[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
PROTECTING AMERICAN SAVERS
AND RETIREES FROM DOL'S
REGULATORY OVERREACH
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HEARING
Before The
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
OF THE
COMMITTEE ON EDUCATION AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
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HEARING HELD IN WASHINGTON, DC, FEBRUARY 15, 2024
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Serial No. 118-37
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Printed for the use of the Committee on Education and the Workforce
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: edworkforce.house.gov or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-496 WASHINGTON : 2024
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COMMITTEE ON EDUCATION AND THE WORKFORCE
VIRGINIA FOXX, North Carolina, Chairwoman
JOE WILSON, South Carolina ROBERT C. ``BOBBY'' SCOTT,
GLENN THOMPSON, Pennsylvania Virginia,
TIM WALBERG, Michigan Ranking Member
GLENN GROTHMAN, Wisconsin RAUL M. GRIJALVA, Arizona
ELISE M. STEFANIK, New York JOE COURTNEY, Connecticut
RICK W. ALLEN, Georgia GREGORIO KILILI CAMACHO SABLAN,
JIM BANKS, Indiana Northern Mariana Islands
JAMES COMER, Kentucky FREDERICA S. WILSON, Florida
LLOYD SMUCKER, Pennsylvania SUZANNE BONAMICI, Oregon
BURGESS OWENS, Utah MARK TAKANO, California
BOB GOOD, Virginia ALMA S. ADAMS, North Carolina
LISA McCLAIN, Michigan MARK DeSAULNIER, California
MARY MILLER, Illinois DONALD NORCROSS, New Jersey
MICHELLE STEEL, California PRAMILA JAYAPAL, Washington
RON ESTES, Kansas SUSAN WILD, Pennsylvania
JULIA LETLOW, Louisiana LUCY McBATH, Georgia
KEVIN KILEY, California JAHANA HAYES, Connecticut
AARON BEAN, Florida ILHAN OMAR, Minnesota
ERIC BURLISON, Missouri HALEY M. STEVENS, Michigan
NATHANIEL MORAN, Texas TERESA LEGER FERNANDEZ, New Mexico
JOHN JAMES, Michigan KATHY MANNING, North Carolina
LORI CHAVEZ-DeREMER, Oregon FRANK J. MRVAN, Indiana
BRANDON WILLIAMS, New York JAMAAL BOWMAN, New York
ERIN HOUCHIN, Indiana
Cyrus Artz, Staff Director
Veronique Pluviose, Minority Staff Director
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SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
BOB GOOD, Virginia, Chairman
JOE WILSON, South Carolina MARK DeSAULNIER, California
TIM WALBERG, Michigan Ranking Member
RICK ALLEN, Georgia JOE COURTNEY, Connecticut
JIM BANKS, Indiana DONALD NORCROSS, New Jersey
JAMES COMER, Kentucky SUSAN WILD, Pennsylvania
LLOYD SMUCKER, Pennsylvania FRANK J. MRVAN, Indiana
MICHELLE STEEL, California PRAMILA, JAYAPAL, Washington
AARON BEAN, Florida LUCY McBATH, Georgia
ERIC BURLISON, Missouri JAHANA HAYES, Connecticut
LORI CHAVEZ-DeREMER, Oregon ILHAN OMAR, Minnesota
ERIN HOUCHIN, Indiana KATHY MANNING, North Carolina
C O N T E N T S
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Page
Hearing held on February 15, 2024................................
OPENING STATEMENTS
Good, Hon. Bob, Chairman, Subcommittee on Health, Employment,
Labor, and Pensions........................................ 1
Prepared statement of.................................... 4
DeSaulnier, Hon. Mark, Ranking Member, Subcommittee on
Health, Employment, Labor, and Pensions.................... 6
Prepared statement of.................................... 8
WITNESSES
Ommen, Doug, Insurance Commissioner, Iowa Insurance Division. 11
Prepared statement of.................................... 13
Roberts, Thomas, Principal, Groom Law Group.................. 29
Prepared statement of.................................... 31
Peiffer, Joseph C., President, Public Investors Advocate Bar
Association................................................ 37
Prepared statement of.................................... 39
Berkowitz, Jason, Chief Legal and Regulatory Affairs Officer,
Insured Retirement Institute............................... 69
Prepared statement of.................................... 71
ADDITIONAL SUBMISSIONS
Ranking Member DeSaulnier:
Statement dated February 15, 2024 from AARP.............. 297
Statement dated February 15, 2024 from Consumer
Federation of America.................................. 301
Supplemental Testimoney dated February 28, 2024 from
Joesph C. Peiffer...................................... 297
Foxx, Hon. Virginia, a Representative in Congress from the
State of North Carolina:
Statement dated February 15, 2024 from American Bankers
Association............................................ 309
Statement dated February 29, 2024 from the American
Council of Life Insurers............................... 320
Letter dated February 15, 2024 from America's Credit
Unions................................................. 327
Statement dated February 15, 2024 from American
Retirement Association................................. 329
Statement dated February 15, 2024 from The Erisa Industry
Committee.............................................. 334
Statement dated January 2, 2024 from The Erisa Industry
Committee.............................................. 336
Statement dated February 15, 2024 from the Investment
Company Institute...................................... 342
Statement dated January 2, 2024 from the Investment
Company Institute...................................... 349
Letter dated February 27, 2024 from the National
Association for Fixed Annuities........................ 465
Letter dated February 28, 2024 from National Association
of Insurance and Financial Advisors.................... 471
Statement dated February 15, 2024 from Representative
Wagner................................................. 487
Signed bipartisan letter dated January 8, 2024........... 488
PROTECTING AMERICAN SAVERS
AND RETIREES FROM DOL'S
REGULATORY OVERREACH
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Thursday, February 15, 2024
House of Representatives,
Subcommittee on Health, Employment, Labor, and
Pensions,
Committee on Education and the Workforce,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:16 a.m.,
2175 Rayburn House Office Building, Hon. Bob Good [Chairman of
the Subcommittee] presiding.
Present: Representatives Good, Walberg, Allen, Banks,
Burlison, Foxx, DeSaulnier, Courtney, Norcross, Wild, Hayes,
Manning, and Scott.
Also present: Bonamici
Staff present: Cyrus Artz, Staff Director; Nick Barley,
Deputy Communications Director; Mindy Barry, General Counsel;
Jackson Berryman, Speechwriter; Michael Davis, Legislative
Assistant; Isabel Foster, Press Assistant; Daniel Fuenzalida,
Staff Assistant; Sheila Havenner, Director of Information
Technology; Alex Knorr, Legislative Assistant; Marek Laco,
Professional Staff Member; Georgie Littlefair, Clerk; John
Martin, Deputy Director of Workforce Policy/Counsel; Hannah
Matesic, Deputy Staff Director; Audra McGeorge, Communications
Director; Rebecca Powell, Staff Assistant; Heather Wadyka,
Professional Staff Member; Seth Waugh, Director of Workforce
Policy; Joe Wheeler, Professional Staff Member; Maura Williams,
Director of Operations; Jeanne Wilson, Retirement Counsel;
Ilana Brunner, Minority General Counsel; Carrie Hughes,
Minority Director of Health & Human Services Policy; Raiyana
Malone, Minority Press Secretary; Kevin McDermott, Minority
Director of Labor Policy; Kota Mizutani, Minority Deputy
Communications Director; Veronique Pluviose, Minority Staff
Director; Dhrtvan Sherman, Minority Committee Research
Assistant; Nick Schiach, Minority Legal Intern; Clinton Spencer
IV, Minority Staff Assistant; Adrianna Toma, Minority Intern;
Melanie Kee, Minority Intern.
Chairman Good. The Subcommittee on Health, Employment,
Labor and Pensions will come to order. I note that a quorum is
present, and without objection the Chair is authorized to call
a recess at any time.
When it comes to saving for retirement, one thing is
certain, Americans should be able to retire in confidence. They
should be able to seek out investment advice from the
investment professionals of their choosing, assess the wide
variety of options in today's marketplace, and then make their
own decisions on the best options for their retirement.
The Committee is meeting today to discuss the Department of
Labor's newest plan to overregulate American retirement savings
by imposing a costly, burdensome new rule. The so-called
Retirement Security Rule expands the definition of investment
advice fiduciary.
This could have far-reaching implications for retirement
savings and affect critical access retirement products for
millions of Americans. First, I want to point out that DOL has
overstepped their authority on this issue. The Employee
Retirement Income Security Act, or ERISA, gives the Department
of Labor authority to regulate retirement plans sponsored by
private employers.
However, the broad reaching new fiduciary rule regulates
retirement accounts far beyond employer-sponsored benefits like
IRAs. The rule is clearly outside the purview of the agency,
yet they are trying to regulate it anyway. DOL's expansive rule
is a blatant power grab, seeking to force more types of
financial professionals under their control, but other
regulatory bodies at the Federal and State level already
exercise oversight over the retirement products and services
that DOL is trying to bring within its jurisdiction.
The SEC Regulation Best Interest Rule requires broker
dealers to act in their client's best interests. The National
Association of Insurance Commissioners Best Interest Rule also
requires State regulatory annuity sales to be in the client's
best interest. If the DOL has a real concern about self-
dealing, these issues have been addressed elsewhere.
Moreover, my main concern is that the fiduciary proposal
will have a disastrous impact on the industry. Past versions of
the DOL fiduciary rule created massive headaches for the
retirement products and services industry. The last time the
government tried to issue a similar rule financial institutions
were forced to eliminate or limit brokerage advice services as
a result.
A financial adviser in Virginia put it this way. The more
layers of rules and regulations Congress and the White House
add, the less likely it is that the average American will get
the advice that they need. This rule will give too much
latitude to the administrative State to go after anyone in the
retirement business and will cause lawsuits to skyrocket.
The cost of implementing the fiduciary proposal, and the
significant legal challenges that will follow are not fully
reflected in DOL's regulatory analysis. Make no mistake, DOL is
forcing retirees to be hit with the costs. Last, the DOL gave
stakeholders insufficient time to respond to the proposal and
has refused to extend the comment period.
This is a major departure from rulemaking norms. For
example, a 2010 fiduciary rule allowed for a 90-day comment
period and an extension. The new fiduciary proposal gave
stakeholders a mere 39 working days. The DOL should be busy
supporting implementation of secure 2.0 to encourage retirement
savings, not proposing rules that will restrict access to
financial advice and hurt our Nation's seniors.
Planning for retirement is already challenging enough, but
the Biden administration's overreach will make that process
much worse. My goal in this hearing is to be a voice for our
Nation's seniors, and to protect those planning retirement from
the heavy hand of the bureaucracy. With that, I yield to the
Ranking Member for an opening statement.
