, we have Dr. Douglas Holtz-Eakin, 
president of the American Action Forum.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record.
    With that, Mr. Knoch, you are recognized for 5 minutes.

 STATEMENT OF DAVID KNOCH, PRESIDENT, 1ST GLOBAL, ON BEHALF OF 
                THE FINANCIAL SERVICES INSTITUTE

    Mr. Knoch. Good morning, Chairman Huizenga, Ranking Member 
Maloney, and members of the subcommittee. I am David Knoch, 
president of 1st Global based in Dallas, Texas. I am a 
certified investment management analyst with nearly 20 years of 
experience in the financial services industry.
    1st Global is the largest independently-owned wealth 
management partner to CPAs and legal firms across America. I am 
here representing the Financial Services Institute, which 
advocates on behalf of independent financial advisers and 
independent financial services firms, and is a strong supporter 
of a uniform fiduciary standard.
    I am here today to discuss the DOL fiduciary rule and its 
impact on retirement savers. I believe strongly that the DOL 
rule adds unnecessary complexity to an already complicated 
regulatory environment. The DOL rule's intricate regulatory 
framework raises new barriers to serving millions of Americans. 
Let me start by sharing some examples of problems with the 
rule, beginning with its impact on investors. In many cases, 
investors with small account balances are losing access to 
lower-cost, commission-based solutions due to the DOL rule.
    For example, one of the lowest-cost methods for clients to 
own mutual funds is to custody them directly with the mutual 
fund company, often known in our industry as direct business. 
Since 2016, the number of accounts held by our clients directly 
with mutual fund companies has dropped nearly 10 percent, and 
the number of new accounts established has dropped 19 percent 
during the first 6 months of 2017. We expect this trend to 
accelerate and by the end of this year anticipate that the 
total number of accounts held in these programs will drop by 
more than a third.
    We are also challenged to offer a viable, cost-effective 
solution for small employer retirement plans, particularly 
simple IRAs, where account balances can be as low as $100. Many 
of these accounts are offered on a commission basis and will be 
subject to the best-interest contract. Due to the threat of 
class-action lawsuits, many of our affiliated firms will no 
longer offer these plans to small-business clients and some 
will end their existing relationships. In fact, since the start 
of 2016, we have seen the number of simple IRA accounts drop by 
over 20 percent. We project that these accounts will shrink 
from the 2016 levels by 28 percent before the end of this year 
and by 41 percent by the end of 2018.
    Furthermore, the DOL rule creates significant new 
disclosures that are cumbersome and expensive to create, will 
confuse investors with their sheer volume and complexity, and 
are simply not necessary to hold financial advisers to a 
fiduciary standard of care. As of the January 1st applicability 
date for a small, commission-based account which can be opened 
with as little as a $50 initial investment utilizing the best-
interest contract exemption, our clients will receive nearly 
100 pages of paperwork, with 70 of those pages being 
disclosures.
    When the prospectus is added, disclosure pages grow to 81 
percent of the total 145-page paperwork burden imposed on 
clients, all to open a $50 account.
    Now, finally, my testimony would not be complete without 
dedicating at least one paragraph to defend the honor of the 
CPA financial advisers I have the privilege to serve. Every CPA 
financial adviser I know was called to serve for two reasons: 
they enjoy solving complex problems; and they enjoy doing good 
for others. And offering financial services to their clients 
lies at the intersection of this calling.
    These people do what is right for their clients, not 
because of a rule or a standard of care, but because it is 
simply the right thing to do. Clients in our industry need 
reasonable and effective regulation, and it is a dishonor to 
the vast majority of our profession who are called to serve 
their communities first and happen to earn a living for doing 
so to assume they are only acting in their own self-interests. 
It is simply not what I see.
    What I see is the family member suffering from cancer who 
can focus on his recovery because his financial affairs are in 
order. Or the widow who relies on her financial adviser to 
transition to life without her spouse. Or the person entering 
retirement who can enjoy the fruits of their hard work because 
they have an adviser who helped them plan and save and who now 
guides them on living a dignified life sustained by the power 
of choice.
    My wish for you is to see what I see and help independent 
financial advisers like ours all across America serve more 
clients, serve them better, and serve them more completely by 
reducing their regulatory burden without reducing the standard 
of care. I thank the chairman, the ranking member, and the rest 
of the subcommittee for allowing me to share my thoughts on 
this matter, and I look forward to answering your questions.
    [The prepared statement of Mr. Knoch can be found on page 
70 of the appendix.]
    Chairman Huizenga. In a rare move, the gentleman yields 
back with additional time. So, thank you.
    Moving on, Mr. Halloran, you are recognized for 5 minutes.

 STATEMENT OF MARK HALLORAN, SENIOR DIRECTOR, HEAD OF INDUSTRY 
    AND REGULATORY STRATEGY, TRANSAMERICA, ON BEHALF OF THE 
            AMERICAN COUNCIL OF LIFE INSURERS (ACLI)

    Mr. Halloran. Chairman Huizenga, Ranking Member Maloney, 
and members of the subcommittee, thank you for the opportunity 
to testify before you today on behalf of the American Council 
of Life Insurers.
    As was stated, I am the senior director of industry and 
regulatory strategy at Transamerica. Transamerica is one of the 
Nation's largest providers of financial products, insurance, 
and annuities. And we work with Americans to help them save for 
retirement, insure against risk, and build solid financial 
foundations.
    ACLI supports reasonable and appropriately tailored rules 
that require all sales professionals to act in the best 
interests of customers. Rules impacting savings and in 
particular retirement savings must be appropriately tailored, 
effective, straightforward, and consistent, and provide 
America's savers and retirees with the ability to achieve their 
financial and retirement security goals.
    A best-interest standard should protect the interests of 
retail investors and ensure consumers can access the full range 
of financial advice and products. A best-interest standard 
should be administered by the prudential regulators that have 
the most expertise and experience in investor protection and 
financial markets. The SEC and the State insurance regulators 
are best-positioned for that role and are the appropriate 
authorities for oversight of financial professionals.
    The SEC, state insurance regulators, and the Department of 
Labor should work together to establish a harmonized standard 
of care that applies across the entire relationship between 
financial professionals and consumers. We are very encouraged 
by the recent statements in this regard by the SEC and the DOL 
with respect to their plans to work together in this regard, as 
well.
    ACLI supports a discussion draft being reviewed by the 
subcommittee at today's hearing. ACLI thanks Chairman Huizenga, 
Representative Ann Wagner, and the other members of the 
subcommittee for their strong leadership on this issue.
    The best-interest standard under the discussion draft would 
apply holistically to recommendations regarding any asset, not 
just the one dimension of the relationship that involves ERISA 
plan and IRA assets. The standard would be consistent across 
all aspects of consumers' finances, providing clear and 
consistent rules for both financial professionals and 
consumers.
    The discussion draft harmonizes the various bodies of law 
and regulation applicable to the sale of insurance and annuity 
products at the retail level. To harmonize the regulation of 
advice to retail investors, the discussion draft facilitates 
coordination by the appropriate prudential regulations. The 
draft bill sensibly places responsibility for issuing 
regulations in the hands of the primary prudential regulators: 
the SEC; and the State insurance regulators.
    Importantly, the draft bill would also place a statutory 
obligation on the SEC to coordinate and cooperate with State 
insurance regulators. The draft would also install important 
statutory safeguards to permit transaction-based financial 
professionals, including broker-dealer registered 
representatives and insurance agents, to continue to offer 
products and services to retail customers under traditional 
compensation models. These safeguards would effectively 
preserve retail investor access to information, freedom of 
choice over how to pay for financial advice, and a robust 
competitive marketplace for insured retirement solutions.
    The Department of Labor's fiduciary rule is the wrong 
approach because it harms middle-income savers and limits 
consumer choices. However well-intentioned the rule is, it 
makes it much harder for the average American family to access 
financial advice and save for retirement.
    The fee-based advice model favored in the DOL regulation 
may not always be the right model for the small and medium 
account holders. That is particularly true for buy-and-hold 
investors and purchasers of annuity products that are designed 
for long-term retirement goals. Many fee-based arrangements do 
not include options of the purchase of annuities, which are the 
only products available to consumers and retirees that 
guarantee lifetime income.
    Furthermore, the DOL regulation is diminishing access to 
advice at a time when financial advice is more important than 
ever. An advice gap has developed for small and medium 
retirement accountholders who do not meet the higher account 
minimums for fee-based arrangements. Less advice from financial 
professionals can contribute to reduced savings on the part of 
working Americans and diminished retirement security for 
retirees in need of guaranteed lifetime income through 
annuities.
    The discussion draft would ensure that consumers have more 
access to information and advice and more choices about how to 
pay for advice. Thank you for the opportunity to testify today, 
and I look forward to answering any questions you may have.
    [The prepared statement of Mr. Halloran can be found on 
page 57 of the appendix.]
    Chairman Huizenga. Thank you. I appreciate that.
    Mr. Lombard, welcome. We appreciate you being here and your 
time here. And with that, you are recognized for 5 minutes.

 STATEMENT OF JERRY LOMBARD, PRESIDENT, PRIVATE CLIENT GROUP, 
   JANNEY MONTGOMERY SCOTT, LLC, ON BEHALF OF THE SECURITIES 
       INDUSTRY AND FINANCIAL MARKETS ASSOCIATION (SIFMA)

    Mr. Lombard. Thank you, Chairman Huizenga, Ranking Member 
Maloney, and distinguished members of the subcommittee. I am 
Jerry Lombard, president of the private client group at Janney 
Montgomery Scott.
    I greatly appreciate the opportunity to testify today on 
behalf of the Securities Industry and Financial Markets 
Association (SIFMA), and share our perspective on the best path 
forward to establish a best-interest standard for the broker-
dealer industry. We are grateful to this committee for its 
willingness to consider legislation that would allow the 
Securities and Exchange Commission to establish a best-interest 
standard for broker-dealers that would create a high standard 
of care for retail clients across all accounts.
    On June 9th, some key provisions in the Department of 
Labor's fiduciary rule became applicable. And as an industry, 
we are beginning to see the harmful impact on America's 
retirement savers, limiting product choice and access to advice 
while increasing costs. At Janney, we have already experienced 
many of these issues. Our customers and advisers are very 
confused by the phalanx of new DOL rules applying to retirement 
accounts. They do not understand why there are now two sets of 
rules, one for retirement accounts and one for taxable 
brokerage accounts.
    Since June 9th, clients are now restricted from making 
certain investments in their retirement accounts. By years-end, 
we estimate upwards of 10,000 of our client retirement 
accounts, about 1 in 8, will be relegated to a no-advice 
service desk as they are too small for the risks imposed by the 
DOL or too costly to be placed into an advisory account that 
would remove the supposed conflicts the DOL is trying to 
relegate. How switching small retirement savers from a full 
service adviser to a no-advice service desk is in these 
clients' best interest, I will never understand.
    It is the position of SIFMA that the right answer for 
investors is a consistent best-interest standard that could 
apply across all types of accounts, but does not have the 
additional onerous conditions created by the DOL rule. A best-
interest standard done right by the SEC, the expert agency 
responsible for broker-dealer standards of conduct, would 
provide protection for retail clients without a bifurcated 
compliance regime imposed on those same market participants by 
different regulators.
    We are greatly encouraged by the SEC's June 1st request for 
public comment on standards of conduct for investment advisers 
and broker-dealers. It is SIFMA's intention to share with the 
SEC our desire that they consider establishing a best-interest 
standard for broker-dealers that mirrors the elements of the 
impartial conduct standards under the DOL rule, but unlike the 
DOL rule would apply across all broker-dealer accounts, not 
just retirement accounts. For that reason, the DOL should at a 
minimum delay the January 2018 applicability date to allow the 
SEC to lead the effort to put in place a standard that works 
for all accounts.
    Congresswoman Wagner's legislative draft provides this path 
forward by establishing an SEC-applied principles-based 
standard to ensure that all broker-dealer recommendations about 
securities are driven by the best interest of retail clients. 
We firmly believe that this approach would provide a number of 
significant regulatory efficiencies and investor protections, 
benefits which would enhance the existing suitability 
obligation under FINRA rules to create a heightened and more 
stringent best-interest standard for the benefit of retail 
clients, apply across all security recommendations made to 
retail clients in all broker-dealer accounts, not just limited 
to IRA accounts, build upon and fit seamlessly within the 
existing and longstanding securities regulatory regime for 
broker-dealers, coupled with robust examination, oversight, and 
enforcement by the SEC, FINRA, and state securities regulators, 
and be akin and well-aligned with the investment adviser 
standard under the Advisers Act, insofar as the new standard 
would include a duty of loyalty and a duty of care, an 
obligation to manage investment costs, and would require 
upfront disclosure to clients of important information.