[The prepared statement of Chairman Good follows:]
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Mr. DeSaulnier. Thank you, Mr. Chairman, and I want to
thank the witnesses for being here as well. In 1975, I would
like to say before I was born, but I am told, before staff was
born who wrote this, Gerald Ford was President; my Golden State
Warriors won the NBA Championship; 401K plans did not exist;
and many Americans earned a traditional pension that provided
guaranteed income for the rest of their lives once they
retired.
The retirement savings landscape has changed a lot since
then. Nowadays workers who participate in retirement savings
plans, 401K's, are more likely to be in a defined contribution
plan, such as a 401K. These workers are responsible for
selecting and managing their investments, as well as paying
attention to fees and market trends.
In today's do-it-yourself retirement savings world, it is
up to the workers to ensure that they do not outlive what they
save. Understandably, many workers seek professional advice
when making retirement investment decisions, particularly as it
relates to rolling over their assets from their employer-
provided plan to an individual retirement account, an IRA.
Rollovers are often the biggest one-time financial decision
workers and their families will make in their lives for their
retirement. Many retirement advisers do right by their clients.
Most, I would say. Unfortunately, there are those who do not.
Those unscrupulous advisers steer their clients to a particular
financial product with high fees that is profitable for the
advisor, even if it is not in the best interest of the client.
That is called conflicted advice, and it has a devastating
effect and consequences for retirement savers and their
families, and everyone's trust in the financial system.
According to the Obama administration, conflicted advice cost
retirement savers up to 17 billion dollars in losses every
year.
If a retiree spends down their retirement savings as normal
but experiences a 100-basis point, 1 percent, reduction in
investment performance because of conflicted advice, the
retiree saver's savings would be completely depleted more than
5 years early. President Biden's Council on Economic Advisers
estimated that conflicted advice in the sale of fixed index
annuities, just one of the many products that could be
affected, may cost workers as much as 5 billion dollars in
retirement savings per year.
This is enormously harmful to workers and their families.
We are very fortunate to have our witnesses, and our witness,
Mr. Joseph Peiffer, President of the Public Investors Advocate
Bar Association, as one of our witnesses today. Welcome.
PIABA's attorneys have worked with tens of thousands of victims
of conflicted advice.
These are often proud American workers who played by the
rules, and earnestly saved their retirement nest egg, often on
middle class salaries, and they ended up losing a substantial
amount of their life savings because of bad advice. This is not
fair, and it is heartbreaking for them and for Americans. Many
of you may be wondering, how can this happen?
Well, bad actors can get away with providing conflicted
advice because the primary Department of Labor regulation,
which dates back to 1975, is riddled with loopholes, and
neither the SEC's regulation Best Interest, nor the National
Association of Insurance Commissioners Model Rule are
sufficient to address the problem.
Fortunately, the Biden administration has proposed a common
sense, narrowly defined, and not narrowly tailored rule that is
aligned with the current do-it-yourself retirement savings
landscape. The Biden administration's Retirement Security Rule
levels the playing field, and will ensure that workers,
retirees, and retirement plan sponsors receive advice that is
in their best interest.
According to Morning Star, the Biden administration's
Retirement Security Rule would have significant benefits for
retirement savers. For instance, average costs of workers
covered by a small plan would drop from 93 basis points down to
75 basis points, while there would be minimal charges for most
other plans.
Retirement plan participants would save over 55 billion
dollars in the first 10 years of the rule, and over 130 billion
dollars in the subsequent 10 years. I strongly support the
Biden administration's Retirement Security Rule. It will
particularly help those with small account balances, and since
those small savers are most vulnerable to conflicted advice.
By taking action, the Biden administration demonstrates
that it understands what is at stake for American workers and
families. As our witness will put in his testimony, ``The
difference between getting conflicted retirement advice and
receiving advice in the investor's interest is sometimes the
difference between the retiree being able to visit their
grandkids or not, the difference between being able to afford a
retirement home close to their children or living with them.''
Those are the people who will be harmed by the broken
status quo, and who will benefit the most from the Biden
administration Retirement Security Rule that we will discuss
today. I thank the Chair, and I yield back.
[The prepared statement of Ranking Member DeSaulnier
follows:]
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Chairman Good. Thank you, Mr. DeSaulnier. Pursuant to
Committee Rule 8(c), all members who wish to insert written
statements into the record may do so by submitting them to the
Committee Clerk electronically in Microsoft Word format by 5
p.m., 14 days after the date of this hearing, which is February
29, 2024.
Without objection, the hearing record will remain open for
14 days to allow such statements, and other extraneous
materials referenced during the hearing to be submitted for the
official record. I will now turn to the introduction of our
distinguished witnesses.
Our first witness is Mr. Doug Ommen, who serves as the
Insurance Commissioner of the Ohio Insurance Division, and is
located in Des Moines, Iowa. Mr. Ommen was appointed as
Insurance Commissioner by the Governor of Iowa in 2017. He
serves on the National Association of Insurance Commissioners
Working Group that drafted the NAIC Best Interest Rule.
He previously served in the Missouri Attorney General's
Office working on consumer fraud issues. He has a law degree
from St. Louis University School of Law. Welcome.
Our second witness is Mr. Thomas Roberts, who is a
Principal with the Groom Law Group, located in Washington, DC.
Mr. Robers has practiced law at Groom Law Group since 2011.
Previously he served for over a decade as Chief Counsel of ING
U.S. Legal.
Mr. Roberts has counseled clients for over 20 years on
issues related to ERISA's fiduciary responsibility and
prohibited transaction rules. He has an AB from Georgetown
University, and a JD from the Georgetown University Law Center.
Welcome Mr. Roberts.
Our third witness is Mr. Joseph Peiffer, who is the
President of the Public Investors Advocate Bar Association, and
is located in Norman, Oklahoma. PIABA is a trade association
for Plaintiff attorneys who represent investors in disputes
with the securities industry.
Mr. Peiffer is also a founding partner in a law firm,
Peiffer, Wolf, Carr, Kane, Conway and Wise in New Orleans,
Louisiana. His practice includes representing individuals and
institutions that have been harmed by investment banks and
brokerage firms, and prosecuting ERISA class actions.
He has a BA from Bowling Green State University, and a JD
from Tulane University Law School.
Our final witness is Jason Berkowitz, who is the Chief
Legal and Regulatory Affairs Officer for the Insured Retirement
Institute in Washington, DC. IRI is the leading association for
insured retirement strategies, including life insurers, asset
managers, broker dealers, banks, marketing organizations and
law firms.
Mr. Berkowitz joined IRI in 2012. He started his career as
a corporate attorney at two national law firms before working
in government affairs for the Hartford Life Insurance Company.
We thank all of the witnesses for being here today, and we look
forward to your testimony.
Pursuant to Committee Rules, we ask that you would each
limit your oral presentation to a 5-minute summary of your
written statement, and I would also like to remind the
witnesses to be aware of their responsibility to provide
accurate information to the Subcommittee. We will first
recognize Mr. Ommen for 5 minutes.
STATEMENT OF MR. DOUG OMMEN, INSURANCE COMMISSIONER, IOWA
INSURANCE DIVISION, DES MOINES, IOWA
Mr. Ommen. Chairman Good, Ranking Member DeSaulnier, and
esteemed members of the Subcommittee, thank you for having me
here today. My name is Doug Ommen, and I serve as the Iowa
Insurance Commissioner and have served in that capacity since
2017.
We regulate both insurance and security sales in Iowa. I
appear today because of my concerns about the recent DOL
fiduciary proposal. The proposal could have significant
repercussions for the insurance regulatory framework, and
negatively impact consumers.
Given the retirement savings gap, the Department of Labor
should be encouraging, not limiting access to well-regulated
retirement guidance and products, such as annuities. Iowa plays
a significant role in protecting consumers who purchase life
insurance and annuities.
We serve as a domiciliary State for approximately 40 life
insurance companies, the ten largest of which hold nearly 90
billion in assets. First, I am disappointed with the DOL's lack
of substantive engagement with State insurance regulators. I
expect that the DOL would want to fully understand our
authority under these new, Best Interest Rules before this
recent expansion into the retail annuity market. That did not
happen.
Further, I fundamentally disagree with the administration's
characterization of State consumer protections around annuity
sales as inadequate. Differences and regulatory philosophies
should not be understood as a shortcoming. Over 150 years, the
state-based regulatory approach has proven to be robust and
responsive to the needs of our consumers.
The regulatory landscape for annuities has dramatically
changed since the last fiduciary proposal, due to the diligent
work of State regulators and State legislators. In 2020, the
NAIC revised the suitability and annuity transaction model
regulation, adopting a best interest standard of care. The
NAIC's Best Interest Rules require producers, when making
annuity recommendations, to act in the best interest of the
consumer, without placing the producer's or insurer's financial
interest ahead of the consumer's interest.
Currently, 42 states have implemented the Best Interest
Rules. In this effort, I was significantly involved in every
stage of the work leading up to the adoption of the Best
Interest Rules. We gave serious time and thought to determining
the appropriate standard of care for annuity sales.
While we did consider a fiduciary approach, we found that
fiduciary only standard would restrict consumers from cost-
effective access to the financial security products they need.
In the 3-years since our adoption in Iowa, we have found
consumer choice facilitates consumer access to retirement
products.
Iowans can obtain professional financial advice through fee
or commission arrangements based on their needs. Consumer
protection is best achieved through consistent enforcement of
the requirement that the recommendations must closely align
with the consumer's best interest, not by limiting access to
well-regulated retirement guidance.
I will now cover some specific objections. Our detailed
objections are outlined in my written testimony, and the
comment letters submitted by my department to the DOL on
January the 2d. First, I am troubled by the DOL's inaccurate
claims about the NAIC's Best Interest Rules. The DOL contends
that the Best Interest Rules do not put the consumer first.
This is wrong. The Best Interest Rules explicitly mandate
producers act in the best interest of the consumer.
Additionally, the DOL claims the Best Interest Rules do not
adequately restrict compensation related conflicts of interest.
However, the standard expressly prohibits sales contests, sales
quotas, bonuses and non-cash compensation based on specific
sales of annuities within a limited timeframe.
The DOL also claims the Best Interest Rule permit producers
to recommend products that are worse for the consumer because
they are better for the producer insurer's bottom line. This is
wrong. The Best Interest Rules require the consumers interest
takes precedence.
Our regulatory philosophy is to focus on the requirement
that the recommendation must be in the best interest, requiring
the recommendations must closely align with the consumer's
situation, needs and objectives. The consumer's best interest
must be first. Last, the DOL claims the state's annuity's
regulations vary from State to State.
This is wrong. Forty-two states have adopted the Best
Interest Rules, and we anticipate broader adoption by the end
of 2024. The DOL's proposal poses a substantial threat to the
ability of Iowa and other states to regulate life insurance and
annuity markets effectively. Thank you for the opportunity to
present these concerns, and I do look forward to answering any
questions that you may have.
[The Statement of Mr. Ommen follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Good. Thank you, Mr. Ommen. I will now recognize
Mr. Roberts for 5 minutes.