    Thus, we greatly appreciate Congresswoman Wagner's work on 
this legislative discussion draft, and we look forward to 
continuing to work with her and this committee on language that 
ensures the best-interest standard established in the bill 
operates in harmony and consistency with all existing standards 
of conduct, including the current broker-dealer, investment 
adviser, and DOL rule regulatory frameworks, as well as any 
future rulemaking by the SEC or FINRA.
    In doing this, we will help relieve America's retirement 
savers from the burdens that have already arisen as a 
consequence of the DOL's misguided rule. Thank you.
    [The prepared statement of Mr. Lombard can be found on page 
89 of the appendix.]
    Chairman Huizenga. Thank you.
    Ms. Firvida, you are recognized for 5 minutes.

   STATEMENT OF CRISTINA MARTIN FIRVIDA, DIRECTOR, FINANCIAL 
              SECURITY AND CONSUMER AFFAIRS, AARP

    Ms. Firvida. On behalf of our 38 million members and 
Americans saving for retirement, AARP thanks Chairman Huizenga, 
Ranking Member Maloney, and the members of the subcommittee for 
the opportunity to testify today. AARP has enthusiastically 
supported the fiduciary rule requiring retirement advice that 
minimizes conflicts, is solely in the interest of the investor, 
and which is provided with the care, skill, and diligence that 
a prudent person would use.
    Today, we are joined by several AARP members who are here 
to show support for your rule. In 2015, AARP members submitted 
close to 60,000 messages to the Department of Labor and 
delivered over 26,000 petitions to the House Financial Services 
Committee. You have those petitions before you today.
    We are frequently communicating with our members about the 
rule, including in multiple articles in the AARP bulletin, 
which is the world's largest circulation publication. In 
surveys, we have always found that people overwhelmingly want 
fiduciary advice. In collaboration with the North American 
Securities Administrators Association, we have also developed a 
tool to help investors determine if their adviser is a 
fiduciary.
    Many States also agree that the fiduciary rule is needed. 
Earlier this year, nine attorneys general, including the AGs 
from New York and North Carolina, sent supportive letters to 
the Department of Labor. Additionally, five States, including 
Missouri, already impose a fiduciary standard on brokers in 
their States. Most recently, Nevada established a fiduciary 
standard with the support of AARP.
    The financial services industry itself generally agrees 
that investment advice should be provided in the best interests 
of investors, which is unsurprising, given that these standards 
have been in place since ERISA was enacted in 1974. Indeed, 
registered investment advisers and certified financial planners 
have for decades successfully provided fiduciary advice.
    Repealing the fiduciary rule would be very costly to 
retirement investors. Savers could lose 17 percent of their 
401(k) account over 20 years and close to 25 percent of the 
account over 30 years as the result of conflicted advice. That 
is the equivalent of 5 years of retirement income.
    The risk of loss is greatest for IRA investors who are 
moving their life savings from a more protected 401(k) to a 
significantly less protected IRA. Small accounts are especially 
vulnerable to conflicted advice because they have fewer 
economic resources to replace lost savings.
    The rule has overall resulted in lower fees and better 
financial advice for savers. Many firms have already incurred 
compliance costs, but we have not seen prices increase for 
investors served by those companies. New products and services 
have developed to meet consumer demand for lower fees and 
greater transparency, and the rule does not prohibit any type 
of product or service.
    Given the nearly $8 trillion in assets in IRAs and the 
almost $5 trillion in 401(k) plans, AARP is confident that 
financial firms will continue to innovate and compete for 
America's nest egg.
    AARP does agree that the Securities and Exchange Commission 
should act in addition to, but not in lieu of, the Department 
of Labor. We appreciate that that draft bill seeks to impose a 
best-interest standard on broker-dealers, but the bill fails to 
define that standard as a fiduciary standard, which the bill 
does not strengthen and which may even meet the bill's 
benchmark.
    Many brokers market themselves today as financial advisers, 
and investors can bear high costs for investments that satisfy 
a suitability standard but not a fiduciary standard. The bill 
does not specify how conflicts should be managed. Disclosure 
alone is not adequate and neither compels mitigation of nor 
shields investors from conflicts of interest.
    Finally, the draft bill could potentially preclude both the 
Securities and Exchange Commission and the Department of Labor 
from taking action to adopt stronger protections for investors 
even if the market evolves with unanticipated consequences.
    We thank the committee for the opportunity to share AARP's 
views on the Department of Labor's fiduciary rule and on the 
draft bill which would repeal that rule and replace it with a 
discretionary best-interest standard for broker-dealers. AARP 
remains committed to the strongest possible fiduciary standard 
for retirement investment advice and recommends a similar 
standard for all other advice that will promote and protect the 
financial security of American families.
    [The prepared statement of Ms. Firvida can be found on page 
46 of the appendix.]
    Chairman Huizenga. And with that, Dr. Holtz-Eakin, we 
recognize you for 5 minutes, and welcome you here.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                             FORUM

    Mr. Holtz-Eakin. Thank you, Chairman Huizenga, Ranking 
Member Maloney, and members of the subcommittee for the 
privilege to be here today to discuss the implications of the 
DOL fiduciary rule for capital markets.
    I would like to note at the outset that there is a 
consensus about the desirability of a standard of conduct to 
protect small retirement savers against any bad actors that 
might short-change them in their desire to protect their 
lifestyle. The only issue is whether such a standard is 
workable, and I believe the DOL rule is not workable, and I 
applaud efforts to replace it with something that is more 
effective.
    I am going to make three very simple points briefly, and 
then I look forward to answering your questions. The first is 
that the DOL fiduciary rule is very expensive, and this expense 
derives from changes in business practice that the rule will 
force on the retirement industry and those changes in the end 
will be most harmful to small retirement savers, and they will 
bear the brunt of the costs of this rule.
    First of all, the rule is very costly. The chairman noted 
at the outset, the American Action Forum has an ongoing effort 
to track the costs of Federal regulation, not just financial 
regulation but across-the-board in all agencies, and the 
fiduciary rule was the single most expensive rule in 2016. Our 
estimate is $31.5 billion, plus another $2 billion annually to 
comply with the rule. This is the second most expensive non-
environmental rule since 2005. And so it stands out as an 
extremely costly enterprise.
    Those costs derive really from two main things. The first 
is the move to primarily fee-based accounts. If you look at the 
data for the 57 million individual retirement accounts, two 
facts jump right out. The first fact is, the vast majority of 
them are quite small--74 percent are under $100,000--and the 
other fact is that they are largely in commission-based 
accounts.
    And so this rule which would eliminate the capacity to do 
those commission-based accounts, by and large, and would move 
people into the fee-based world, which is much more expensive. 
Our estimate, as the chairman noted, is this amounts to about 
$800 per year per account, an amount that many people simply 
will not be able to come up with.
    For those who are already in somewhat of a fee-based 
account, there will be an additional $1,500 in duplicative 
fees. And so these are costs that these individuals are going 
to bear. It is also quite likely that because of the nature of 
the service required in this fee-based world, minimum account 
balances will be raised. And if they were raised even to 
$20,000, you would lose about 40 percent of the accounts. And 
so the threat of pricing people out and the threat of having 
them dropped from investment advice is very real in the data.
    This is also not a hypothetical from two other 
perspectives. Number one, we have seen this experiment run 
roughly in the same fashion in the United Kingdom, where 
commission-based accounts were, in fact, banned in 2013, and 
the result, as I note in my written statement, was a more than 
doubling of the number of the fraction of firms that required 
100,000 pounds as the minimum account balance, about 45 percent 
firms report that they provided very little advice to any small 
accounts. They just didn't do that anymore. And you saw people 
get less and less retirement advice.
    It has also begun to happen in the United States. We have 
seen companies like MetLife and AIG exit the business. And we 
have seen companies like Raymond James move to a fee-based 
model. So the notion that these changes would occur, I think is 
very real.
    The second route for these costs is the potential for 
litigation. The best-interest contract is in the eyes of most 
people a real opening for additional litigation. If you look at 
the data for FINRA, there were 4,000 complaints filed in 2016. 
Only 158 were found in favor of the complainant, the consumer. 
That suggests there is going to be a lot of litigation at high 
cost with no particular benefit to the individuals. And that is 
a concern.
    Obviously you could insure against that litigation cost, 
but that is a cost of doing business that is going to show up 
in these accounts. And so between the litigation, which the DOL 
recognized in doing its cost estimate, but only put at $150 
million a year--most people think that is too low--and the 
movement to fee-based accounts, you are going to see additional 
costs. Those costs are going to hurt the small retirement 
saver. They are going to price some people out of the market. 
There are going to be some increases in minimum balances, which 
are going to preclude people from getting advice. And a 
ballpark estimate of the number of people affected looks like 
28 million, a number equal to half of the number of IRA 
accounts right now. So this is a substantial threat to the 
actual advice that we want small retirement savers to get, and 
I encourage the committee to move to a more workable approach 
to standards of conduct.
    Thank you.
    [The prepared statement of Dr. Holtz-Eakin can be found on 
page 62 of the appendix.]
    Chairman Huizenga. Thank you. I appreciate all of your 
testimony. And with that, the Chair will recognize himself for 
5 minutes for questions.
    I just want to quickly jump on what you were talking about. 
Obviously in your experience with the Council of Economic 
Advisers and then head of the CBO, you have certainly been 
through this. I have had conversations with those companies, 
some who have shifted to fee-based regimes, and they freely 
acknowledge that they are going to make more money doing this 
with fewer clients.
    It is a marketing tool that some are using. And what is a 
little frustrating to me is that this is being somehow 
portrayed that if you don't like this Department of Labor 
fiduciary rule, then you must not like savers. Well, I can tell 
you this. My nearly 86-year-old mother--please don't tell her I 
told you how old she is--doesn't have a broker on Wall Street. 
It is Bruce and Brandon on 8th Street in Holland, Michigan. 
That is who her advisers are. That is who my advisers are.
    These are the people that we go to. It is not some massive 
building in New York or some other place. And I think that it 
is important to note that the reason why the Obama 
Administration did what it did is it could not get a bipartisan 
board of the Securities and Exchange Commission to agree on a 
fiduciary rule, but they were able to get a political appointee 
at the Department of Labor to move ahead with a politically 
driven rule, who ironically and interestingly enough is now 
head of the DNC.
    I think it is just fascinating when this is getting 
portrayed as somehow political when this is really about making 
sure that people like my mom, and people like me coming up, and 
others are going to have the ability, and my constituents are 
going to have the ability to get the advice that they need.
    So as you had pointed out, 41 percent of the U.S. working 
households ages 55 to 64 have no retirement savings, 55 percent 
of households age 55 to 64 have less than $25,000 in savings, 
and only 23 percent of Baby Boomers believe their savings will 
last them through retirement. Even more disturbing is that many 
experts believe that this figure is, frankly, optimistic.
    Rather than put forward a rule that would expand retirement 
saving opportunities for hard-working Americans, the 
Administration pushed through these regulations with costs that 
far outweigh any marginal benefits. Equally troubling is the 
fact that the data released in response to the Department's 
recent July 6th request for information shows that the Obama 
Administration significantly underestimated the negative 
effects of the rule, in particular in reducing access to advice 
for small retirement savers and small businesses.
    So very quickly, I am going to go through the panel, and I 
would like yes-or-no responses on a couple of quick questions. 
Do you support the delay of the applicability date of the DOL 
fiduciary rule beyond January 1st? Mr. Knoch?
    Mr. Knoch. Yes.
    Chairman Huizenga. Mr. Halloran?
    Mr. Halloran. Yes.
    Chairman Huizenga. Mr. Lombard?
    Mr. Lombard. Yes.
    Ms. Firvida. No.
    Chairman Huizenga. No.
    Mr. Holtz-Eakin. Yes.
    Chairman Huizenga. Okay. Do you support the best-interest 
standard as outlined in the Wagner discussion draft? Mr. Knoch?
    Mr. Knoch. Yes.
    Mr. Halloran. Yes.
    Mr. Lombard. Yes.
    Ms. Firvida. It is too vague, but we don't think so.
    Chairman Huizenga. I think that is a ``no.''
    Ms. Firvida. It might be a ``no.''
    Chairman Huizenga. Okay.
    Ms. Firvida. I think it is a ``no.''
    Mr. Holtz-Eakin. Yes.
    Chairman Huizenga. All right. And then do you agree that 
the Securities and Exchange Commission is the expert regulator 
in this space and should act as the lead agency crafting an 
applicable rule regulating the standards of care for 
individualized investment advice? Mr. Knoch?
    Mr. Knoch. Yes.
    Mr. Halloran. Yes.
    Mr. Lombard. Again, yes.
    Ms. Firvida. No, there is a rule for both, the DOL and the 
SEC.