STATEMENT OF MR. THOMAS ROBERTS, PRINCIPAL, GROOM LAW GROUP,
WASHINGTON, D.C.
Mr. Roberts. Good morning. I would like to thank Chairman
Good, Ranking Member DeSaulnier, Chairwoman Foxx, and Ranking
Member Scott for inviting me to testify today. I also thank all
of the members of the Subcommittee for their dedication to
improving the retirement security of American workers.
I am a Principal with the Groom Law Group in Washington,
DC. I concentrate my practice on ERISA related matters
involving retirement plans. I have counseled on issues relating
to ERISA's fiduciary responsibility in prohibiting transaction
rules for more than 30 years.
My testimony this morning reflects my own personal views,
and not those of any client, my firm, or my colleagues. I am
not testifying on behalf of a client, or any other party, and I
am not being paid in connection with my testimony today. The
topic of this hearing is the U.S. Department of Labor's
overreaching 2023 proposal to redefine persons who function as
investment advice fiduciaries for purposes of ERISA and the
Internal Revenue Code.
The DOL proposal exemplifies the proverbial warning that
even when an action is undertaken with the very best of
intentions, it may nonetheless lead to harmful results. In this
case, the Department's motivation in advancing the proposal
undoubtedly was with the best of intentions, and with the
objective of improving retirements safer outcomes.
The effects of implementing this proposal would be
disastrous. The proposal would do harm to the retirement
investor community by depriving it of access to much needed
information, products, and services. The proposal would impose
numerous, additional, regulatory compliance burdens on
investment professionals who serve the needs of retirement
investors, and in particular, on those who serve the needs of
lower and moderate-income investors.
The effect of those added burdens would be to leave large
segments of the retirement saver community either unserved
altogether, or underserved. I would like to briefly explain why
this is the case. The DOL proposal would sweepingly confer
ERISA fiduciary status on virtually all financial professionals
and salespeople, including broker dealer representatives and
insurance agents.
ERISA fiduciary status is not something to be assigned
lightly, nor should be assigned in context where it would be
inappropriate. This is because ERISA imposes a high standard of
conduct, the highest known to law, on persons responsible as
fiduciaries to ERISA plans.
The ERISA fiduciary standard of conduct does not require
merely acting in the best interest of plan participants and
beneficiaries, it requires acting prudently and solely in the
interest, layered on top of that general standard of conduct
are ERISA's prohibited transaction rules.
Those rules disallow fiduciaries from acting in
transactions where they have a financial interest, and from
receiving compensation from third parties in connection with
the transaction unless No. 1, an exemption is available, and
No. 2, the fiduciary complies with the conditions of that
exemption.
Under the DOL proposal, otherwise ordinary sales
commissions and other traditional forms of transaction-based
compensation earned by insurance agents and brokering
representatives would automatically be transformed by the
prohibited transaction rules.
Those commissions would give rise to an illegal kickback
each time and investment professional makes a sale to an ERISA
plan participant, or IRA owner, unless that investment
professional adheres to the Department's exemption conditions.
Here is a key watch out.
The Department's prohibited transaction exemptions afford
no relief, none, from the general standards of fiduciary
responsibility under ERISA. An ERISA fiduciary, even when
complying with an exemption, remains obligated at all times to
act not just in the best interest, but solely in the interest
of plan participants and beneficiaries.
In many contexts, the application of ERISA's fiduciary
standard of conduct is entirely appropriate and is protective
of participant interests. When fiduciary status is not
appropriately assigned, it can have the opposite effect. This
is the case with the DOL's proposal.
Inappropriately assigning fiduciary status to investment
professionals, such as broker dealer representatives, and
insurance agents, who are compensated on a transaction basis,
and receive sales commissions, will produce tragic results. It
will curtain retirement saver's access to much needed financial
assistance, and the proposal is not needed.
Federal securities and State insurance regulators have
separately adopted best interest standards for sales conduct
for their respective industries. Thank you for the opportunity
to appear this morning, and I look forward to taking your
questions.
[The Statement of Mr. Roberts follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Good. Thank you, Mr. Roberts. We will now
recognize Mr. Peiffer for 5 minutes.
STATEMENT OF MR. JOSEPH C. PEIFFER, PRESIDENT, PUBLIC INVESTORS
ADVOCATE BAR ASSOCIATION, NORMAL, OKLAHOMA
Mr. Peiffer. Thank you. There we go. I am here on behalf of
the investors, myself, and my colleagues that PIABA have
represented. PIABA, the Public Investor Advocate Bar
Association, is a bar association of hundreds of attorneys
around the country that have dedicated their lives to
representing investors that have been the victim of financial
advisor misconduct.
I have represented thousands of investors in my 25-year
career, and collectively PIABA members have represented
hundreds of thousands of investors. Our clients are people who,
invariably, trusted their financial professional.
After all, the vast majority of these investors gave their
entire life savings to their advisor. None of the people that I
have ever represented realized that their advisor might be held
to a standard anything below that of a doctor, or an attorney.
It is not like people come out of the womb believing
brokers have a fiduciary duty to their clients. No. It is
because the financial services industry has been marketing and
advertising that their advisors live up to a fiduciary duty.
The industry often refers to financial advisors as
``trusted advisors'' or compare themselves to doctors. As one
company puts it, ``As doctors take care of physical health,
good financial professionals help take care of financial
health. Just as you consult a doctor for a range of health
questions, you can work with a financial professional on a host
of different options regarding your plan for retirement.''
Academic studies that have looked at this issue conclude
what is obvious to anyone who has ever met an investor who has
been the victim of conflicted advice. That is, investors do not
know the duties their financial professionals owe them. One
thing is clear: right now, the very same advisors that
advertise like fiduciaries, routinely dispute that they owe a
fiduciary duty to their client.
Firms advertise like they have duties of doctors but
litigate like they owe no more duty than that of a used car
salesman. The Department of Labor Rule would go a long way
toward holding firms accountable in the retirement accounts for
the duty they already say they have and that investors already
believe they have.
What does this mean on an individual level to investors?
For some, the difference between receiving conflicted advice,
or receiving advice solely in their interest, is a difference
between being able to afford to visit their grandkids or not.
Being able to afford a retirement home near their children or
living with their children. The difference between being able
to retire in their 60's or in their 70's.
For others, it is the difference between being able to live
out their golden years with dignity, knowing that their hard
work and savings has paid off, or being shattered by the
reality that by trusting their advisor, who gave conflicted
advice, they are left with nothing to show for 30 or 40 years
of hard work and savings.
Almost every week we see a retiree come into our office who
has lost a substantial amount of their life savings. These are
often proud, strong workers, that if they go on vacation at
all, they travel in a car, like I did when I was growing up.
They have saved to pay off their house, put their children
through college, and build a nest egg, all on middle class
salaries.
Now these proud, strong Americans, they breakdown in my
office when I explain to them how their investment was lost to
conflicted advice, and that their advisor did not owe them a
fiduciary duty. I have had clients live with me because they
could not afford the gas and lodging to drive back and forth to
a long trial.
I have had clients that ran out of money and had to rent a
room from their ex-spouse, and I have even, unfortunately, had
clients attempt suicide. I know the devastation that losing
your life savings can have on hard working Americans. This rule
will make this better.
The members of PIABA and myself see the effect of this
conflicted advice on an individual level every day. One of my
clients worked at a chemical plant for a major corporation,
making $80,000.00 a year, until he got the conflicted advice
that he should cash out his retirement account and rollover his
entire savings to the financial advisor.
He was out of money before he was eligible for social
security, and he had to go back to work at that same plant
stocking vending machines for $10.00 an hour. Now this rule
does not just help investors, it also helps ethical advisors. I
think that most advisors are good, ethical people that try to
do right by their clients.
I use a financial advisor. My best friend Mark Bailey is a
financial advisor, and he is here behind me today. This rule
would help ethical advisors by clarifying that when advising
folks on their retirement money, investors must always come
first. It evens the playing field for advisors who are already
doing the right thing and acting in their client's best
interest.
I appreciate the opportunity to talk to the Subcommittee
about this important issue, and I urge the DOL to promptly
finalize this rule, so that workers and retirees across the
country get the fiduciary advice that they deserve, and they
believe they are already getting. Thank you very much. I look
forward to your questions.
[The Statement of Mr. Peiffer follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Good. Thank you, Mr. Peiffer. Finally, we will
recognize Mr. Berkowitz for 5 minutes.
STATEMENT OF MR. JASON BERKOWITZ, CHIEF LEGAL AND REGULATORY
AFFAIRS OFFICER, INSURED RETIREMENT INSTITUTE, WASHINGTON, D.C.
Mr. Berkowitz. Good morning, Chairman Good, Ranking Member
DeSaulnier, Chairwoman Foxx, and Ranking Member Scott, and
members of the Committee--Subcommittee. My name is Jason
Berkowitz, and I am the Chief Legal and Regulatory Affairs
Officer for the Insured Retirement Institute.
IRI represents the entire supply chain of the insured
retirement industry, including insurers, distributors, asset
managers, and solution providers. I would like to begin by
thanking Chairwoman Foxx, and many other Subcommittee members
for your longstanding commitment to enhancing retirement
security for all Americans, without impairing access to
valuable products and services.
Thank you for the opportunity to share our views about the
DOL's latest fiduciary proposal. Let me start with one very
clear statement. I am not here today to oppose a best interest
standard. IRI wholeheartedly believes that all consumers should
be able to trust that advice they receive from financial
professionals is in their best interest.
Our industry is full of good, hard-working financial
professionals, who share this perspective. I am here today to
oppose the DOL's proposal, which goes far beyond a best
interest standard, and would harm those who most need the
guidance and assistance of financial professionals.
Retirement savers face many risks as they strive for
financial security, including the risk of running out of money.
Protected lifetime income products helps savers manage this
risk, and professional guidance helps them acquire and use
these products appropriately.
Congress recognized this when it enacted the Secure Act and
the Secure 2.0 Act, bipartisan laws designed to strengthen our
retirement system by expanding access to these valuable
products and services. Conversely, the DOL proposal, which is
functionally equivalent to the now vacated 2016 fiduciary rule
will foster widespread retirement insecurity, just as that
predecessor rule did.
Millions of low-and middle-income workers, especially those
most impacted by the wealth gap, will find it nearly impossible
to access the products and services they need to achieve a
secure and dignified retirement. By contrast, the Best Interest
Rules adopted by the SEC and 42 states and counting, are
working to protect consumers without putting unnecessary
roadblocks between consumes and the products and services they
need.
IRI supports those measures, which provide regulators with
the tools they need to protect retirement savers, and
appropriately address the conduct of bad actors. With these
rules in place, the DOL's proposal is a solution in search of a
problem. The DOL has hypothesized that regulatory gaps exist,
and are being exploited to harm retirement savers, but it has
produced no evidence to support that theory.
If bad actors are exploited regulatory gaps to harm
retirement savers, those gaps should be addressed through
targeted rulemaking. A targeted approach is impossible without
clear evidence of a problem, so instead, the DOL wants to
completely upend the existing regulatory framework.
They have characterized this proposal as a Best Interest
Rule, even going so far as to assert that anyone complying with
the SEC's regulation best interest should have no problem
operating under this proposal. This is simply not true. Under
ERISA, the Department can only regulate the conduct of those
who trigger fiduciary status, so the proposal would shoe horn
nearly all financial professionals into that status.
You may be wondering why is that a problem given our
support for a best interest standard? It is a problem because
ERISA fiduciaries must act ``solely in the interest of
participants and beneficiaries, for the exclusive purpose of
providing benefits to participants and their beneficiaries.''
Merely acting in the client's best interest is not enough
to satisfy this standard. As a Federal Appeals Court recognized
when it rejected the 2016 Rule, fiduciary status should apply
only when there is a special relationship of trust and
confidence. DOL has tried to circumvent that decision by
asserting that that sort of relationship exists whenever a
financial professional makes a recommendation to a retirement
saver. We disagree.
A special relationship of trust and confidence cannot
spring into existence spontaneously. Rather, it must be
intentionally cultivated over time. Pretending otherwise, will
deepen the Nation's retirement crisis, and further exacerbate
retirement insecurity among your constituents.
Instead, the DOL should recognize the limits of its
jurisdiction, and let the SEC and the State Insurance
Department do their jobs as Congress intended. This proposal is
not fixable. It is not needed, and it must be withdrawn. Thank
you, and I look forward to answering your questions.
[The prepared statement of Mr. Berkowitz follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Good. Thank you, Mr. Berkowitz. Under Committee
Rule 9, we will now question witnesses under the Five Minute
Rule. I will wait to ask my questions at the end, and
therefore, recognize Mr. Walberg from Michigan for 5 minutes.
Mr. Walberg. Thank you, Mr. Chairman, and thanks to the
panel for being here. This is an ongoing discussion with all
sorts of changes and changes in stance, and I am sure that
since 2010 DOL's attempts to change the definition of an
investment advice fiduciary have created costly and constantly
shifting landscape for all of us.
Mr. Berkowitz, can you discuss the costs and confusion the
industry and the retirement investors have faced due to DOL's
shifting stance in the fiduciary status?
Mr. Berkowitz. Thank you for that question. Yes. Look. We
have had a situation here that is been going on now for a
decade and a half, basically. We have had fits and starts where
the Department has put out a proposal, withdrew the proposal,
came back 5 years later with an even more stringent proposal,
gotten themselves in Court after finalizing that rule, have
that rule overturned.
Took another stab at in 2020 with rules that actually did
go into effect and are working as designed. Now, just 2 years,
3 years later, are again looking to change the rules of the
road. Along the way we have had SEC directed by Congress to
study this issue of what standards should apply. Studies were
done, decisions were made by the SEC about what they should--
how they should regulate the conduct of financial advisors.
The NAIC has responded as the Commissioner Ommen referenced
earlier, and adopted a very strong regulation concurrent with
what the SEC did with regulation best interest. Moving
goalposts constantly does not allow for the situation to
settle, for firms to say okay, when you understand our
responsibilities, for advisers to understand their
responsibilities, to adapt their practices appropriately, and
to be able to then make changes, and implement those, and then
follow through on them.
Give regulators time to examine those. At this point, the
examination of whether these rules are working or not, is still
ongoing. We believe that it is. Everything we are hearing is
that it is working, but that needs to continue. Changing the
rules of the road those analyses are complete makes really no
sense and will just create more confusion along the road.
Mr. Walberg. Yes. It seems that a bobblehead mixed with a
whack-a-mole climate is not helpful. Mr. Roberts, since U.S.
Court of Appeals for the Fifth Circuit vacated the 2016
Fiduciary Rule, a new framework governing the standard of
conduct of financial professionals has been put in place.
The Security and Exchange Commission has implemented a
regulation's best interest standards as has been discussed. The
DOL has implemented a new proposed transaction exemption, and
the National Association of Insurance Commissioner's Best
Interest Rule has been adopted in 42 states, as was mentioned.
How have these new rules affected the regulatory landscape,
and could you comment on whether the new regulatory framework
is working?
Mr. Roberts. Thank you for your question. I would be happy
to. You know, the facts recounted in your question evidence the
fact that there has been tremendous forward progress in
enacting appropriate standards of conduct for investment
professionals, including investment professionals who are
compensated on a transaction basis, and work for broker dealers
and insurance agents.
Both industries are subject to a best interest standard of
conduct. That is a tremendous forward momentum in the consumer
protections that are available to protect retirement savers
today.
Mr. Walberg. Yes. Appreciate that. Commissioner Ommen, did
DOL work with the states to develop the proposed Fiduciary
Rule?
Mr. Ommen. They had some very limited contact with some of
our full-time staff, but no, nothing substantive was every
discussed.
Mr. Walberg. Nothing significant.
Mr. Ommen. The answer to that question is no. We believe
that really, it would be important to have those discussions to
make sure that the regulation, as it moves forward, it would be
complementary of what is happened at the SEC as well as the
states.
Mr. Walberg. Yes. The coordination is so important on this,
especially since we are talking about people who are
vulnerable. They do not know what they are doing. They just
want the outcome to be good. Do you have any other concerns
with the way DOL has handled the development and rollout of the
proposed Fiduciary Rule?
Mr. Ommen. Yes. I mean the support for their rulemaking
really in a large part, was to discredit the work that was done
at the State level under the NAIC's Best Interest Rule----
Mr. Walberg. To discredit----
Mr. Ommen [continuing]. And frankly that was based upon
unsupported speculation because they never spoke to us.
The rules have dramatically changed. We are in the midst of
implementation reviews and enforcement, so you would think that
before they started to make those sorts of speculations about
the meaning of our rule, they would speak to the people who
drafted it.
Mr. Walberg. You would hope so. Well, I see my time is
expired. I yield back.
Chairman Good. Thank you, Mr. Walberg. We will now
recognize Mr. Norcross from New Jersey for 5 minutes.
Mr. Norcross. Thank you, Chairman, and to the leadership
for holding this important hearing. This in many ways is
personal for me. I grew up and became an electrician and was
blessed to be able to work for the IBEW for close to 45 years.
The last 17 of which I worked as the Assistant Manager.
As part of my duties, several times a week we would have
members come in with a smile on their face into our office. You
knew that smile because they were coming in to retire, to sign
the papers, to start that part of life. They worked hard. They
played by the rules, and they wanted to be able to retire with
dignity.
Certainly, when we see that, a conversation with myself, as
a Representative, so important because they get so much
information on how they should invest their money. We would
truly share with them the experiences of many other members.
Well, the idea of having a member come in and hear a story
where, like you, Mr. Peiffer, he was sold a bill of goods, and
he walked away with nothing.
Now that was over a dozen years ago, but the pain is still
there. We have been at this for close to a decade. Where we
were 10 years ago, and where we are today, is a very different
world. The industry has come a long way. Are we perfect? Not,
no we are not. The idea of understanding that, and anecdotally,
there is always going to be those bad players out there no
matter what we do.
The idea of not being able to retire because somebody
ripped you off, it is just heartbreaking. We all can see that.
The idea that many of these things, and this is a highly
complex issue, and I want to applaud Mr. Walberg. We worked
together on many of these issues over the last few Congresses,
talking about annuities, and having the ability to put in a
qualified defaulted, investment alternatives.
You would read somewhere that the idea of having fixed
income through an alternative, or what many people would look
at as an annuity, I think the baby is going out with the bath
water, so I implore us to work together to get this thing
right. I cannot tell you how important it is. Certainly, many
of the folks that I have worked with my whole life are very
much in favor of this.
I do not want the baby thrown out with the bath water
because, historically, less opportunities for those who really
need advice because the industry pulls back for fear that they
are going to be sued. I want to start out, Mr. Berkowitz, when
you look at some of the issues that are before us concerning
annuities, give me your view on where you think they are in
terms of what would fall into the Fiduciary Rule.
One of the concerns I had is back then if I was a business
agent today, would I be considered under this rule a fiduciary?
Mr. Berkowitz. Thank you for that question, Congressman,
and yes, I do think that there is a risk that under this rule
in that capacity you would have been subject to fiduciary
status in the course of performing those duties. Annuities are
a product that can be used if properly used, can sustain
someone through their retirement years to ensure that they do
not run out of money, to ensure that they do not get to that
zero dollar staring at them in their account balance, when they
still have life left to live.
By providing a regulation such as this that makes it harder
to make those products available. You are hurting the very
people that are supposedly being helped here. What we think is
the regulation--the regulatory system needs to be designed to
ensure that if you are making a recommendation, you should have
to act in your client's best interest.
The SEC has done that. The NAIC and the State insurance
departments are doing that. It is unnecessary at this point for
the Department of Labor to layer on additional obligations. Now
if you----
Mr. Norcross. I have 45 seconds, so I really appreciate. I
want to give Mr. Peiffer an opportunity to chime in here
because the idea of where we are 10 years ago, where we are
today, please.
Mr. Peiffer. Sure. I think we have made some progress.
However, it is not enough. There are still big, gaping holes in
the regulatory system. Reg BI, for instance, does not cover
advice to plans. Reg BI does not cover advice to annuities. I
am not saying you cannot sell annuities to a retiree, that is
not what I am saying.
I am saying that it should be governed by a good, solid
fiduciary standard like the DOL has proposed, rather than the
Model Rule, which does not even count compensation as a
conflict. If compensation is not a conflict, what is? It is
directly related to the investor savings. The more the
compensation to the advisor, or the insurance agent, the bigger
the surrender period, the bigger cost to the investor.
Mr. Norcross. Thank you. Unfortunately, my time has
expired. I yield back.
Chairman Good. Thank you, Mr. Norcross. I will now
recognize Mr. Allen from Georgia for 5 minutes.
Mr. Allen. Thank you, Mr. Chairman, and thank you for this
timely hearing based on this DOL ruling. Obviously, all of us
believe saving for retirement is crucial for American families,
and access to professional financial advice should not be
hindered by burdensome overregulation.
However, the Biden Department of Labor has recently
proposed fiduciary rules, nothing more than a recycled Obama
era disaster. It does more harm than good to the very people it
is claiming to protect and has American retirees and savers. We
dont just have anecdotal evidence that this will lead to
decreased access to financial advice for Americans, but actual
data is shown by an almost identical rule issued by DOL in
2016, before the Fifth Circuit Court--Fifth Circuit vacated the
rule in its entirety in 2018.
A Deloitte study shows that the 2016 Rule limited or
eliminated financial advice to 10.2 million accounts. Both
sides of the aisle urged DOL not to reduce access as expressed
in a 2015 letter from 96 House democrats, and a 2023 letter
from Senate democrats showing their concern. This precisely why
I plan to introduce a congressional Review Act, a joint
resolution of disapproval on the DOL's Fiduciary Rule as soon
as its finalized and transmitted to Congress.