    Mr. Holtz-Eakin. Yes.
    Chairman Huizenga. Okay. So you don't agree that the SEC is 
the actual expert regulator in this? Because Secretary Acosta 
has said that they don't have that expertise.
    Ms. Firvida. We believe that both agencies have expertise--
    Chairman Huizenga. They have a role.
    Ms. Firvida. --that investors benefit from when both sets 
of expertise--
    Chairman Huizenga. All right, reclaiming my time for this 
last minute, do you believe that robo-advisers are better for 
investors than real people giving advice? Mr. Knoch?
    Mr. Knoch. No.
    Chairman Huizenga. Mr. Halloran?
    Mr. Halloran. Absolutely not.
    Chairman Huizenga. Mr. Lombard?
    Mr. Lombard. No.
    Chairman Huizenga. Ms. Firvida?
    Ms. Firvida. We do not believe that it is wrong to get 
advice from robo-advisers and other new technologies.
    Chairman Huizenga. Okay, so I guess that is a ``no.'' Mr. 
Holtz-Eakin?
    Mr. Holtz-Eakin. No.
    Chairman Huizenga. Okay. Well, I am very concerned about 
how this flawed rule will impact the U.S. capital markets, as 
well. I am even more concerned with its impact on small-
business owners. And Mr. Knoch, I would like you to address 
really quickly, how has the DOL fiduciary affected businesses' 
abilities to offer services for small employer retirement 
plans, such as simple IRAs? And will there be a loss of access 
for retirement services for small businesses that have not 
grown large enough to even consider a 401(k) plan?
    Mr. Knoch. Yes, thank you for the question. This is where 
we have seen probably the largest impact so far of the rule and 
where the financial advisers I work with are most concerned 
about how to comply. It is particularly with simple IRAs. As I 
mentioned in my opening testimony, we have seen the number of 
accounts in those programs drop by 20 percent, and looking 
forward 18 months, we expect those to continue to drop to a 
little over 40 percent.
    I am concerned. And I don't today have a workable solution 
for simple IRAs that our financial advisers are willing to use 
under the DOL rule as currently written.
    Chairman Huizenga. My time has expired, but I will note 
that a study conducted by the U.S. Chamber of Commerce found 
that small-business owners through SEP and simple type IRA 
plans provide roughly $472 billion in retirement savings for 
over 9 million households. And I am afraid that in light of 
this DOL rule, those small-business owners will stop providing 
those plans to their employees.
    My time has expired. The Chair recognizes the ranking 
member for 5 minutes.
    Mrs. Maloney. Thank you, Mr. Chairman, for calling this 
hearing and assembling such a distinguished, outstanding panel 
on a critically important issue for retirees and in protecting 
investors.
    Regrettably, most of us have had the experience in their 
offices, even though we represent very honest and wonderful 
financial institutions and wonderful honest people in the 
business, that as one of you said, there are bad actors out 
there. And we have all had the experience where people come to 
me and say, I put all of my savings with this adviser. They 
said they would be protected. I have lost everything. What do I 
do? There is nothing you can do for them.
    So the reason this rule was put in place was to protect 
people. And President Obama felt passionately about it. And the 
principle is very simple, that you have to put your customers' 
interests first. In other words, you can't put making money for 
yourself over a retiree looking for advice. And it is a higher 
standard because they are retirees, many of whom have very 
little money and it needs to be protected. Maybe that is why 
President Obama felt so passionately about this rule.
    And he told me that often in the negotiations--we are in a 
political body; we negotiate all the time--the opposing side 
wanted the fiduciary rule thrown out, and they would give him 
XYZ, and he would say, no, I want the fiduciary rule. It is 
important to protecting people.
    Now, many of you have said that the regulation is terrible 
and it should be more regulation efficiency. I know firsthand 
that they will work with you. I took six different problems and 
had them removed and changed because it made it honestly better 
and more efficient. And I put the letter in the record. You can 
read it. Every single recommendation I made after much 
negotiation, we got it changed. So they will work with you.
    If you think you can make it more efficient and faster, 
fine. Go to DOL. They will work with you. And by the way, it is 
a Republican leader now at DOL who has called for the rule to 
go in place and says that it will preserve savings for millions 
of Americans. And also, you say you are for investor 
protections. Do you have any ideas for more investor 
protections? I am sure DOL will respond to them.
    This is an important rule that will save people's savings 
and will have professionals--most of whom have that same goal 
anyway--we are just protecting against bad actors. That is what 
this rule does.
    So my question first is to Cristina Martin Firvida. Can you 
talk about the differences between the DOL's fiduciary rule and 
this bill's watered-down standard? And are the protections that 
are included in the DOL rule but not this bill important to 
protecting retirement savers?
    Ms. Firvida. Thank you, Congresswoman. So a big concern we 
have about the discussion draft--and we recognize it is a draft 
only--is that the standard as described is quite vague. We are 
concerned that the current suitability standard could even 
satisfy the benchmark that is described in this bill.
    And if that would be the case, perhaps that is not correct, 
but if that would be the case, we don't see how this bill is an 
improvement on the current situation before the fiduciary rule 
went into place. The fiduciary rule very specifically directs 
how to manage conflicts. It is more than just disclosure. And 
disclosure alone is inadequate.
    We know that when we have done surveys, people who are 
saving for their retirement, if they understand, they hear 
someone say, look, I have conflicts of interest, I will earn a 
commission based on what I recommend, ironically that leads 
someone to trust that adviser more, even though the conflict is 
not managed, even though the conflict is not avoided.
    So disclosure alone is not enough. And the concern we have 
with this bill is, disclosure alone could satisfy the 
benchmark, suitability could satisfy the benchmark. There is 
$40 billion that the DOL estimates for IRA investors alone that 
could be lost to conflicted advice. They have a very strong 
rule, it helps investors, and we strongly support it.
    Mrs. Maloney. Okay. Now, following up on this bill's 
watered-down standard for broker-dealers, it wouldn't even take 
effect for 18 months after the bill is enacted, even though the 
repeal of the DOL rule would be immediate. And that means for 
the first 18 months under this bill, brokers would have no duty 
to act in their clients' best interests.
    The Labor Department, under a Republican Labor Secretary, 
concluded that the cost to investors of delaying this rule for 
even half this long would be absolutely overwhelming. So is it 
fair to say that the cost to retirement investors of this 18-
month gap would be substantial?
    Ms. Firvida. The cost would be substantial. And something 
that I would like to address in statements that have been made 
this morning, when we talk about the cost of the regulation and 
we talk about that in the absence of the cost of conflicted 
advice to savers, is we are missing the big picture. Conflicted 
advice is not free. It is costing people saving for their 
retirement, people like the AARP members who are here today in 
support of the rule.
    So, yes, a delay of 18 months would be very significant on 
the nest eggs of people saving for their retirement.
    Mrs. Maloney. My time has expired.
    Chairman Huizenga. The gentlelady's time has expired. The 
Chair recognizes the vice chairman of the subcommittee, Mr. 
Hultgren, for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman, again. And thank you 
all for being here.
    Mr. Knoch, I represent a district just--the far west 
suburbs of Chicago, with many small communities in that area. 
It's a wonderful place to represent. You talk about this a 
little bit in your testimony, but I wondered if you could 
elaborate a little bit further about why the Department of 
Labor's rule will result in fewer choices of affordable 
financial advice in smaller communities across the country?
    Mr. Knoch. Thank you, sir. As I talk to the CPA financial 
advisers I work with, perhaps the greatest concern they have 
today is twofold. The biggest one is being exposed to the 
possibility of class-action lawsuits, which is part of the 
utilization of best-interest contract. A number of people on 
the panel here today have discussed a move to fee-based 
accounts. As they correctly mention, fee-based accounts are 
typically for larger investors, which means smaller investors 
will be in relationships with their financial advisers using 
the best-interest contract.
    There is some concern about having that standard applied. 
It is not that our financial advisers are worried about 
accountability. They are worried about being part of class-
action lawsuits. And they are exiting the marketplace.
    Mr. Hultgren. Mr. Knoch, do you believe M&A to absorb 
compliance costs across economies of scale could contribute to 
monopolies or at least greatly reduce competition in some 
areas? And what will this mean for investors, my constituents 
saving for retirement?
    Mr. Knoch. I'm sorry. Would you repeat that?
    Mr. Hultgren. Yes, I wondered if you believe M&A would 
absorb compliance costs across economies of scale, could 
contribute to monopolies or at least greatly reduce competition 
in some areas, and ultimately what the cost on smaller 
investors would be?
    Mr. Knoch. Yes, I do have some concern about that. Some of 
our financial advisers that we work with have indicated--
especially ones who are working with smaller investors--that 
they may choose to leave the financial services industry, try 
to sell their practice.
    I think the biggest concern I have with that may be less 
about monopolies--at least in our case. I can certainly see it 
industry-wide--but a lot of times these are small financial 
advisers who are serving small communities. There isn't 
somebody else in that community in a number of cases to take 
over services. So that is where my M&A concern is for our 
organization.
    Mr. Hultgren. Dr. Holtz-Eakin, we all agree that cost-
benefit analysis is important to policymaking. It doesn't 
happen very often around this place. But especially 
economically significant rules like that finalized with the 
Department of Labor. You are an economist. Do you believe 
President Obama's Administration conducted a credible cost-
benefit analysis before this rule was put out? And what do you 
think are the most significant flaws in the analysis?
    Mr. Holtz-Eakin. I think there are some concerns on both 
sides of the equation. On the cost side, we think that the DOL 
rule underestimates the litigation costs significantly. And 
that is a concern. I think on the benefit side, the widely 
cited $17 billion number produced by the Council of Economic 
Advisers is not an estimate that I think stands up to close 
scrutiny. We have written on this in the past. There have been 
other critiques of it.
    But it was incomplete in the assets that it surveyed and 
covered. It took rates of return that weren't risk-weighted and 
sort of conventional measures of, what is a real financial 
return. And I think if you poke hard at that, you are not going 
to find $17 billion worth of loss.
    Mr. Hultgren. Okay. Would you agree that the SEC would have 
better perspective for weighing benefits and costs for 
investors than the Department of Labor?
    Mr. Holtz-Eakin. I think they are the primary regulator. 
They are the perfect entity to be doing this.
    Mr. Hultgren. Thanks. Mr. Knoch, back to you. It would be 
helpful if you could speak directly to the merits of the draft 
legislation from Mrs. Wagner from Missouri that we are 
discussing today. What will happen if the DOL's rule goes into 
effect before the SEC is able to implement its own standard? 
And from an investor protection standpoint, wouldn't my 
constituents be better served by a uniform standard that 
applies to both retirement accounts and investment accounts?
    Mr. Knoch. Thank you. I think the biggest thing that will 
happen if the rule is finalized before this bill is enacted is 
the trend that I was describing in my oral testimony will 
continue. We will continue to see a decline in utilization of 
the platforms most often offered to investors with small 
account balances. Direct business, simple IRAs, as I mentioned 
will continue to shrink.
    I do believe that the rule--that the draft bill has merits 
in that it will provide a uniform standard of care. It will 
cover more than just retirement accounts. I think everyone on 
this panel would agree in a best-interest standard being 
applied to financial advisers working with clients. We would be 
in favor of seeing that applied across not just retirement 
accounts, but all of investors' accounts. The financial 
advisers I work with work with the entire person.
    Mr. Hultgren. Thank you. I just have a few seconds left and 
many more questions, and so maybe we will follow up in writing. 
With that, I yield back.
    Chairman Huizenga. The gentleman yields back. The Chair 
recognizes the gentleman from Georgia, Mr. Scott, for 5 
minutes.
    Mr. Scott. Thank you very much, Mr. Chairman.
    We are in this shape that we are in today because, as an 
original co-sponsor of Dodd-Frank years ago, we told the SEC 
that they needed to come up with a rule that would raise the 
broker-dealer standard and, more importantly, harmonize that 
standard with the obligations investment advisers have to 
follow today. And not the Department of Labor. It is the SEC 
that is best suited to do that. Failure of them to take the 
initiative and to do that and recognize the true role that the 
Department of Labor plays, we are wondering here, because the 
great need is harmonizing it.
    Here is what the law said about this situation in terms of 
the fiduciary rule. It says that both the SEC and the DOL have 
jurisdiction over investment advice that must meet a fiduciary 
standard and advice that is exempt from such a standard. 
Specifically, the SEC has jurisdiction over advice to 
individuals, regarding both retirement and non-retirement 
accounts, but only if the advice relates to securities. In 
contrast, the DOL has jurisdictions over advice regarding 
retirement accounts, regardless of whether the advice is 
securities related.
    This means that in many circumstances, both the agencies 
share jurisdiction, while in others, only one agency has 
jurisdiction. And this is enough evidence to know that these 
two entities, DOL and SEC, need to harmonize. They didn't do 
it. So what were we left with?