Commissioner Ommen, Congress passed Secure 2.0 to encourage
retirement savings. Could you outline how DOL's fiduciary
proposal could have the opposite result, and that is do you
think the proposal will decrease access to retirement savings
like the 2016 Rule did? Please explain.
Mr. Ommen. Yes. I represent--yes, I do fear this regulation
will have the opposite effect of the intent of the Secure Act.
The numbers show that between now and 2027, 4.1 million
Americans will be turning 65 every year. That is 11,200 a day.
The median household for earners here in the U.S. is $63,000.
It is important to know that the median income among
annuity owners is $76,000. These are products that really are
targeted to provide retirement security for individuals that
are not wealthy. These are middle-class and lower middle-class
individuals that are planning for their future.
Yes, it is our view, and in fact we took those issues into
consideration as we looked and studied whether a fiduciary only
approach makes any sense at all. We do view that--we are
interested in working with you to try to advance that, closing
that retirement gap----
Mr. Allen. Exactly.
Mr. Ommen [continuing]. We believe that the DOL's rule is
going in the opposite direction.
Mr. Allen. Yes. We do not need to discourage it. Mr.
Roberts, the U.S. Court of Appeals for the Fifth Circuit Court,
which Mr. Walberg brought up, vacated the 2016 Fiduciary Rule.
The Court explained that under ERISA, fiduciary status may only
be imposed when there is a special relationship of trust and
confidence.
How does the current fiduciary proposal address this issue,
and does the fiduciary's proposal approach comply with the
Fifth Circuit's decision?
Mr. Roberts. How the Department of Labor's current proposal
could possibly be consistent with the Fifth Circuit's ruling on
the prior proposal is a real head scratcher. I do not see it.
The Fifth Circuit said very clearly, very clearly, that when
Congress enacted ERISA, it did not intend to impose fiduciary
standards on persons like stock brokers or insurance agents who
are professional sales people.
It distinguished the conduct standards applicable to
salespeople from the conduct standards applicable to
fiduciaries, like trustees. Trustees is what they were talking
about, and folks who function like trustees, who are in a
relationship of trust and confidence. I see absolutely no
consistency between this current proposal and the Fifth
Circuit's Rule.
Mr. Allen. Mr. Berkowitz, obviously this is in contrast
with SEC regulations, best interests, and NAIC's interest
standards. Who would stand to benefit or profit from this rule?
I mean we are looking at more litigation, trial lawyers? What
is the deal here?
Mr. Berkowitz. Well, look. Thank you for that question,
Congressman. I think that their--the intent here we want to
assume the best of intentions from the Department, but in
reality, it is the consumer who will suffer the most. Who will
benefit? That remains to be seen, but I can assure you that it
will not be the consumer.
Mr. Allen. Yes. Great. I yield back.
Chairman Good. Thank you, Mr. Allen. We will now recognize
Mr. Courtney for Connecticut for 5 minutes.
Mr. Courtney. Thank you, Mr. Chairman, and like some of us,
we have been through this rodeo for a while, and--but I thank
the witnesses for your input here today. I have to just say at
the outset, I mean I understand painfully that there is real
honest disagreements in terms of the scope of the rule, the
language of the rule, which I think is fair game.
I think everybody has a good, I think, point to make
sometimes in terms of just, again the way it was drafted, and
we went through this as I said once before. I have to say,
Commissioner, I was reading your testimony on page 5 where you
said that I would be remiss if I did not also express my
concerns that DOL has overstepped its statutory authority in
promulgating this proposed rule.
I mean to me that sort of gets to a much more almost
ideological question about whether or not DOL really should be
even involved in this. I mean, with that logic, the 1975 Five
Part Rule really should be like repealed and eliminated. I just
wanted you to clarify.
I mean, do you really think that DOL should completely
absent itself, and get rid of the 1975 Rule?
Mr. Ommen. No. That is not.
Mr. Courtney. Well, then why did you put that in your
testimony that DOL has no role there. Of course--they are an
agency. Administrative law from every department, from the
Department of Defense to the Department of Education, they
issue regs constantly, and this is well within the scope of
ERISA in terms of DOL's authority.
Again, I just--I mean I appreciate the fact that you say
you do not want to repeal the 1975 law. I think that is very
inconsistent, honestly, with the language of your testimony.
Mr. Peiffer, again, just to sort of talk about a few sort of,
you know, comments that have been made here, which really have
just sort of created my opinion of false equivalency between
the 2011 proposal and this proposal.
Again, if you could just walk through again, the fact that
this is not like the 2011 proposal was put through a copy
machine, and it is back before us again.
Mr. Peiffer. Absolutely not. It is a totally different rule
with a much, much more narrow, more of a rifle shot focus. The
earlier rule made a lot of people fiduciaries, and it subjected
even things like websites and robo-advisors to fiduciary
standards.
That turns out to not--the Fifth Circuit, overturned that.
They went back to work, and they sharpened their pencils and
really narrowed the rule. Now, who is a fiduciary? It is
someone who has discretionary authority over an account,
meaning they can trade in your account.
Someone who calls themselves a fiduciary, and someone that
as a regular part of their business provides advice based on
the particular needs or individual circumstances of a
retirement investor--and gives advise that may be relied upon
by the retirement investor as a basis for investment decisions
that are in the retirement saver's best interest.
That has a narrow standard where we had a very broad
standard before. Also, the previous rule contained a contract
requirement, and that I think was a lot of what the Fifth
Circuit had a problem with. That is not in this rule.
Mr. Courtney. Well, I think that is important to note that
people should take a deep breath here, and just sort of
recognize you know, acknowledging the role of Insurance
Commissioners again, our Commissioner in Connecticut, Andy
Mays, I respect and really admire to the highest degree.
Honestly, I think he understands. I do not want to put
words in his mouth, but I mean I think it is coexistence. I
mean, it is joint jurisdiction. I mean I think you did allude
to that at least in your testimony. Both states and the Federal
Government have a role here, and it is a question of just
getting the right balance to make sure that we are not seeing
these horror stories, like my friend Mr. Norcross just
described.
They are still happening, okay, and they should not happen.
That is really what I think we should, you know, hopefully be
able to have consensus that that is a problem, a real problem,
and that we should try and figure out a way to solve it without
again, just you know, going through wash, rinse and repeat, in
terms of just, you know, handcuffing the Department's role,
which I think is legitimate.
I think that that is what you know when ERISA was passed in
1975, you know regs were issued. That was consistent with the
intent of Congress. Again, we should all have plenty of time to
debate and talk, and there are comment periods, and all that
built into the system, but to sort of shut it down and just go
right back to the status quo.
Again, the NAIC has put out its proposals, that is great.
It does not have all 50 states, so it is leaving some people
out. The fact of the matter is it really--it is not the Ten
Commandments, and we really need to sort of work together to
get the best product using both people of good will at both
levels of government working together. I yield back.
Chairman Good. Thank you, Mr. Courtney. I now recognize Mr.
Burlison from Missouri for 5 minutes.
Mr. Burlison. Thank you, Commissioner Ommen. We should all
be able to agree that the Department of Labor is changing their
position on what it means to be an investment advice fiduciary
three times in 3 years, is onerous. The costs and the confusion
that goes along with this are clearly not in the best interests
of either the providers, or the individual savers or retirees.
What do you see as the biggest concerns with the way that
the Department of Labor has developed this new proposal?
Mr. Ommen. Well, there were just comments from one of your
fellow Subcommittee members about that lack, or the
encouragement to have that communication. There was no
communication, in my view, with regards to the development of
this rule.
I have been doing enforcement for a long time. I worked in
the Missouri Insurance Department, as well as served as an
Assistant Attorney General, prosecuting scam artists. I can
also tell stories of people that were ripped off by insurance
agents and securities agents.
For my perspective, what we need to make sure is when
regulations are put into place that they do not punish the
well-intentioned individual, the investment advisor, the
fiduciary, frankly, the insurance producer who is doing the
good work. In my experience, that has been the vast majority.
The Department of Labor seems to just be overreaching with
their view that there should be a fiduciary mandate. Commission
structures and transaction based are often the most cost-
effective way by which middle Americans can receive good
advice. With the State, we focused on making sure that the
advice is solid, that it has put the interests of the consumer
first.
My criticism of the DOL has really been the lack of
opportunity to sit down and have some of the recent
discussions. As for the comment period, I got my comments in.
We worked through the holidays. It was very abbreviated in my
perspective, in trying to meet those requirements.
To be frank, I do not think the DOL was open for
discussions, but that would frankly be----
Mr. Burlison. It was over for what, 39 days?
Mr. Ommen. Something like that. Again, this is through the
holidays, so you know, it was basically all due right after the
new year.
Mr. Burlison. Your responsibility, let us talk about the
state's role in this. We assume that we have to have all the
answers on the Federal level, but the State plays a role in not
only managing the activities, the licensing, everything that
goes into the people that are able to do business in their
State.
Mr. Ommen. Yes. We begin our process in revising our
standard to a best interest standard before the Court struck
down the DOL Rule. We looked at a fiduciary only approach, but
we worked together, and there are--it is true, there are 42
states that have adopted this, but I expect by the end of this
year we will be approaching 50.
I know it is moving in those states that have not yet
adopted it, so I am very confident, certainly by early 2025 we
will have all jurisdictions. Yes, I mean these--the efforts
that went into this were really designed to ensure that the
consumers had choice.
In Iowa, we have a lot of a--we have a very large
agriculture business. The distribution for annuities, for self-
employed individuals, and those that are in farming, is very
different than the distribution that you might find in some of
our urban areas. It is really important for that distribution
to be available for all middle Americans, again not just for
those that are able to afford the fees associated with a
fiduciary status.
Mr. Burlison. Yes. I can tell you as a former investment
advisor, you have--you feel the weight. I will say this to you,
Mr. Peiffer. You feel the weight of the world on your shoulders
when you sit across from a retiree, and you are trying to help
them navigate the path to make sure that they are able to make
it all the way to end of life without running out of money,
right?
That burden, and that weight weighs very heavy on
investment advisors, and so to suggest that--and within that
industry the penalties are severe. If you do an improper job,
you will lose your business. You could lose your business. If
you do an improper job, you could be sued by Mr. Peiffer and
his law firm.
There is currently a lot of--that is currently already in
place to disincentivize the bad actors, and to--and I think
that there is already innately a benefit. If you do a good job
more business follows.
Mr. Ommen. Again, in Iowa, I regulate both securities
transactions and insurance, so I have the responsibility of
imposing that sort of punishment, discipline on investment
advisors, insurance producers, insurance companies, across
securities broker dealers across those various means of which
these products are distributed.