    We are left with a bill and to move to define the 
fiduciary. And I worked with Mrs. Wagner before on several of 
her bills to do that, was the lead Democrat to do that. But 
because we told the SEC in those bills to do that.
    But right now, this bill that Mrs. Wagner has put before us 
is a very troubling bill. And let me tell you why. For 
starters, this discussion draft--I am glad it is just a 
discussion--will most certainly undermine the SEC's rulemaking 
authority in this space, because the bill says that no 
additional obligations related to the standard of care of 
broker-dealer can added on top of the ones set forth in this 
discussion draft.
    This is worrisome, because what if the drafters of the bill 
got something wrong? I noticed in my quick read through this--
and keep in mind, I only got this bill yesterday--that dual 
registrants, those firms that dually registered as both broker-
dealers and investment advisers, is not even mentioned in the 
discussion draft.
    I am also worried about this because what if the market 
evolves? We have seen in the past 10 years how retirement 
savings and investment advice has been flipped on its head 
because of technology. Imagine what it is going to be 5 years 
ahead. So tying the hands of the SEC, being overprescriptive as 
this discussion draft bill is, is dangerous.
    Additionally, this new bill creates an entirely new 
standard that isn't a fiduciary standard or a suitability 
standard. It is something entirely new. And so why are we being 
so prescriptive in drafting of this bill? Why don't we direct 
the SEC, who are the experts in this, to do their job instead 
of tying the hands of the SEC?
    And this bill reminds me of a straitjacket. It is like this 
bill is putting the SEC--it is almost like forcing them to do 
their job, but yet putting these overly prescriptive in here.
    Now, finally, this bill would be devastating to low-income, 
to middle-income, to senior citizens. When you add 
contrapulations and make it much more complex and complicated, 
where you can't even understand it, and you have no 
harmonization in the bill, and you have put on top of that 
prescriptive directions, it is harmful.
    With all due respect to Mrs. Wagner, but this is a very 
troubling bill. I hope we get a chance to work and iron out 
some of these to make it fair to everyone.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Scott. Especially those at the low-income and our 
seniors.
    Chairman Huizenga. The gentleman's time has expired. With 
that, we will turn to the author of the draft legislation, the 
chairwoman of our Oversight and Investigations Subcommittee, 
the gentlelady from Missouri, Mrs. Wagner, for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman.
    And I certainly appreciate Congressman Scott and the 
ability to work with you, sir. I will say that we have codified 
the standard, best-interest standard in this draft legislation, 
which I think is a key step forward. I want to thank all of you 
for appearing today and for your testimony on the DOL's 
fiduciary rule and the capital markets and how it impacts it, 
as well as the ability of millions of low- and middle-income 
American families to continue receiving retirement advice.
    Dr. Holtz-Eakin, in your testimony, you stated that the 
fiduciary rule as it stands right now was the most expensive 
regulation of 2016. I think you said even the most expensive 
since 2005, with $31.5 billion in total costs and $2 billion in 
annual burdens. You elaborated a little bit about those cost 
mechanisms. First of all, do you want to add anything to that 
in terms of how much of these costs would be passed on to 
customers, consumers, those retail investors? And second, would 
the cost burdens for firms and consumers be similar under the 
best-interest standard envisioned in the discussion draft?
    Mr. Holtz-Eakin. So, thank you, Congresswoman, for the 
question. The cost mechanisms, as I mentioned, really are from 
two sources. One is the increased likelihood of litigation and 
the costs that come from directly litigating, and then in some 
cases, choosing to purchase insurance against litigation costs. 
Those are costs of doing business. They will inevitably be 
passed along to customers in one form or another. That will 
price some people out of investment advice. And then that way, 
that cost is ultimately very much borne by the least affluent 
among the retirement savers. And that is a concern that comes 
through very clearly.
    The second cost really is this move to the more fee-based 
system. And as I mentioned in my testimony, the United Kingdom 
went to this entirely fee-based, eliminated the commission-
based, and we saw a dramatic increase from 13 percent to 32 
percent in the fraction of firms that required a minimum of 
100,000 pounds.
    Mrs. Wagner. And to the discussion draft, would the cost 
burdens be the same?
    Mr. Holtz-Eakin. No, they will be lower. That is one of 
the--the litigation is clearly going to be a much lower 
standard and it doesn't drive people out of the commission-
based model, and so you are not driven into a fee-based model 
that is far more expensive.
    Mrs. Wagner. Right. Mr. Knoch and Mr. Lombard, could you 
both please take some time to discuss how the best-interest 
standard described in the discussion draft improves upon the 
suitability standard currently subjected to broker-dealers? Mr. 
Knoch?
    Mr. Knoch. Thank you. I think one of the areas--and I 
marked it in here, and we have had a discussion about this--is 
it requires a broker-dealer to avoid, disclose or otherwise 
reasonably manage any conflict of interest. So there is a 
requirement for disclosure, which we would agree with, as well 
as attempts to avoid and manage conflicts of interest.
    We are also asking financial advisers to uphold a duty of 
loyalty and a duty of care. We have definitions that look 
substantially similar to what is expected in, let's say, fee-
based investment advisory accounts, as well, under an SEC 
standard. I am particularly pleased with seeing that there and 
applying a standard.
    Mrs. Wagner. Mr. Lombard?
    Mr. Lombard. It is clearly a higher standard than the 
suitability, both duty of loyalty, duty of care, which includes 
the prudent management of client assets. I would also point out 
that this would apply to all accounts, not just retirement 
accounts, and that is important to our clients.
    Also, with the SEC's and FINRA's examination, oversight and 
enforcement capabilities, abilities that are limited at the 
Department of Labor, I think downstream you are going to get 
implementation of a best-interest standard much more 
effectively by having SEC and FINRA's oversight.
    Mrs. Wagner. Mr. Knoch, could you please explain how the 
discussion draft implements an effective and meaningful 
disclosure system--you did a little bit--and effectively 
mitigates material conflicts of interest?
    Mr. Knoch. Yes, this is actually one of the areas where I 
am most pleased with the discussion draft. I think one of the 
areas of disclosure that works very well in the fee-based 
accounts that we have a fiduciary standard today under the SEC 
is the utilization of the Form ADV. This appears to have a 
substantially similar disclosure requirement put at the 
beginning of the relationship. We think that form of disclosure 
works very well. While it adds some due paperwork burden, the 
paperwork burden of a form like this at the beginning of the 
process is far less than what is contemplated by the DOL rule.
    Mrs. Wagner. Quick yes or no, does the discussion draft 
provide a more comprehensive best-interest standard than the 
DOL fiduciary rule by applying to both retirement and 
investment accounts?
    Mr. Knoch. Yes.
    Mrs. Wagner. Mr. Halloran?
    Mr. Halloran. Yes.
    Mrs. Wagner. Mr. Lombard?
    Mr. Lombard. Yes.
    Mr. Holtz-Eakin. Yes.
    Mrs. Wagner. Ms. Firvida?
    Ms. Firvida. I think we answered previously that we feel 
that it is vague, so we don't think so.
    Mrs. Wagner. That is a ``no?''
    Ms. Firvida. I think that is a ``no.''
    Mrs. Wagner. Thank you, Mr. Chairman. I yield back my time. 
Thank you all.
    Chairman Huizenga. The gentlelady's time has expired. The 
Chair recognizes the gentleman from Texas, Mr. Gonzalez, for 5 
minutes.
    Mr. Gonzalez. This is to Ms. Cristina Martin Firvida. Often 
in this committee, my colleagues on the other side of the aisle 
complain about Washington's regulatory overreach with respect 
to the DOL's fiduciary rule. We have heard allegations that the 
Department of Labor has gone beyond its statutory mandate or 
outside its regulatory jurisdiction.
    Is there any indication that the DOL overstepped its 
statutory boundaries in promulgating its fiduciary rule?
    Ms. Firvida. Absolutely not. And multiple Federal courts 
have upheld that view.
    Mr. Gonzalez. Is regulation of investment advice in 
connection with retirement accounts within the scope of the 
DOL's mandate under the Employee Retirement Income Security Act 
of 1974 (ERISA)?
    Ms. Firvida. Yes, it is. And it has extensive expertise 
doing so and has developed dozens of prohibited transaction 
exemptions and enforces them, and through that has a lot of 
expertise that I think we are ignoring today in talking about 
the DOL's lack of expertise.
    Mr. Gonzalez. That is right. Thank you for your response. I 
yield back the balance of my time.
    Chairman Huizenga. The gentleman yields back. The Chair 
recognizes the gentleman from Maine, Mr. Poliquin, for 5 
minutes.
    Mr. Poliquin. Thank you very much, Mr. Chairman. I 
appreciate it. And thank you all very much for being here 
today.
    When someone is in the business of providing advice or 
services, it is common sense for all of us to realize that 
folks and firms are attracted to the biggest accounts. They 
just are. If you are an accountant, you want a larger business 
because they pay a bigger fee. If you are an attorney, you want 
a bigger client because they pay a bigger fee.
    And if you are in the business of selling real estate, you 
want to sell a $500,000 home instead of a $200,000 home because 
your commission is bigger. It is just common sense.
    Now, if you are in the business of providing insurance 
products, or retirement plan advice for savers, you are 
obviously still attracted to the larger accounts because they 
pay a bigger fee. This is common sense. I don't worry about 
folks who have large accounts. I really don't. They are going 
to do fine. They are going to get the best products. They are 
going to get the best advice. And they are going to do just 
fine.
    I will tell you who I worry about. I worry about the folks 
that I represent in northern Maine. We have a highly rural 
State. We have a small number of large businesses. But we have 
the most honest, hard-working, small savers, small investors 
that you could find anywhere in our country.
    I worry about a single mom with two kids who is trying to 
put aside $25 a week to save for her kids who might want to go 
to a community college, get an associate's degree. I worry 
about a teacher in Lewiston who is trying to make ends meet. I 
worry about a boat builder in downeast Maine who is trying to 
save for his or her retirement.
    Now, we know some of the facts here. We know that if you 
increase regulations in this part of our economy or any other 
part of our economy, the costs go up. And when the costs go up, 
it means the rate of return on your savings go down. It means 
your nest egg is smaller as you get older into the golden 
years.
    And we also know that the number of product offerings, the 
choices that you have go down, and we also know that the number 
of firms that provide retirement advice go down because they 
are leaving the market. We know this. The facts are in front of 
us. You can't argue the facts. They are what they are.
    Now, my mom is 89. My dad is 87. I am very close to my 
parents. I love them to death. They cannot use a cell phone 
anymore. So we heard today that if over-regulating this 
industry causes folks with small accounts, not the big folks, 
folks who have $25,000, $30,000 in savings, and they are 
counting on that so they can live in dignity for the remainder 
of their lives, they might have to go to a robo-call. You have 
to be kidding me.
    So, okay, let's say you are 70 and you have a small 
account. What should your asset allocation be? Should you own 
some stocks or should you be all in fixed-income because you 
don't have any more current income coming in, you are retired. 
Should you buy an annuity? Maybe all your money should be in 
cash and money market funds to pay those medical bills and you 
need access to that cash on a regular basis. Who is going to 
tell them that?
    Who is going to tell them? How about that single mom who is 
working 2 jobs at the diner and at the convenience store trying 
to save $25 a week? Who is going to tell her how to invest that 
money?
    Here is what I worry about, Mr. Chairman, is that we have a 
potential here of so over-regulating the people who provide 
good advice to our small savers in this country that you are 
driving away that advice. And if the advice is still there, you 
are driving up the costs so high that their rate of return over 
time is going down. That is who I worry about.
    Did I get this right, Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. I think your concern is entirely well-
placed, sir.
    Mr. Poliquin. Mr. Knoch, am I pronouncing it right? You are 
in this business. Mr. Halloran, you are in this business. Have 
you folks started to increase your minimum account size such 
that the folks at the bottom aren't going to get advice, your 
advice? Or are your costs going up so far or is the liability 
so great because of these increased regulations that you say, 
``I'm out of here?'' And who is going to provide that advice to 
the little guy? Tell us. You are in the business.
    Mr. Knoch. As I mentioned, we have seen our financial 
advisers discontinuing service or serving the small 
marketplace--
    Mr. Poliquin. Okay, Mr. Halloran, how about you?
    Mr. Halloran. So, we are on the manufacturing side. And the 
way I could speak to that is we like large accounts, but our 
wheelhouse is not there. We provide income products to people 
who need lifetime products.
    Mr. Poliquin. And does this regulation hurt you providing 
that advice to small savers?
    Mr. Halloran. They are not getting that advice about our 
products.
    Mr. Poliquin. There you go. Mr. Lombard?