To be frank, I believe that the standards matter a great
deal, but more important than that is the enforcement. I think
that is what united us at the NAIC is that we improved our
rule.
Chairman Good. I am sorry. The gentleman's time has
expired, so I need to----
Mr. Ommen. Thank you.
Chairman Good. Thank you, Mr. Burlison.
Mr. Burlison. Thank you.
Chairman Good. I now recognize Ms. Wild from Pennsylvania
for 5 minutes.
Ms. Wild. Thank you very much, Mr. Chairman. Well, I am
really glad we are having this hearing. I cannot think of
anything more vital to a large sector of Americans, working
Americans, than our retirees. In my view, retirement savings
and investment should be sacred. I suspect the folks sitting
behind the witnesses from AARP would agree with that, that
retirement savings are really essential to dignity for our
seniors and people who have worked a lifetime.
I am deeply concerned with opposition to a rule that I
think really goes a long way toward improving life for our
retirees. Mr. Peiffer, thank you so much for your excellent
testimony. As I said, I think workers and retirees, and even
employers who offer the retirement plans deserve to receive
really sound investment advice that is in their best interest,
and everybody has used the magic words about best interests.
Many advisors, I want to hasten to say are honorable
professionals. This is not a diss on financial advisors. I was
married to one once, and he still manages my retirement money
and investments, so but I will say he happens to be fee-only,
and I think that is an important distinction beyond the scope
of this hearing.
The loophole ridden rule dating back to the Ford
administration allows unscrupulous advisors to put their
interests ahead of their retirement clients and provide what's
known as conflicted advice. We have seen and we have heard that
it costs our retirees billions of dollars of losses, and of
course, leads to a lot of heartbreak, and harm to them and
their families.
I think it is really important to note because we have been
hearing a lot, and we are going to continue to hear a lot. We
read in all the testimoneys about these studies or surveys that
have been done, and I think it is really important for people
listening to understand that these are not neutral or objective
studies. They are generally done by large trade associations
representing brokers and traders.
These are not studies that are done by, let us say, AARP,
or other groups that represent retired citizens. These are
literally lobbying organizations for folks who make money on
this, and there is nothing wrong with making money. We know
that in this country, but it is wrong to make money at the
expense of somebody else, in my view.
Mr. Peiffer, you have presented some compelling real-world
examples of people who have been harmed by the status quo. I am
particularly concerned about the small dollar investors.
Mr. Peiffer. Yes.
Ms. Wild. Can you just pick up at that point, and tell us
what the ramifications are for people who are not born to
wealth, or born with a silver spoon in their mouth?
Mr. Peiffer. Absolutely.
Ms. Wild. Thank you.
Mr. Peiffer. Small savers are--they are the most
susceptible to conflicted advice. They can least afford to have
conflicted advice, and you hear about these studies, and I am
glad you brought that up because you hear about study after
study, and they are all industry funded studies.
None of them are statistically significant, random samples,
or anything along those lines. What we do know is what happened
after the last DOL rule. When the industry came in here and all
over the place, and saying that the sky would fall, and no one
would be able to get advice. Well----
Ms. Wild. You mean that the financial professionals would
lose money?
Mr. Peiffer. Yes.
Ms. Wild. They would not be able to make as much?
Mr. Peiffer. Yes. Well, and that they would not be able to
serve small savers, but that turned out not to be true.
Ms. Wild. I am going to stop you for 1 second.
Mr. Peiffer. Okay.
Ms. Wild. I am really sorry to do this, but I think it is
important for people to know that these studies, for instance,
the SIFMA 1.
Mr. Peiffer. SIFMA.
Ms. Wild. That says it was published by Deloitte: was not
written by Deloitte; they did not verify, validate, or audit
the information; they were simply the conduit for a broker
dealer trade association to prepare this report, right?
Mr. Peiffer. They were a scrivener.
Ms. Wild. They were scriveners. The same thing with the
2021 Hispanic Leadership Fund. That one actually, not only was
done by a group of people in the profession, but it does not
even apply to the DOL Rule. Is that right?
Mr. Peiffer. That is correct. It examines the last rule,
not this one.
Ms. Wild. Okay. All of them, the NAIFA, the NAIFA survey,
the FSI Oxford survey, all of them were done by trade
associations for brokers and dealers, and that is what is being
relied upon by the other witnesses in this hearing and by my
colleagues across the aisle to justify trying to defeat the DOL
Rule. Is that right?
Mr. Peiffer. That seems correct.
Ms. Wild. Thank you. With that, I yield back.
Chairman Good. Thank you, Ms. Wild. Now we will recognize
Mr. Banks from Indiana for 5 minutes.
Mr. Banks. Thank you, Mr. Chairman. Mr. Berkowitz, as you
know the Obama administration tried a very similar rule back in
2016. I want to read a few quotes from actual retirement
advisors back then. One said, ``After 36 years in the
investment business, this proposed rule will force me to fire
all of my clients who do not have substantial retirement assets
for investment.''
Another one warned, ``This minimum fee level will be a
detriment to the creation of potential plans for many small
businesses, and likely will result in the termination of plans
by existing clients. Why in the world would the Biden
administration try to bring back a regulation that would do
that?
Mr. Berkowitz. Thank you for that question. That is a great
question. It is a head scratcher for me why they are trying to
do this when we have not--we are not looking at the status quo
here. We have heard references to the status quo.
The status quo changed over the last 10 years, last 5 years
with the SEC and the NAIC, and the Biden administration, and
the Department of Labor are completely ignoring that, and
diminishing the value and the viability of those regulations to
justify this attempt to bring more people under the Department
of Labor's jurisdiction.
When, you know, we heard earlier from the Representative
Courtney, you know, he wants there to be a balance between
regulation by the states, and regulation by the Department of
Labor. Well, that is what we are talking about here. The
balance is when there is a relationship of trust and confidence
that rises to that level, where ERISA fiduciary status should
kick in, then the Department of Labor is in place to regulate
that.
Short of that, the SEC and the NAIC and the State
regulators are there to serve in that capacity to ensure that
the advice is being provided in that client's best interest.
This rule is simply just not needed. It is a solution in search
of a problem.
Mr. Banks. I mean am I wrong? I mean it seems that this
especially targets small businesses and working-class families
that are trying to save something to pass on to the next
generation. I mean why target them? Why would the Biden
administration be hell bent on targeting working class
families?
Mr. Berkowitz. I would like to think that they are not
targeting them, but that they are the--they are going to be the
victims. Whether it is intentional or not. Those are the
people. Those are the small businesses. Those are the small
savers that are going to find themselves on the outside looking
in when it comes time to plan for retirement, and figure out
how to best get to, you know, a secure and dignified golden
years.
Mr. Banks. Do you think this rule will result in small
brokerage firms having to cut their services, and making it
harder for them to do what they do in advising middle-income,
middle-class families?
Mr. Berkowitz. Absolutely. Really what it comes down to is
what we heard, what we talked about earlier, the difference
between a best interest standard and a sole interest standard.
The folks that you are talking about provide advice on a
commission basis. They get paid only if they complete a
transaction.
They have a vested interest in completing the transaction.
That vested interest does not prevent them from acting in the
client's best interest, but it does mean that they cannot
realistically meet a sole interest standard. They cannot
completely disregard their own interest because they only get
paid if they complete a transaction.
In order to avoid that, they are going to have to either
transition to a fiduciary model, which means they are going to
have to raise their account minimums, and NAIFA just did a
survey of their members, whether it is statistically viable or
not. I am not a statistician, so I cannot speak to that.
I can tell you that they found from their members that
right now less than 30 percent have account minimums, and if
this rule goes into effect that is going to go up to over 70
percent. These are sizable account minimums, six figure account
minimums that the average American simply cannot meet. People
are going to lose access, and it is those small balance savers
that are going to be the most hard hit.
Mr. Banks. It screws the people who need the help the most.
I mean it makes no sense to me, but what type of--I mean in
that regard, I mean if--if brokerage firms are cutting
services, or they have to increase their fees. I mean dumb this
down and play that out. What does that mean for the client?
Mr. Berkowitz. It means the clients, just like we saw back
in 2016, are going to be getting letters in the mail from their
financial institutions saying we are so sorry, but we can no
longer service your account and provide financial advice or
guidance, or assistance. If you have transactions that you
would like us to execute you can submit those, but we cannot--
we cannot serve you in the way of helping you figure out what
to do.
Mr. Banks. Yes. I have said it many times before. This
administration is at war with working-class middle-income
families in this country who right now are finding it harder
than ever to save, to makes ends meet, and this is another
example of it, right? I mean this is pure insanity. With that,
I yield back.
Chairman Good. Thank you, Mr. Banks. Now I will recognize
Ms. Manning from North Carolina for 5 minutes.
Ms. Manning. Thank you, Mr. Chair. Thank you to our
witnesses for being here today, and I want to associate myself
with a comment that was just made by one of my colleagues,
Representative Wild, who said retirement savings should be
sacred. They are benefits that people have earned, they are
critical to allow seniors to live in dignity and for many
people the most critical issue they grapple with is ensuring
that they do not outlive their retirement savings.
I can tell you that is something that my 91-year-old father
is currently grappling with. For most people who are not
financial experts, they must rely on retirement advisors to
help them--meet that critically important goal. Mr. Peiffer, I
want to thank you for your thoughtful testimony today.
Often in hearings, we hear from experts who only share
statistics and figures that are hard for us to understand, and
certainly difficult for people who watch these hearings to
understand. They may be important to hear, but it is also
important for Members of Congress to fully understand who is
being harmed, who is being taken advantage of, who are the
victims of the kinds of rules that we are talking about.
You did us a service by sharing these compelling stories.
Through the stories you have shared there is a common theme of
hard-working people who played by the rules, did everything
right, only to put their trust in bad advisors who wronged
them. Now their so-called ``golden years'' are not as golden as
they were hoping they would be.
I assume you would agree with me that that is the theme of
those stories?
Mr. Peiffer. That is the theme of the stories, and that is
what we see every day, are these people that are just
absolutely shattered, and the loss of dignity is almost as bad
as the loss of the money, frankly.
Ms. Manning. The humiliation of having known that you
relied on someone you should not have relied upon. I know it is
too late for the Department of Labor's Retirement Security Rule
to help the folks that you talked about, but do you think the
rule would have spared them harm had it been in effect back
when they were investing their retirement savings?
Mr. Peiffer. I absolutely think that they would have been
helped by this rule.
Ms. Manning. Great. I want to focus the rest of my time on
clarifying a key point. We have heard a lot of talk about the
SEC's regulation Best Interests, and the NAIC's Model Rule, and
it seems that some of my Republican colleagues believe that
these would be fully sufficient to protect retirement savers.
I disagree. There is one big gap, at least one big gap, in
the SEC's Reg. BI and the NAIC's Model Rule, and that is when
it comes to advise to retirement plan sponsors. Can you talk
about that for a minute?