    Mr. Lombard. So one of the ways to avoid the more onerous 
aspects of this is to move to a level fee account. Level fee 
accounts at my firm average 0.95 percent. Brokerage accounts 
average 0.55 percent. That is almost double the cost by 
sidestepping more onerous aspects.
    Mr. Poliquin. Thank you, sir. Thank you, Mr. Chairman.
    Chairman Huizenga. The gentleman's time--
    Mr. Poliquin. Let's all get on the same page and agree with 
the facts.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Poliquin. We do not want to over-regulate our small 
savers such that they lose the ability to plan for their 
retirement. Thank you, Mr. Chairman.
    Chairman Huizenga. The gentleman's time has expired. The 
Chair recognizes the gentleman from Massachusetts, Mr. Lynch, 
for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. And I want to thank the 
panelists for helping the committee with its work.
    Mr. Chairman, I would ask unanimous consent to submit for 
the record a Wall Street Journal opinion and commentary by 
Secretary of Labor Alexander Acosta supporting the fiduciary 
rule, and also a letter to you and to Mrs. Maloney of New York 
authored by Phyllis Borzi, a former Assistant Secretary of 
Labor for the Employee Benefits Security Administration from 
2009 to 2017.
    Chairman Huizenga. Without objection, it is so ordered.
    Mr. Lynch. Thank you, sir.
    I appreciate the comments of my friend from Maine, the 
beautiful State of Maine. However, it is a two-edged sword in 
this case, where you would also like the advice that is given 
to the most vulnerable investors, AARP members, many of whom 
are here, and it is a good thing you are here. It is a good 
thing you are here to try to hold people accountable to make 
sure that future retirees, and current retirees, as well, are 
treated fairly under the law.
    But we want vulnerable investors, those at the lower end of 
the investment scale, to get advice that is in their best 
interest, and that is what the fiduciary standard requires. 
Under the proposed standard in Mrs. Wagner's draft, a broker 
adviser could simply give advice to purchase or recommend the 
purchase of whatever product gives the highest commission, as 
long as it is ``suitable.'' That is a very loose standard. And 
we have seen abuse in that regard.
    This has been a 6-year process. And it has been a long 
fight. It has been a long fight. And I just want to point out 
the simplicity of this. Those on our side, we would like 
investors--especially retirees--to get advice that is in their 
best interest. We would like to compel those who advise them to 
do so in a way that is in the investor's best interest.
    Also, people in my district think this is already the law. 
They are shocked when they find out that brokers and advisers, 
financial advisers are not required to act in their best 
interests and there is no fiduciary duty to do so.
    So the visceral opposition to implementing a simple 
fiduciary duty that requires advisers to act in the best 
interest of their clients, the opposition to that sort of makes 
our argument. We are asking for something very, very simple 
here. We are asking that we maintain the integrity of our 
financial markets. We are asking to persuade Americans to 
invest in their retirement especially.
    And we should do so in a way that actually is protective of 
those interests and protective of our retirees. And right now, 
that is not the case. Now, there has been a 6-year discussion 
between the SEC and the Department of Labor. They have worked 
together on this. The Department of Labor has had the statutory 
authority to define fiduciary, what that means, since 1975. I 
am a former labor lawyer. I worked in ERISA quite a bit. This 
is the first time in the country's history that we are changing 
this standard, and it is in response to the way the industry 
has evolved and the way products have evolved.
    The SEC does not have any of the authority to manage or 
oversee many of the products that are being sold to our 
retirees each and every day. So the Department of Labor is the 
proper agency to rule on this. I know that folks are asking for 
a delay, but I think we have had 6 years of discussion. The 
American people have gone without this protection for some time 
now. And I think it is entirely reasonable that we go forward 
with this. I oppose Mrs. Wagner's bill. I think it strips 
Americans of a basic protection that they need for their 
retirement.
    And with that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman Huizenga. The gentleman's time has expired. The 
Chair recognizes the gentleman from Ohio, Mr. Stivers, for 5 
minutes.
    Mr. Stivers. Thank you, Mr. Chairman. And I applaud the 
sponsor of the discussion draft for this bill. I think it will 
provide some needed relief for a lot of investors.
    We saw this play out in Great Britain. Mr. Holtz-Eakin 
alluded to that earlier. Essentially, what this fiduciary rule 
says is, if you are rich, it is okay, you will be able to talk 
to a person. If you are poor or middle-class, you are at risk. 
You have to get what is called robo-advice. That means you talk 
to a computer. And it means you are not going to really get 
real advice. Imagine getting your investment advice from Siri. 
That is what is going to happen to a lot of poor and middle-
class people.
    The other thing that Mr. Holtz-Eakin brought up is that 
millions of dollars of middle-class and lower-class investment 
savings are going to be eaten up by fees and minimum balance 
requirements that they can't meet. There will be extra fees. 
And the cost of compliance is going to really hurt them.
    This is an issue for people of lower means in this country 
who are being hurt and trampled on by a giant government. I do 
want to admit to the record an article in Bloomberg about the 
AARP's role in this standard and what they did. I think it is 
important that we admit it to the record, without objection.
    Chairman Huizenga. Without objection, it is so ordered.
    Mr. Stivers. Thank you. My first question is to Mr. 
Lombard, to follow up on something the chairman asked earlier 
about the differences between the Securities and Exchange 
Commission and the Department of Labor. Can you help us 
understand the difference in their expertise with regard to 
investment, just in a brief explanation?
    Mr. Lombard. I can comment on the SEC's role. They have 
worked as our primary regulator since I have gotten into this 
business 35 years ago. During that period of time, I headed our 
advisory services. They audited our advisory activities 
probably on an every 3-year cycle. So I have seen them. I have 
never had the Department of Labor in as an auditor or an 
overseer in the 35 years I have been with Janney Montgomery 
Scott.
    Mr. Stivers. Thank you, Mr. Lombard. And that speaks mostly 
for itself. Why is it that they have never come in and audited 
you? What is their role in investment?
    Mr. Lombard. Their role, up until this point, has been 
limited to investment retirement plans, not individual 
retirement accounts.
    Mr. Stivers. Let me be more specific. Do they have any role 
in regulating investments and appropriateness of investments?
    Mr. Lombard. On the retirement plan side, I believe they 
do.
    Mr. Stivers. For individual investments and the choosing of 
investments, does the Department of Labor have any expertise in 
that?
    Mr. Lombard. I think that is what is being argued right 
now.
    Mr. Stivers. The answer, I believe, is ``no,'' but I don't 
think that they have a big experience in that.
    Mr. Halloran, can you tell me--
    Chairman Huizenga. Will the gentleman yield on that point 
briefly?
    Mr. Stivers. I would be happy to yield.
    Chairman Huizenga. I know in conversations that Mr. Acosta 
has had at various times out publicly, he has said that the 
Department of Labor is ill-suited to do this and that the 
Securities and Exchange Commission does have that expertise. So 
I just wanted to make note of that.
    Mr. Stivers. I will let the Secretary speak for himself. 
And thank you, Mr. Chairman. Reclaiming my time--
    Ms. Firvida. If I may, however--
    Mr. Stivers. No, ma'am. This is my time. You were asked 
some questions. Mr. Halloran, I am curious if you believe the 
current DOL fiduciary rule disadvantages annuities compared to 
other investments?
    Mr. Halloran. Significantly, actually. As I was stating 
before, we don't typically serve the wealthy. At least they 
don't have as great a need for this kind of product as middle-
class Americans do. We are talking about people with smaller 
balances who need to--one of the easiest things to do in 
investing is to invest, is to accumulate. That is not the hard 
part of the job, typically.
    And actually, in that respect, Americans have done a pretty 
poor job. But then to take that money and stretch that over the 
rest of your retirement life, and potentially two lives, that 
is a very difficult task. And that is precisely what annuities 
with living benefits do.
    Mr. Stivers. Thank you. So this rule essentially 
disadvantages a tool that many middle-class and low-income 
people can use to preserve their retirement and their quality 
of life in retirement? Is that correct?
    Mr. Halloran. Without question. We have already seen that.
    Mr. Stivers. Thank you. I will just finish by allowing Mr. 
Holtz-Eakin maybe to expand on what I talked about at the 
beginning about how this rule impacts poor and middle-class 
people and what it means to their future. Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. I think it is a very simple story, which 
is the rule was intended to provide high-quality advice, but 
that is only going to work if you get some advice at all. And 
the net impact of the rule is to put many of the lower-income 
smaller savers out of the ability to get any advice at all.
    Chairman Huizenga. The gentleman's time has expired.
    Mr. Stivers. Thank you, I yield back.
    Chairman Huizenga. And at the request of the ranking 
member, we do have a guest here who is a member of our full 
Financial Services Committee, but is not on this subcommittee. 
And without objection, the gentleman from Maryland, Mr. 
Delaney, is permitted to participate in today's subcommittee 
hearing. Mr. Delaney is a member of the full committee, as I 
had pointed out, and we appreciate his interest on this topic.
    And with that, I am willing to recognize you for 5 minutes.
    Mr. Delaney. Thank you, Mr. Chairman, for permitting me to 
participate in this hearing. And thanks for calling it.
    The reason I asked to participate is because I have been a 
strong supporter of the fiduciary rule. And you know I found 
this conversation very interesting because if you didn't know 
better, you would think the fiduciary rule prevents people from 
owning annuities. It, in fact, doesn't prevent people from 
owning annuities, for example. It discourages people from 
selling annuity products if when you include all the fees it is 
deemed to be not in the best interest of the client.
    And I think there is somewhat of a broad agreement here 
that investment products that are in a client's best interest 
is a more important standard than the current standard, the 
suitability standard. I think in a perfect world, everyone here 
would agree that we would love for every client to receive 
investment advice that is in their best interests as opposed to 
just suitable.
    So the issue seems to be that because of this rule, which--
trust me, I agree that it would be terrific if the SEC would 
have put forth this rule. They do probably have more expertise 
in the area, but they didn't do it. And I think a future where 
the SEC comes up with a rule for all investment advice and we 
synchronize the fiduciary rule from the Department of Labor 
with that could be a great outcome. But I wouldn't want to 
delay the Department of Labor fiduciary rule, because it seems 
to be the forcing function to get the SEC to finally try to do 
something on this.
    So I think that is a false choice. I think we can have the 
SEC do something on this, and then we can see what they come up 
with, and we could look at the fiduciary rule, and we could 
synchronize them in one standard.
    But what I find amazing about this discussion is, the 
notion is that the current business model of, say, your firm, 
Mr. Lombard--and I am sure most of the--the overwhelming 
majority of your advisers do a terrific job for their clients. 
Your firm has a great reputation. It has a good brand. The name 
is on the door. And people wake up every day and do the best 
thing for their clients.
    But the issue with the fiduciary rule in the eyes of three 
of the four guests here seems to be that for some reason 
because of this rule we will be left with a world that it is 
all robo-advisers and there is no innovation and there is no 
adaptation to this new standard. And that just seems so 
contrary to how we think about our capital markets and our 
entrepreneurial economy.
    Because as someone who started two financial services 
companies from scratch and took them public on the New York 
Stock Exchange prior to being here, and specifically started 
companies that focused on opportunities that were created by 
larger financial institutions who weren't adapting to the 
market's needs, either because they had legacy systems or 
legacy compensation structures or some legacy practices that 
made them hard to respond to the model, I guess my question for 
Mr. Lombard and Dr. Holtz-Eakin is--and I am a huge admirer of 
your work, by the way, so thank you for being here--why do you 
think for some reason that suddenly the private economy, the 
entrepreneurial economy of the United States won't take this 
new standard, and if your firm can't respond with a high-
quality product where human combined with technology allows 
people to get advice at a best-interest standard, why don't you 
think all kinds of entrepreneurs raising all kinds of private 
capital won't start all kinds of new businesses to exactly meet 
that need and outcompete you if you are stuck throwing your 
clients out of your firm or putting them on some automated 
Siri-like system?
    I just don't understand why you would bet against the 
entrepreneurial economy of the United States. Mr. Lombard?
    Mr. Lombard. So, we have already made the innovation. We 
have brought down our minimums on advisory fees fivefold, from 
$25,000 to $5,000. We still have upwards of 10,000 accounts 
with balances less than $5,000. We have certain fixed costs 
that those clients, if we charge those fixed costs to them, 
would pay an unreasonable fee.
    Mr. Delaney. All right, so reclaiming my time back, so 
hearing that, I would say, okay, I am going to start a new 
company without those fixed costs and out-compete you and 
provide great service to these people. Why don't you think that 
will happen? Because that is how it happens everywhere in this 
economy.
    Ms. Firvida. And it is happening.
    Mr. Delaney. Right, Dr. Holtz-Eakin.?
    Mr. Holtz-Eakin. I have two responses to this. First of 
all, it is a fantastic question. It is right on the mark. And 
there is a broad concern which is also going on in the 
financial services about the birth rate of firms in the U.S. 
economy, which has been declining steadily, and which a few 
years ago actually fell below the death rate of firms. And that 
is a troubling trend.
    Mr. Delaney. There are other reasons for that.
    Mr. Holtz-Eakin. So I worry that the regulatory burden 
contributes to the inability to enter and provide the 
competition you are describing.
    Mr. Delaney. I agree with you in other markets.
    Mr. Holtz-Eakin. And I say this lovingly: I hope you are 
afraid of going out of business every day. You want that kind 
of competition.
    The second thing I am worried about is exactly the mirror 
image of the concern that has been expressed earlier, which is, 
how long does that take? And in the interim, what happens to 
everybody who had advice and is now gone?
    Mr. Delaney. Transitions are tough, I acknowledge that. And 
we ought to be smart about that. But I just think people 
innovate out of this issue.
    Chairman Huizenga. The gentleman's time is--
    Ms. Firvida. And if we could add, it is that innovation 
that is serving the small accounts.
    Chairman Huizenga. I'm sorry, the gentleman's time has 
expired. The Chair recognizes the gentleman from Arkansas, Mr. 
Hill, for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. And thanks to the panel 
for being with us today.
    And this is a subject--I am relatively new to Congress, 
only 2\1/2\ years, but I spent 35 years in the financial 
services business. And a good part of that 35 years was doing 
business with individual retail investment clients, both in a 
capacity of being a trustee and running a trust bank operation, 
as well as a broker-dealer. So I am somewhat familiar with this 
issue and account sizes of all sizes, including the young 
family starting out with just a few dollars a month.
    I have sort of grown irritated with the previous 
Administration and now this Administration on this topic. And I 
really associate myself with many of the comments made by my 
friend from Georgia, Mr. Scott. At its heart, this is a failure 
of governance because the statute was quite clear, asking the 
Commission to do a study on this matter and then recommending 
action. And it is a failure of the previous Administration 
through its Treasury and OMB regulatory function to insist that 
the SEC and the DOL work this out and create one uniform 
standard in this arena instead of creating the mess that we 
have now of expensive, duplicative, conflicting regulation.
    And to me, I have just called it--it is part of the war on 
savings. DOL has done that by watering down the importance of 
long-term investment returns by muddying up the definition of 
what is preeminent in looking for long-term returns.
    The previous Administration proposed a tax and did tax 
investment income. They proposed to cap IRA balances, claiming 
that you couldn't save unlimited money in your IRA. People 
propose still today forcing people to Roth their IRAs, which I 
think is a bad idea. And ultimately, because it has been so 
hard to save, even propose that the government set up savings 
accounts and cut out the private sector completely.
    So it has been a disturbing trend in trying to encourage 
retirement savings. We should be doing everything we can to 
remove regulatory paperwork, cost barriers to faster and better 
retirement.
    And to also say that people aren't concerned about our 
seniors, I think FINRA in the early 2000s led that work with 
notice to members and sweep examinations across the whole 
investment industry on breakpoints, on mutual funds, and 
educating consumers about that, variable annuity product sales, 
how those should be done, what kind of accounts they are 
appropriate for, what kind of accounts they are not appropriate 
for, and then sweep exams on investor sales practices for 
seniors.
    So this is not a new issue in the investment industry, and 
it should be done in the right way, which is through the SEC 
and the investment regulatory environment, coordinated with 
whatever views Labor has on ERISA-based accounts.
    There are a couple of things I am concerned about. One, 
think of all the small broker-dealers out there, small 
investment managers who are now told they were going to get a 
good delay of this rule and get improvements to it, have maybe 
the commission take a look at it with the incoming 
Administration, our Trump Administration, and then told, no, it 
is going to go forward.
    So I have heard from a lot of small investment advisers in 
Arkansas that if the fiduciary rule is not delayed by the end 
of August, companies will have to start millions of dollars to 
prepare for provisions to the rule that may actually go away or 
be changed. And I don't think that is fair. That is what I call 
the failure of governance to get this right on the front end.
    And then I am concerned about this State law trend that was 
mentioned earlier. And Mr. Halloran, I think on July 1st, 
Nevada has a law going into effect on fiduciary standards on 
broker-dealers for all accounts, and other States are 
considering that. Again, that is going to create even more 
conflict in this space when we are trying to get a uniform 
standard that applies to investment broker-dealers, insurance 
people and others in this space.
    Can you talk about how these State actions are inconsistent 
with the Federal securities laws and what your concerns are on 
that?
    Mr. Halloran. Yes, sure. So we don't actually know 
everything about Nevada that we should. It is kind of vague in 
itself, as well. But the greater concern here is that if you 
are looking for harmonization, which we think is a very good 
thing from a regulatory standpoint, then having 50 States doing 
50 different things really doesn't help that in any regard at 
all.
    Certainly that increased cost--we deal with that from the 
insurance aspect all the time. We have 50-plus insurance 
regulators that we have to deal with on a State-by-State basis, 
every time we do something from an insurance product, and so 
forth. So we know the difficulty in doing that. It works. And 
it works slowly. But adding on legislative State actions to 
that just mucks up the water that much more.
    Mr. Hill. Thank you. And I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    The gentleman from Minnesota is recognized for 5 minutes.
    Mr. Emmer. I thank the Chair, and I thank the panel for 
being here today.
    I want to focus on one specific area probably because of my 
professional background. And why don't we start with Mr. 
Halloran? Would you agree with Secretary Acosta that the 
private right of action, the right to sue advisers and their 
firms, is the biggest flaw with the rule, the DOL rule?
    Mr. Halloran. It is certainly, if not the biggest, among 
the biggest, yes.
    Mr. Emmer. There appears to be some misunderstanding of the 
litigation risk under the DOL fiduciary rule. Many people say 
that the litigation risk will not arise until January 1st of 
2018, but I have heard this may not be correct. My 
understanding is that a lack of clarity and certainty regarding 
the rule has created concern about a very substantial 
litigation risk for advisers starting on June 9th.
    Again, Mr. Halloran, can you explain?
    Mr. Halloran. This doesn't get a lot of press or publicity, 
but the actions by class has always been present in ERISA rule. 
By taking ERISA law and applying that to IRA accounts, as an 
example, you are now exposing financial advisers even as of 
June 9th to a potential class-action litigation, because just 
giving rise to advice of moving out of a 401(k), for example, 
rolling over to an IRA. So, yes, that is a real and present 
concern, absent any private right of action that arises from a 
best-interest contract.
    Mr. Emmer. You believe it is a real concern starting on 
June 9th?
    Mr. Halloran. Oh, yes.
    Mr. Emmer. Also, as long as I have focused on you, why is 
the litigation risk so great under the rules, as it is 
constructed? I am just going to tell you, as a lawyer, 1,000 
pages makes it a huge litigation risk to have a rule that long.
    Mr. Halloran. Yes, so that is a great point. It sounds very 
simple, we want a best-interest standard, we want to act in the 
best interests of our clients. The rule is 1,000 pages. The 
preamble was 204 pages. There are many, many ambiguities we are 
still going to deal with, notwithstanding changes that have 
been made, with, frankly, not a whole lot of guidance yet, 
either.
    So there is more concern about what we don't know 
necessarily than what we do know. We don't really have case law 
to look to right now to understand the actual consequences of 
this private right of action and these kinds of actions. All we 
can look to is what we see in other businesses. And it is of 
significant concern.
    Mr. Emmer. And unfortunately, in order to get that body of 
case law, you are going to have to have a lot of people suffer 
in courts of law, and you are going to have to pay a lot of 
attorneys, which I suppose the bar is probably not too 
disappointed with.
    Mr. Lombard, my understanding is--and I am hoping because 
of your relationship with the current Chair of SIFMA--my 
understanding is that SIFMA has conducted a survey of its 
members about the effects of the rule. Are you familiar with 
that at all?
    Mr. Lombard. I am aware that there have been surveys. There 
have been several of them. I am not sure I can quote their 
exact findings.
    Mr. Emmer. Can you give me an idea? Do you know what the 
client experience has been to date and what effect the rule has 
had on their ability to serve their clients?
    Mr. Lombard. As I said, there has already been disruption. 
There is limited product selection in certain areas, 
specifically fixed-income. Some of the members of SIFMA have 
stopped selling mutual funds. Some have stopped offering 
commission-based brokerage accounts in their retirement space.
    As I also pointed out, costs are rising as many firms ask 
their clients to move into fee-based accounts, which are more 
expensive than traditional brokerage accounts.
    Mr. Emmer. I think a lot of people agree that the time has 
come for some kind of fiduciary best-interest rule in this 
industry. But the rule as it is drafted--and I covered one area 
that is of big concern to me, and there are others--and 
unfortunately, the way it works around here is we have to step 
in and out, so I am assuming that people have covered some of 
these.
    But I guess I would like to ask the panel, if the rule 
stays in effect, what changes would you like to see to make it 
more workable to allow advisers to sell products and services 
that they offer their clients? And for me, it is the lower end, 
the entry-level folks that we are all concerned with. We want 
to make sure they get the right advice.
    Why don't we just start on this end?
    Mr. Knoch. So if the rule remains in effect, there are five 
specific things that the FSI would want to see changed in the 
rule. One would be streamlining the advice documentation and 
disclosure. Two, is creating a single best-interest standard 
applicable to all investors. Three, is revising and broadening 
the reasonable compensation rules. Four, is revising the rules 
for IRA rollovers. And five, is expanding the rule's 
grandfathering provisions.
    Mr. Emmer. And my time has run out, it looks like, so I 
will be in touch with the rest of the panel. Thank you.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair recognizes the gentleman from New Jersey, Mr. 
MacArthur, for 5 minutes.
    Mr. MacArthur. Thank you, Mr. Chairman.
    I really appreciated Mr. Scott's remarks earlier. There are 
not that many issues where both parties actually want the same 
outcome around here. We debate a lot of things back and forth. 
This may be one of those areas. I don't see that much daylight 
between what any of us want. We want investors to be protected 
with the optimal outcomes and the least costs. I don't think 
there is anybody on either side of the aisle who wants anything 
different. So if there is ever an issue for us to work together 
on and figure out the best way to get there, it seems to me 
this is one of them.
    I have a very basic question first for Mr. Lombard. You 
mentioned in your opening remarks that your clients are 
confused by different sets of rules applying to investment 
accounts and retirement accounts. They are not alone in being 
confused. I like to think I am a pretty sophisticated investor. 
I have made my living on investments for some years now. I 
don't understand the different kind of rules that apply.
    I don't think I have a good grasp on what the actual legal 
standard is for different kind of advisers. So if you could 
help my ignorance, for starters, I would appreciate it. What 
are the current rules that apply to different kinds of 
investors, briefly?
    Mr. Lombard. There is the suitability rule that applies to 
broker-dealer activities. There is the SEC fiduciary standard 
that applies to investment advisory activities. And now there 
is the ERISA Department of Labor rule that applies to the 
retirement space that heretofore applied to retirement plans if 
you were deemed a fiduciary.
    Mr. MacArthur. Do you think most advisers are crystal-clear 
on what their duties are as they deal with different kinds of 
clients?
    Mr. Lombard. It is not just clients, sir. It is also 
advisers, people who have been in the business for decades are 
just coming to grips with these new regulations.
    Mr. MacArthur. I asked maybe 2, 3 months ago my own 
advisers--I asked three of them what the standards were that 
applied to them. None of them gave me a clear answer, which is 
why I am asking you, none of them. They are all very smart. I 
rely on these people to not make too many mistakes with my 
investments.
    So we clearly need a clearer standard. Is there anyone on 
the panel who doesn't support a single standard?
    Ms. Firvida. We support--AARP certainly supports a single 
standard as long as the standard is a fiduciary standard. And I 
would agree that there is confusion, and that confusion is 
creating the demand for a single standard. I think that is 
absolutely where the market is headed and where consumer demand 
is at.
    Mr. MacArthur. Okay. Then it is obviously incumbent on all 
of us up here to figure out that standard with the most clarity 
and without the potential for litigation, because let's face 
it, that is a real issue. A single standard that does nothing 
but line the pockets of trial lawyers, either with individual 
lawsuits or class-action lawsuits, isn't good for anybody. That 
is not good for anybody.
    It is not good for--so I had a question, Ms. Firvida, for 
you, too. You mentioned before that you were okay--I think you 
were the only one who suggested you were okay with robo-
advisers. And forgive me if you have addressed this. I had to 
step out.
    Ms. Firvida. No, I would be very happy to.
    Mr. MacArthur. I just want to better understand where you 
think robo-advisers are a better--and maybe I am putting words 
in your mouth, tell me if I am--but do you think that is equal 
to or better than live advice?