Mr. Peiffer. Sure. As of now, advice that are given to
retirement plan sponsors, people that are electricians that
employ other electricians, people that are plumbers that employ
other plumbers. People that are even that are accountants, that
employ other accountants. Employers, the advice to them on
their plan, meaning what the workers can choose from, is not
covered by a fiduciary duty. I cannot think of anything more
important to be covered by a fiduciary duty because it impacts
not just that person, but their workers.
For instance, if someone was giving me advice, and it was
on securities, it might be covered by Regulation BI. In my
capacity, as the owner of my law firm, it would not be covered
by Regulation BI.
Ms. Manning. Do most people assume when they go to a
retirement advisor that that advisor has their best interests
at heart?
Mr. Peiffer. Absolutely. I see it every single day. We
heard a little bit from Mr. Roberts about professional
salespeople. There is not a single person that has ever come
into my office that said, you know, this guy was a professional
salesperson, and introduced himself as such.
These people trust their advisor, and they do it because
they were induced to.
Ms. Manning. According to the Research and Financial
Services Firm Morning Star, thanks to the Retirement Security
Rule, workers covered by small plans would save over 55 billion
dollars in fees in the first 10 years, and over 130 billion
dollars in the subsequent 10 years.
Now, there has been a lot of talk about different rules and
regulations this morning, and in the testimony, but I think we
need to keep our eye on the ball. The existence of these rules
is no substitute for the DOL's Retirement Security Rule. In
fact, gaps still exist making the DOL's Retirement Security
Rule essential to fully protect workers and small businesses.
All I can ask in my remaining 7 seconds is--is that right, Mr.
Peiffer?
Mr. Peiffer. That is correct.
Ms. Manning. Thank you very much, and I yield back.
Chairman Good. Thank you, Ms. Manning. We will now
recognize Dr. Foxx for 5 minutes.
Mrs. Foxx. Thank you, Mr. Chairman, and I want to thank our
witnesses for being here today. Commissioner Ommen, the
proposed Fiduciary Rule attempts to regulate sales of annuities
to retirement investors, which is currently regulated by the
states. The Department of Labor claims its fiduciary proposal
is necessary to fill loopholes and gaps in the regulations.
Is there evidence that gaps or loopholes exist, and are
being exploited to harm constituents?
Mr. Ommen. No, Madam Chairwoman. The answer to that is no.
We do not have any data, or actual evidence of harm that there
are gaps in the NAIC rules because they are relatively new.
That the states have undertaken an implementation examination
of all the carriers in the country, but the answer to that
question is no. It would be premature to suggest there is any
actual data that our rules are inadequate.
Mrs. Foxx. Great. I think you would agree with me that the
proposed Fiduciary Rule is a solution in search of a problem?
Mr. Ommen. I would agree with that assessment.
Mrs. Foxx. Thank you. Mr. Roberts, DOL's constantly
shifting regulatory efforts on what constitutes an investment
advice fiduciary have created ongoing confusion. How has this
uncertainty impacted costs and compliance for retirement
products and services?
Mr. Roberts. The DOL's shifting positions on this have sent
compliance costs skyrocketing. Financial institutions and
professionals who have established business models are on a
regular basis being asked to re-engineer them, to retool them,
to come into conformity with exceedingly complex technical
rules and regulations that seemingly appear out of nowhere.
The Department's estimates of the costs in my view, are
dramatically understated. There are tremendous systems,
programming costs, operational costs, legal compliance costs,
and all those costs to some extent get passed through. The
cost-benefit ratio of the zigging and zagging that the
Department has taken is not productive.
Mrs. Foxx. Thank you very much. Mr. Berkowitz, the Federal
Reserve reports that 28 percent of Americans do not have any
retirement savings. This Committee worked on a bipartisan basis
to draft and pass Secure 2.0, with the goal of expanding
retirement savings for the American workforce.
Would DOL's latest proposed Fiduciary Rule undermine the
bipartisan efforts of this Committee by reducing access to
retirement investment products for low-and middle-income
Americans, and if you--please explain your answer?
Mr. Berkowitz. Thank you very much, Chair Foxx. Yes. We
definitely do believe that this will undermine the objectives
and the goals of the Secure and Secure 2.0 regimes. Thank you
for your leadership in helping to drive those through Congress
and getting those over the finish line.
The Secure Act and Secure 2.0 had numerous provisions that
are designed to make it easier for retirement savers to access
and use annuities and other protected lifetime income products.
They were focused on expanding access, whereas this proposal is
focused on restricting access.
Secure Act, for example, established a new safe harbor to
provide guidance for plan sponsors that are looking to put
annuities in their plans, so that there is greater clarity
around the obligations that they have to live up to. There has
also been changes in Secure 2.0 to the rules governing the use
of longevity annuities, known as qualifying longevity annuity
contracts, and many other positive changes.
By changing the rules about who can provide advice to
retirement savers by restricting that advice to only those who
are willing to serve as fiduciaries, you are going to lose the
ability to access the advice that you need to learn how to take
advantage of those improvements that were developed through
Secure and Secure 2.0.
Mrs. Foxx. Thank you.
Chairman Good. Thank you, Dr. Foxx. We will now recognize
Ms. Hayes from Connecticut for 5 minutes.
Mrs. Hayes. Thank you. Thank you to our witnesses for your
testimony today, and to our friends from AARP, who I see in the
audience. Thank you for being here, for amplifying this issue
all the time. People expect that if you work hard and save
diligently, you can expect to be able to retire with dignity.
The retirement process has gotten substantially more
complex since the current rules were designed. Unfortunately,
ERISA was enacted nearly 50 years ago and has not been updated
since. The five-part test used to determine whether someone is
an investment advice fiduciary under ERISA predates the 401K by
3 years and widespread investments in IRAs by more than two
decades.
Many will need assistance with retirement, especially if
they have limited savings. It takes tremendous trust to provide
your personal financial information to someone else and give
them control over your future by making investments on your
behalf.
Mr. Peiffer, in your testimony you pointed to multiple
studies that showed the vast majority of investors, as many as
97 percent, already believe their financial professionals were
also their fiduciaries. How would this rule protect those with
smaller investment portfolios? In particular, what does it do
for investors with limited access to professional financial
advice?
Mr. Peiffer. Well, it ensures that they get good advice.
Frankly, the argument that well, the financial services
industry is just going to stop giving advice to people if they
cannot give them conflicted advice, or rip them off, is
offensive to good financial advisors.
It is not borne out by what happened after the last DOL
rule. After the last DOL rule, like I said, the industry came
in and said that everything is going to fall apart and we are
not going to be able to provide advice to small investors. What
happened? 82 percent of broker dealers did not reduce their
services at all.
When Cetera for instance, the broker dealer opened
$1,000.00 minimum account. They adapt.
Mrs. Hayes. I want to be clear. Many financial advisors are
working in the best interests of their clients. In fact, one
third of the advisors, including more than 1,500 from my State
of Connecticut, voluntarily certified as a fiduciary through
the Certified Financial Planners Board. Many fiduciaries are
also educators, helping their clients to learn about their
savings, their investments, and why certain decisions make the
most sense.
Mr. Peiffer, can you also describe how the behavior of
unscrupulous advisors can make it more difficult for all
professionals to offer the best advice to investors?
Mr. Peiffer. Sure. If you are living up to a fiduciary
standard, say as a CFP, a certified financial planner, and you
have someone down the street that can put their interest in
making a huge commission over the interest of the retiree of
living a long and happy retirement, you are on an uneven
playing field.
Mrs. Hayes. Thank you. I believe that regardless of income,
Americans deserve access to retirement investments that are in
their best interest. We have lots of people who are trying to
piece together a retirement, and really rely on the savings
that they have put in to be working for them in their best
interests.
We are not talking about large investors who have multiple
portfolios and retirement is not an issue. It is the people who
work every day and put away little by little in anticipation of
retirement. This rule is long overdue, an important step toward
ensuring that every American can retire with dignity. Thank you
all for your time, and for your comments, and with that, I
yield back.
Chairman Good. Thank you, Ms. Hayes. Now will recognize my
good friend from Virginia, Mr. Scott, for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman. Mr. Peiffer, we have
had a general discussion. I think it is important to note what
we are talking about. Somebody who had $100,000.00 to invest,
and the fees were 1 percent, how would that differ if you got a
fund that charged only .1 percent over 10 years?
Mr. Peiffer. Well, it is an enormous difference, and it is
the difference between being able to retire a year early, or
not being able to retire, or 2 years early. If you compound
that over 20, 30 years of investment, it is a tremendous,
hundreds of thousands of dollars in difference.
Mr. Scott. If the broker were able to get a higher fee for
putting you in a 1 percent fund, rather than a .1 percent fund,
and some of these are like S&P 500, so you are getting the same
returns, that would be the conflicted advice we are talking
about. Is that right?
Mr. Peiffer. That is right. It does not sound like much
when you talk about .1 percent and 1 percent, what is 1 percent
between friends? Well, it is the difference between being able
to retire or not being able to retire. Down in Louisiana, where
I am from, they call that death by 1,000 duck bites.
You just ultimately do not get to where you need to be.
Mr. Scott. Thank you. Mr. Ommen, you indicated that 42
states have enacted the Best Interest Standard. How does that
differ from the Biden Rule in terms of being able to provide
conflicted advice?
Mr. Ommen. The 42 states that have adopted it is not the
top end of that, but I think your question relates to the
issues surrounding compensation, and how it is that the states
chose to treat compensation. We do believe, as a matter of
principle, that compensation of any structure will present
conflicts. I mean if it has a fee-based structure, it still can
present conflicts. We viewed it as to permit the wide
distribution that there would be good and accurate disclosure
with regards to conflict states.
Mr. Scott. Well, the conflict is that you can be put in a 1
percent fund or a .1 percent fund. If you make more money
gouging the client, that has a conflict of interest. You should
have put them in a better deal. Is that legal in the 42 states?
Mr. Ommen. Well, I think what you are referring to now is
not necessarily an annuity transaction. It sounds to me like
what you are describing is a fund, is a mutual fund, which
would be under the securities regiment, and I as the State
insurance regulator also have that authority, but I do not
think that that applies to annuities in the same manner.
Mr. Scott. Well, Mr. Peiffer, are annuities covered by any
of these rules?
Mr. Peiffer. Well, they would be covered by the DOL Rule,
and it is the same deal. The commission paid on annuity, is
directly related to how good or bad it is for the investor. The
higher the commission, the worse it is for the investor. The
longer the surrender period, the higher the costs, and so it is
absolutely directly related.
Mr. Ommen. May I now explain now that I understand.
Mr. Scott. The gentleman.
Mr. Ommen. Our rule does deal with that. It deals with it
in terms of the costs associated with that product because
often times what you described as fees, are built within the
structure of the contract. Under our best interest requirement,
that is appropriate and required consideration to make sure
that the consumers' interests are first and foremost.