    Ms. Firvida. We really appreciate the opportunity to expand 
on that, on that question especially, since the question of 
robo-advice has come up several times in this hearing. The 
point that we would like to make is related to the point that 
Congressman Delaney made. There is a lot of innovation 
happening in the products and services that are being offered, 
and some of those are technological in nature. So robo-advisers 
is part of the innovation that is helping serve Americans 
saving for retirement, especially at small-dollar accounts. It 
can provide a lot of value, and it can provide fiduciary 
services.
    And I will add, I understand that everyone here except for 
myself said, no, they don't believe robo is a good idea. But 
many traditional firms are adopting robo-services. The record 
is replete with examples of this. And those are traditional 
firms that many of the organizations testifying today are--
those are firms--
    Mr. MacArthur. I hate to cut you off--
    Ms. Firvida. --that are members of those organizations. So 
I think robo-services will be a part of the landscape even for 
traditional firms.
    Mr. MacArthur. My time is--
    Mr. Halloran. May I respond to that, as well?
    Mr. MacArthur. My time has expired, but I will say--I just 
want to add this. There probably is a place for that, but let's 
not drive people away from human interaction where a human 
being can really understand the needs of another human being. 
Let's not force people into that because we have ruled out the 
other type.
    Just one last thing, Mr. Chairman, if I can beg your 
indulgence. Mr. Lombard, I didn't write down your answer to my 
question. I would be grateful if you would send that to my 
office in writing.
    Mr. Lombard. I would be happy to.
    Mr. MacArthur. Thank you. I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Davidson, is recognized for 5 
minutes. And I am wondering if he would briefly yield to the 
Chair?
    Mr. Davidson. Thank you, Mr. Chairman. And I yield to the 
Chair.
    Chairman Huizenga. Thank you. I just wanted to--I know that 
there was an answer to that, and I was hoping that you would be 
able to allow that and indulge it. Because I have to tell you, 
again, I love my mother, but she is not going to be on a 
computer to figure out how in the world she is going to manage 
her investments. She is not going to go through a voicemail 
tree when she is having a hard time and difficulty hearing it. 
It is tough enough getting prescriptions, much less 
investments.
    So with that, I would yield back to the gentleman.
    Mr. Davidson. Thank you, Mr. Chairman. And thank you all. I 
have really enjoyed the dialogue that we have had here today. 
And I think it is an important issue that we address, because 
we really do have to protect the ability of people to save for 
their retirement.
    I guess my question is really basic, in the sense that the 
premise--it seems to me that the premise of why you would 
invest in the market is you believe the market works. You 
believe that there is a path that would produce better 
investment alternatives than--and therefore, what is in the 
best interest of the saver is something that could be discerned 
through the forces of the market.
    And I just wonder if the premise of this assumes that these 
people who have money--I think we can agree, without going down 
the line, that it is their money that they are saving--that 
they can't know who they should trust without the Federal 
Government in this case, particularly the Department of Labor, 
telling them who they can trust, and saying, hey, we are adding 
another layer of regulation in this.
    So we need the Federal Government to tell us that it is 
okay to invest with these sorts of investors. We already have a 
lot of regulation from the SEC. This rule adds a layer. And as 
has been shared by a number of folks, the concerns of what 
happens to those savers--I talked with some investment advisers 
in the Eighth District of Ohio. And here is a story.
    Darrell and Cynthia are a dual-income family, a young 
couple in their early 30s with 2 small children. Both have 
solid careers and are making ends meet. A year earlier, Cynthia 
lost her job, and because she didn't have a solid financial 
understanding, she withdrew roughly $20,000 from her 401(k), 
rather than rolling it over to an individual retirement 
account. After taking huge Federal and State tax hits, they 
parked the money in a savings account at a bank and left it 
there for several years because they didn't know how or where 
to invest it.
    The couple knew a financial adviser from their church 
activities and they sought his help after becoming frustrated 
with the very low return their money had earned in the bank. 
The financial adviser shared basic financial concepts with that 
couple that they had never heard about, compound interest, the 
benefits of tax-deferred IRAs, and why parking retirement 
savings at a bank savings account is not as good of a path as 
something with better yields.
    Darrell and Cynthia were frozen in fear because they lacked 
fundamental financial knowledge and made a bad decision by 
cashing out the 401(k). They have now moved their money into a 
retirement option that is right for them, and they are making 
smart financial decisions with the input from their financial 
representative.
    Under DOL's fiduciary rule, millions of Americans like 
Darrell and Cynthia would be forced to fend for themselves and 
likely make similar mistakes, like cashing out their retirement 
savings too soon, and paying high fees and fines, which really 
alludes to some of the problems with ERISA in the first place 
and puts DOL already at too central of a role in how people 
manage their money.
    As a former small business guy, we use simple and separate 
IRAs, simple IRAs. And one of the concerns I have is that many 
savers have this from small employers. Small businesses are a 
huge part of the growth in employment in our country. Mr. 
Knoch, how does the DOL fiduciary rule affect a business's 
ability to offer services for small employer retirement plans, 
such as simple IRAs?
    Mr. Knoch. Thank you, sir. I share the same concern you 
share, as well. This is the area where we have seen the largest 
impact based on the prospect of the rule, as well as its 
initial implementation. Simple IRA accounts at our firm are 
down 20 percent since 2016, and we forecast that simple IRA 
accounts will be down over 40 percent over the next 18 months.
    Mr. Davidson. Thank you for that. And that is a big 
concern. I will mention, as time flies by, that in 2011, DOL 
estimated consumers who invest without professional advice make 
investment errors that collectively cost them $114 billion per 
year. To anyone's knowledge on the panel, has DOL factored 
these statistics into its economic analysis for the rule? And 
how would those costs affect the rule?
    Chairman Huizenga. And this has to be very quick.
    Mr. Knoch. I will answer that. I do not believe they have. 
And in fact, I think it is the single biggest flaw in the 
calculation.
    Mr. Davidson. Thank you. Mr. Chairman, I yield back.
    Chairman Huizenga. The gentleman's time has expired. At 
this time, we welcome the ranking member of the full Financial 
Services Committee, the gentlelady from California, Ms. Waters, 
who is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I am sorry I 
was not able to be here earlier. But it is very important for 
me to be here because of the terrific fight that we had to put 
up on fiduciary. This is a very important issue. And of course, 
we had to go through quite a bit in order to make sure that the 
work that had been done at DOL could be realized following an 
Executive Order that was put forth by this resident that 
delayed it.
    So I did not think that we were going to have to come back 
and have this fight all over again, but it looks as if we have 
to. So I want to thank all of the red shirts out there--AARP, I 
understand, is here. I am so glad you are here to remind folks 
what this is all about.
    So with that, I would like to pose a question to Ms. 
Cristina Martin Firvida. As you know, before DOL promulgated 
the fiduciary rule, rules governing investment advice on 
retirement accounts had not been meaningfully updated in 40 
years. As a result, there are many loopholes or gaps in the law 
that allowed--that were that allowed individuals to avoid 
fiduciary status and provide conflicted investment advice that 
cost our Nation's workers and retirees $17 billion each year.
    Can you explain what those loopholes or gaps are and how 
they harm investors?
    Ms. Firvida. Thank you, Congresswoman. So as we stated in 
our statement earlier, there has been a standard in ERISA for 
over 40 years now to require fiduciary advice, but over the 
years, there have been many exemptions developed by the 
Department of Labor itself. And those are the loopholes that 
the rule that was finalized last year--those are the loopholes 
that were closed, in essence. Those were the loopholes that 
were revisited.
    And we asked ourselves, in the current environment, where 
so many individuals need to make so many decisions about their 
own nest egg, because we no longer have the prevalence of 
defined benefit plans, do these continue to make sense? And the 
answer was no.
    And to your point, we have estimated that the conflicted 
advice that could result from those loopholes was costing 
savers 5 years' worth of retirement income, which is 
unacceptable, because conflicted advice, again, is not free. 
There is a cost to regulation. We recognize that. There is a 
cost to enforcement. We recognize that. But there is also a 
cost to conflicted advice. It is not free.
    There are two additional things that I would just like to 
add briefly, because we have talked a lot about the litigation 
risk in this rule. And I would like to make sure that we say 
today, reminding everyone that the litigation that is permitted 
in the rule is class-action litigation. And there are two 
things about that we need to remember. First, there has to be a 
systemic problem before a class-action cause of action can be 
brought, and I think that we can all agree that if there is a 
systemic issue in advice that is being provided, we would want 
to address that. So this is not about individual rights of 
action. This is about a systemic problem that affects a class.
    And second, it is extremely difficult to certify a class, 
extremely difficult and more so in recent years after certain 
Supreme Court cases have been decided. So I really just wanted 
to make sure that we were all clear on what is the scope of the 
litigation risk.
    Ms. Waters. Thank you very much. To any of our other 
witnesses who are here today, prior to the DOL's fiduciary 
rule, if an employee sought advice on a one-time basis to roll 
over the assets in their employer-sponsored 401(k) to an IRA, 
the person from whom she sought that advice would not owe her 
any fiduciary duty. Tell me, if you were transferring your life 
savings from your 401(k), would you want your adviser to give 
you advice that is merely suitable? Or would you want that 
person to be held to a higher standard, like the DOL fiduciary 
rule, where they would be required to act in your best 
interests? Who would like to answer that question? Mr. Mark 
Halloran?
    Mr. Halloran. I would answer it by, first of all, it is not 
necessarily the case that the person giving the advice would 
not be a fiduciary. They could be under the 1940's Act. It 
could be an IRA, RIA.
    Secondly, I do think the suitability standard has been--it 
is a pretty high standard. That suitability standard has 
changed 6 times from 1992 to 2002, another 4 times, most 
recently in 2011. What I want is a trusted adviser to give me 
sound advice, regardless of the suitability standard--
    Ms. Waters. Reclaiming my time, since you think--
    Chairman Huizenga. The gentlelady's time has expired.
    Ms. Waters. --suitable is fine, do you think that fiduciary 
is better?
    Mr. Halloran. The fiduciary standard is a higher standard 
under the law.
    Ms. Waters. Thank you very much. I yield back the balance 
of my time.
    Chairman Huizenga. The gentlelady's time has expired.
    With that, the gentleman from Indiana, Mr. Hollingsworth, 
is recognized for 5 minutes.
    Mr. Hollingsworth. Good afternoon. Thank you all for being 
here. I really appreciate all of the conversations and 
dialogue.
    I am reminded of a cartoon I saw a few years ago that made 
me chuckle. It is a gentleman sitting across from his financial 
adviser with a big desk in between them. And he says, ``I am 
retiring next Friday. I have nothing in savings. This is your 
chance to become a legend.''
    And I am worried with this rule that too many individuals 
will find themselves in that same situation. And what is the 
reason? The reason we have talked about so frequently during 
the course of this hearing, which is we are not able to get 
people started early saving small amounts because of the way 
this rule change in how the regulatory burden impacts small 
account holders, and they will be pushed out.
    And I have just a couple of examples of that that I have 
continued to hear from constituents, both financial advisers as 
well as those seeking out financial advice. One talks about how 
as a financial adviser he has always prided himself on helping 
people getting started into retirement savings as early as 
possible and applauds individuals who come into his office. And 
just recently, he had the experience of having to turn away a 
young client who at 27 had the foresight to think he needed to 
start saving for retirement. But all he could put away was $100 
to $150 a month.
    And this financial adviser, much to his chagrin, had to 
turn it away, because his firm said that the new account 
minimum is going to be set at $5,000 on account of this, 
because it didn't make any sense for somebody to save in 
retirement $100 to $150 a month if fees were going to eat up 
that entire principal, not the earnings on that, but that 
entire principal each and every month.
    And so the problem is, we have created this system now 
where people had to have significant funds and be able to have 
a significant account balance in order to get advice. And I 
think that is the great fallacy of over-regulation. The people 
we are most trying to help, those that are most on the fringe 
and margin of the financial system, we want to bring them in, 
but regulation continues to push them further and further away 
from getting good and reasonable advice. I want those people to 
participate.
    My second example comes from a financial adviser in my 
district who has talked about how he has always worked hard to 
get people in the door, even goes to local fairs and tries to 
advertise how people should be saving for their retirement. 
Even if they don't choose him, he sees it as his mission across 
the district to increase awareness for retirement savings, 
because he doesn't want to see individuals come in and be that 
person and that gentleman in that cartoon.
    And he talks about how he has recently had to give up some 
of his licenses because he is worried about the potential 
liabilities, because he doesn't know everything about every 
single customer who walks in the door. They are trying to save 
$300 or $500, what they might have outside that they don't 
disclose to him, and what that defense might look like. And he 
wanted me to ask a few questions.
    I know most of them have been reviewed already. But for Mr. 
Holtz-Eakin, does it make sense to have a rule become effective 
while that rule continues to still be under review? There has 
been a lot of confusion in his mind about whether this rule is 
going into effect or not going into effect, what he has to mail 
out and what he doesn't have to mail out. And he finds the 
situation really troubling for himself and his business, but 
also for the many clients. And so does this make any sense?
    Mr. Holtz-Eakin. There are a lot of things about the 
current situation that doesn't make a lot of sense. That is 
one. The fact that the SEC hasn't moved is another. There is a 
litany of failures that bring us to this point. The best thing 
would be to go forward with a single standard and clean that 
standard up.
    Mr. Hollingsworth. All right. The other thing that is 
really important to people back home in my district, which is a 
very rural district where there is very little access to 
broadband and there is very little access to the Internet, is 
this idea that robo-advice is going to fill the gap for these 
small individuals, and even without encouragement they will go 
out and seek robo-advice and rely on robo-advice. These 
individuals don't have access to the Internet. They don't have 
access to robo-advice.
    And so they wanted me to ask you, are you concerned that 
robo-advice won't be able to fill the gaps for those who don't 
have access to the Internet, who come in to see me face-to-
face? Either they are in rural areas or they might be one of 
our senior citizens, but they don't have real and general 
access to the Internet and thus need the in-person advice that 
I can provide, but I am being forced not to provide through 
this rule. Yes?
    Mr. Holtz-Eakin. I think the chief concern is not robo-
advice. It is choice. People should get the advice which is 
best suited for them.
    Mr. Hollingsworth. Right.
    Mr. Holtz-Eakin. And pushing people away from having that 
choice is what I am concerned about.
    Mr. Hollingsworth. Are we currently barred from offering 
fiduciary products right now? Does the law prevent us from 
offering products that have a fiduciary standard right now? No.
    Mr. Holtz-Eakin. No.
    Mr. Hollingsworth. Right, that is correct.
    Ms. Firvida. No product is barred under the DOL rule.
    Mr. Hollingsworth. Or before the DOL rule, we can certainly 
offer fiduciary advice right now and people can have that. It 
is about choice. What I think Hoosiers back home are most 
concerned about is that bureaucrats in Washington more and more 
are telling them what products they can use, what products they 
should use, and what products are best for their futures and 
families when they are the ones who know what is best for 
themselves and their own futures. And so, I appreciate the 
panel.
    Ms. Firvida. But to be clear, in every survey we have ever 
done--
    Chairman Huizenga. The gentleman's time has expired.
    Ms. Firvida. --9 out of 10 respondents want fiduciary 
advice.
    Chairman Huizenga. Sorry, the gentleman's time has expired. 
So you may ask the next speaker for your time.
    The gentleman from California, Mr. Sherman, is recognized 
for 5 minutes.
    Mr. Sherman. We got this rule from an exhaustive process. 
The DOL considered and then withdrew its 2010 proposal, went 
back to the drawing board, published an updated proposal in 
April 2015. For its updated proposal, they had a comment period 
of 5 months, receiving feedback, including 3,000 comment 
letters, 300,000 signatures on petitions. They had more than 
100 meetings with stakeholders, including the financial 
services industry, worker retirees, and consumer 
representatives.
    The DOL also held 4 days of public hearings, which included 
25 panels of witnesses and an opportunity for those not on a 
panel to submit written testimony. And there was an attempt 
consistently to consult with the SEC. So it was a good process.
    On the other hand, it was absolutely absurd that we have 
one rule for the SEC and a different rule for the Department of 
Labor. Either consumer protection is necessary or free-fettered 
Wild West choice is necessary, but we actually ended up with 
the absurdity of greater restrictions and/or greater 
protections on Baby Boomers with their IRA and rollover 
accounts than with people in the greatest generation who are in 
their 80s and 90s whose accounts are not in Department of 
Labor-regulated provisions.
    So we have a hard-working process that led to a bifurcated 
consumer protection system. Economists and some of the 
Democratic think groups are focusing on reducing cost, and that 
does make sense. But if you wanted to just reduce the cost of 
ice cream, then require that only vanilla ice cream be sold. 
That is efficient. You don't need an ice cream counselor. It is 
vanilla ice cream. That would get ice cream to everybody as 
cheaply as possible, as efficiently as possible, but people 
would eat an awful lot less ice cream because it is pretty 
boring.
    By providing 31 flavors, Baskin-Robbins demonstrates that 
if you want people to save, you have to give them interesting 
choices as to how to save. And the focus here ought to be on 
how to get people to save more for their retirement, because 
Social Security is not sufficient.
    Now let's get more to the details here of how we apply a 
rule. I will ask Ms. Firvida. Do you have any concerns that the 
fiduciary rule could have an unintended consequence of 
eliminating the ability of small financial institutions, small 
banks, credit unions, to provide IRA rollovers and other 
savings opportunities?
    Ms. Firvida. Thank you, Congressman. Our biggest concern, 
really, is not from the perspective--given who we are--of who 
is offering the services, but from the perspective of the 
client. And so I think what we understand is there are going to 
be some disruptions to the marketplace, and some of those 
disruptions are beneficial--many have been--for those saving 
for retirement.
    So we would say small account holders, which is what I 
worry about--and many of them are going to smaller vendors--are 
coming out ahead in this rule. And that is beneficial to them 
and to their retirement and is one of the reasons why we 
support this rule.
    Mr. Sherman. Okay. Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. I have repeatedly said exactly the 
opposite, which is my concern is for those same small account 
holders, and that the combination of the fee-based accounts and 
the litigation costs will, in fact, make investment advice 
unavailable to them.
    Mr. Sherman. And are people going to be subjected to just 
robo-advice under this rule? Or are they going to be able to 
talk to a human being?
    Mr. Holtz-Eakin. That will depend on what kind of person 
you are and the size of your account. As has been noted, if you 
are an affluent investor with a very large account, this is not 
going to change your ability to get that advice. The people 
most at risk are the smaller savers.
    As I noted in my testimony, if you set the threshold at a 
$20,000 minimum balance in an IRA, about 42 percent of people 
would not be able to qualify for that. I am deeply concerned 
about that.
    Mr. Sherman. People would be able to get a bank account 
IRA, but they might not be able to get other flavors.
    Mr. Holtz-Eakin. So we know that they would not get the 
current advice they get, and they would be thrown into an 
unknown regime. And that is the concern. They chose this set of 
advisers, and the rule does not allow them to keep them.
    Ms. Firvida. And I think as regard to robo, we had a 
discussion a little bit earlier where we do understand that 
many traditional firms are adopting robo-services, in addition 
to what they already offer, and that we believe the landscape 
in the future will include a combination of both, even at 
traditional firms. So we think that is probably where this is 
going.
    Mr. Sherman. There is the argument that if you are only 
saving $10,000 and you get $500 worth of advice every year, 
maybe that is too much advice for the amount of money you are 
saving. But if you get $500 worth of advice every year, you are 
going to pay $500 one way or another.
    Ms. Firvida. And we have also discussed, of course, that 
conflicted advice is not free.
    Chairman Huizenga. The Chair was not paying attention. Your 
time has expired.
    Mr. Sherman. The comments were scintillating.
    Chairman Huizenga. Yes, they were.
    Mr. Sherman. I distracted you from the clock. You were 
paying attention to the--
    Chairman Huizenga. Yes, I actually was, Representative. The 
gentleman from California often does have insightful questions. 
And with that, last but certainly not least, we will recognize 
the gentleman from West Virginia, Mr. Mooney, for 5 minutes.
    Mr. Mooney. Thank you. I am pleased to have an opportunity 
to participate here. This is a big issue in my district. I have 
had several town hall roundtables about it.
    So under the final rule, this final fiduciary rule, one-
size-fits-all from the Federal Government, if an investor likes 
their broker, they can keep their broker. Will the DOL rule 
harm investors?
    Mr. Halloran. May I answer that question?
    Mr. Mooney. Sure.
    Mr. Halloran. My dad likes his broker. My mom likes his 
broker. My mom and dad received a letter about 3 weeks ago 
saying that they are no longer eligible to work with their 
broker. I am probably eligible for AARP; certainly they are. 
That is the crux of this issue here for us, is it is--robo-
advice is not bad. Robo-advice, frankly, was introduced many 
years before the DOL. Firms are embracing robo-advice. If you 
don't do that, you do it at your peril, frankly. It is a matter 
of choice.
    My parents would love to continue to working with that 
trusted adviser who has been working for them for the last 15 
years. They can't. Not unless that adviser leaves that firm.
    I received a similar letter, if not the same letter. And in 
my case, I actually qualified for the fee-for-service. But what 
I would have to do is I would have to take my account, which I 
am averaging about 25 basis points paying for right now getting 
advice, and for the same advice from that same adviser, pay at 
least 75 basis points more. That is my choice right now.
    This is not about--these are interesting academic 
arguments, frankly. The argument that Mr. Delaney put forward 
that annuities are permitted, sure, they are permitted under 
this rule. Are they going to be sold? No. They are not being 
sold, because they are disadvantaged by the rules bias towards 
fee-for-service.
    It is about what is happening. It is about what is 
happening today, not what is potentially going to happen. We 
are seeing it every single day.
    Mr. Mooney. Thank you. I would like to kind of--as a 
follow-up related question, I would like to direct this one to 
Mr. Lombard. In your opinion, has the DOL--or just factually, 
has the DOL substituted its judgment, its own judgment, the 
DOL's judgment, for that of the expert regulator of the broker-
dealers? And as a follow up, will the end result for investors 
be a loss of choices in product services of financial 
professionals?
    Mr. Lombard. It is my opinion that the Department of Labor 
chose one business model--that of level fee advice advisory--
over the traditional brokerage account, even though that 
doesn't fit for every client. And it is not just a matter of 
size. There are clients of substance who prefer, as my 
colleague here does, to keep their costs low, and that is not 
possible in advisory programs.
    So again, it comes down to choice. And the DOL is forcing 
the hands of investors and providers to offer one in favor of 
the other, whereas before, investors had choice.
    Mr. Mooney. Dr. Holtz-Eakin, I see you nodding your head 
there, and so one more follow up here in the remaining minute-
and-a-half that I have. You referenced the U.K. retail 
distribution review in your testimony as a comparison to the 
DOL fiduciary rule and how the U.K. financial conduct authority 
in 2016 conducted a review of that rule. What caused the U.K. 
to initiate the review?
    Mr. Holtz-Eakin. There was concern about the fallout from 
the 2013 decision to ban commission-based accounts. And when 
they looked, they found probably three striking results. The 
first was about a quarter of the advisers had exited the 
industry. And we have seen some exits in the U.S. already. They 
found that about 45 percent of the firms no longer provided 
advice to small accounts at all, or very rarely, so there was a 
clear departure from advice, either because the advisers were 
gone or because those who remained weren't talking to small 
account holders.
    And we saw minimum balances go up. As I said, 13 percent of 
firms initially required 100,000 pounds or more. That moved up 
to 32 percent in only 3 years. That is exactly the kinds of 
concerns that have been expressed about the DOL rule.
    Mr. Mooney. But supporters of the rule have stated that the 
DOL rule will not have a similar impacts to that of the U.K. 
rule. Do you agree with that? Why or why not?
    Mr. Holtz-Eakin. We have seen some of the early evidence--
some of the members of this panel have talked about it, and I 
mentioned some examples in my testimony where, for example, 
MetLife and AIG have exited the business. And we have seen 
Raymond James move to fee-based accounts. And this is exactly 
the sort of early indicators of the pattern that emerged in the 
United Kingdom. So I don't think these are hypothetical or 
academic or theoretical arguments. This is an experience that 
we saw in the U.K. and we are beginning to see in the United 
States.
    Mr. Mooney. Thank you. I think the facts show that some of 
these rules are well-intended, but they have the exact opposite 
effect. They hurt the very people you are trying to help. It is 
a shame we do that.
    Chairman Huizenga. The gentleman yields back. And I guess I 
will just note that this strikes me as just fewer advisers 
giving less advice with greater government control and less 
choice for consumers. And that ultimately we have to make sure 
that consumers are protected and that they have the ability to 
do what is best for them.
    So I deeply appreciate the time and effort of all of our 
panelists here. This was, I felt, a very informative and great 
panel. Without objection, I would like to submit the following 
statements for the record: a letter from the U.S. Chamber of 
Commerce; a letter from the National Taxpayers Union; and a 
letter from the Credit Union National Association (CUNA). 
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.
    And again, I want to say thank you to our panelists, and I 
appreciate them being here today. And with that, we are 
adjourned.
    [Whereupon, at 12:18 p.m., the hearing was adjourned.]

                            A P P E N D I X


                             July 13, 2017
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