Mr. Scott. The broker could not put the person in the 1
percent fund and get a higher commission, rather than the .1
percent fund and get a lower commission?
Mr. Ommen. Again, sometimes costs--your example again, I
would say the answer to that would be no. They should not.
Again, some of these contracts have other features, so it is
hard for me to give you an absolute answer. What is clear in
our rule is that the consumers interests, including those
issues concerning costs, must be primary.
Mr. Peiffer. It is just not the same standard. Of course,
we talk about it being in solely in the best interest of the
retiree. Of course, it should be solely in the interest of the
retiree. It is the most important decision that any retiree
could possibly make. Any person, it is their most important
financial decision, and it deserves the protection of the
highest duty known to law under ERISA, which is what the DOL
rule does.
Mr. Scott. Mr. Peiffer, in the last few seconds, what
happens to services to be provided, account minimums, and that
kind of thing?
Mr. Peiffer. Well, we have like I said, real world examples
after the last DOL Rule and with Reg. BI, and small savers are
still able to access financial services advice.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Good. Thank you, Mr. Scott. We now recognize----
Mr. DeSaulnier. Yes.
Chairman Good [continuing]. Mr. DeSaulnier for 5 minutes.
Mr. DeSaulnier. It is an old comedy routine. It is probably
appropriate for this hearing. Mr. Peiffer, we have talked, and
we have heard about this is a solution searching for a problem.
Clearly your experience does not speak to that. I look at this
consistent with your opening comments that we are not after a
class of people, we are after bad behavior amongst that.
As a former small business owner, it always bothered me
that I was competing against people who were not abiding by the
rules and were being more aggressive. Could you speak to that a
little bit about in your personal experience and professional
experience, how there is a problem out there that we are trying
to address in a manner that is very targeted and efficient in
terms of a rulemaking, the Biden administration Rule.
Mr. Peiffer. Absolutely. There are a lot of good financial
advisors out there that are trying to do the right thing, that
live up to a fiduciary duty voluntarily already. There are
those that do not put the client's interest first, and this is
an extremely narrowly targeted rule that gets at people that
call themselves fiduciaries, that have control over accounts,
or give advice, specifically on the retirement.
This is not a solution in search of a problem. This is a
problem that needs a definite solution, and this DOL Rule gives
that solution.
Mr. DeSaulnier. Yes. I was never married to a financial
advisor, unlike my colleague, Ms. Wild, but I have heard from
friends in my district, and around the Bay area in Northern
California. I could see that they are concerned because they
are worried about over regulation, especially when it is a
small firm, an individual firm.
It is complicated, and they assume the worst. Could you
speak a little bit about that again to the targeted, that
people who are playing by the rules, dealing with the rules in
good faith, which I think we all agree we want for the
industry's sake, should not worry about this, and we will be
watching DOL if this rule were to be effected and sustained.
I assume it is going to be challenged, as the previous rule
was. That this is what we want. We want to get rid of the bad
behavior, which if it is done right, and I have concerns about
that. I think this rule is if it is done right, it benefits
everybody who wants to abide by the rules.
Mr. Peiffer. I think that is right. I mean there is a lot
of onerous rules for lawyers, and nothing makes me more angry
than scumbag lawyers that break those rules, frankly, because
we do not. They should not, and they make all of us look bad.
Every financial advisor should have a duty to put their
clients' interests first, especially with something that is so
sacred as retirement money.
It is all they got, most of these people. They really, they
have this, and maybe they have got a little bit of equity in
their house. That is what they have to live out the rest of
their lives. That is what they have so they do not have to rely
on their children, after a lifetime of hard work and doing the
right thing.
Mr. DeSaulnier. The Biden administration, it strikes me--
has worked very hard to anticipate this being challenged again.
In your opinion, as opposed to some of the comments I have
heard that this is just the Obama administration's Rule all
over again, it is not.
Mr. Peiffer. No.
Mr. DeSaulnier. It is very much being mindful of what the
Fifth Circuit said and ruled and anticipates another challenge.
Mr. Peiffer. Absolutely. It is not like the Department of
Labor is engaging in rulemaking for the fun of it. They are
doing it because they want to address a serious problem, and
they want to do it in a serious way that addressed the Fifth
Circuit's problems with the rule, and they did that.
They do not have a contract. They do not have a contract
requirement in this. It has a much more narrow definition of
who is a fiduciary. I think they have addressed the Fifth
Circuit's problems.
Mr. DeSaulnier. If this rule were not implemented, what do
you see in the near future? We have heard what I would think is
fairly hyperbolic language about what might happen if this rule
is applied. What do you think if it does not? If we continue
this way, is it going to get worse, or just?
Mr. Peiffer. Well, it is absolutely going to get worse
because there is really, the defined benefit pension is going
away. Everyone has got to rely on 401K's, and you expect people
that were electricians, or plumbers, or even brain surgeons
that I have represented, to then become portfolio managers.
They cannot do it, and they need advice.
In order for that advice to be good advice, it needs to be
non-conflicted advice.
Mr. DeSaulnier. Thank you very much. I yield back.
Chairman Good. Thank you to our Ranking Member. Now we will
recognize Ms. Bonamici from Oregon for 5 minutes.
Ms. Bonamici. Thank you, Mr. Chairman and Ranking Member.
Thank you for allowing me to waive on to the Subcommittee. This
is not a new issue to the Committee. We have talked about it a
lot. I want to go to the big picture for a minute here. I am
not married to a financial advisor, but in my former work as a
consumer protection attorney, I dealt with people, individuals,
families, who had invested money based on trust and lost it.
Different situations, not necessarily with a fiduciary
rule, but in situations where for example, my clients spent
their whole life savings to buy a franchise because the
franchisor assured them, and they relied on that, that their
franchise would be successful. Situations where people took a
second mortgage on their home because they were promised that
that would automatically refinance, and then they lost their
homes.
Mr. Peiffer, your testimony is really poignant in
describing these stories. This is a consumer protection issue,
and I am a bit baffled by the argument that I heard on the
other side of the aisle that this going to hurt individuals and
working families. This is designed to help them.
I know some of my colleagues were not born in 1974, but I
was around then, and things have changed since then. It looks
very different in the financial market. 401K's did not exist.
People like my dad had a pension, and a pension that was going
to last their lifetime. It is very different today.
To the extent that workers participate in a retirement
savings plan, it is most likely a defined contribution plan,
and they have to manage it. Like you said, make investment
decisions. This is not to say that people are not smart or that
we are looking down on them. These are complicated products.
The difference between a fixed annuity and a variable,
there is just a lot of complication in these products that
people who do not have the background need to rely on someone
they trust. As you said in your testimony, Mr. Peiffer, that
most people believe that their advisor is acting as a
fiduciary.
The advisors build that trust for a reason because they are
holding themselves out to that. I know that AARP study said
about 89 percent of people over 50, and one study said about 97
percent. This is the trust that is established with their life
savings.
Again, a lot has changed, but we still have the same rule
from 1974 when the products and the world was much less
complicated. I also want to reiterate that most advisors are
doing the right thing. We are not criticizing or saying all
financial advisers are cheating their consumer. That is not the
case.
There are some who are taking advantage. We know that. We
see it. You see it in your clients, Mr. Peiffer. Your written
testimony did an excellent job in talking about the harm that
workers and their families face, and you know, the suicides,
the suicidal ideation because people feel they have lost their
life savings. It is really tragic, and this is again, a rule
that is designed to protect consumers.
I know we heard in the last rounds the sky was going to
fall, and it did not. I also want to followup on Mr. Courtney's
point about Mr. Ommen, your quote that the DOL overstepped its
statutory authority and that rests with Congress not the DOL. I
agree with Mr. Courtney, that that is just not the case. For
years, the Department of Labor has appropriately exercised
clear statutory authority to regulate investment advice
affecting retirement savers.
We need that. It started in 1975 with the regulation, you
know, still on the books. Continues through the issuance of the
Biden administration's proposed rule. Mr. Peiffer, would you
agree that the Department of Labor has clear and explicit
statutory authority under ERISA to promulgate this rule?
Mr. Peiffer. Absolutely. That is what they are there for.
Ms. Bonamici. Exactly. That is what they are there for,
right? Some have mentioned the SEC's regulation Best Interest
and the National Association of Insurance Commissioner's Model
Rule would be sufficient. Mr. Peiffer, in my remaining time,
will you please explain how neither of these is an acceptable
substitute for the Department of Labor's Retirement Security
Rule?
Mr. Peiffer. Absolutely. Regulation BI does not cover
advice to plan sponsors, nor does it cover non-securities, and
the Model Rule for the State insurance Commissioners does not
cover compensation as a conflict, and compensation is the No. 1
conflict that advisors have with their clients.
Ms. Bonamici. If this rule were in place, advisors who were
following the rule would still be able to make a living. Is
that correct?
Mr. Peiffer. Can and would.
Ms. Bonamici. Thank you very much. I yield back.
Chairman Good. Thank you, Ms. Bonamici. I now recognize
myself for 5 minutes. Mr. Roberts, throughout today's hearing a
number of different terms have been used to describe standards
that financial advisors have to follow, including best
interest, fiduciary and sole interests. Can you explain the
distinction between these standards, and whether the best
interest standard is sufficiently protective?
Mr. Roberts. I am so glad you asked that question, Chairman
because we are circling around this very issue, and I think we
are missing each other a little bit on this one. Mr. Peiffer,
in his testimony, repeatedly talked about how under the DOL
standard financial professionals would be required to act
solely in the interest.
We repeatedly heard references to any compensation, any
whatsoever being ``conflicted advice.'' Well, that is a
fiduciary standard. A fiduciary has a conflict whenever he or
she has a financial interest. Now the Department of Labor
proposes an exemption that will relieve a prohibited
transaction rule, and at the bottom of their exemption they
write that they have written in every single one, nothing in
this exemption provides any relief to the requirement in ERISA
that one must act--a fiduciary must act solely in the interest.
The question is raised folks, do professional salespeople
get to have any interest? Are they permitted to be compensated?
Mr. Peiffer says yes. On the other hand, Mr. Peiffer says they
must act solely in the interest, and that they are conflicted
whenever they are compensated.
Versus a best interest standard. A best interest standard,
NAIC Reg. 275 says that the mere fact that a professional sales
person receives some compensation in and of itself, is not a
conflict with their best interest obligation. It is so
important to realize that there is a best interest obligation
in that regulation.
They are not absolved from acting in the best interest of
their clients. They are duty bound to do so. They are duty
bound to consider cost, and whether or not the product, and the
cost features the product are a match for the consumer's needs.
I think, you know, a best interest standard is an appropriate
standard for a professional sales person.
A fiduciary standard, one which would deprive the sales
person of having any financial interest in his or her
activities, is inappropriate. I did--I also want to address,
you know, there is a great deal of umbrage being expressed
about well, how dare anyone suggest that the Department of
Labor not have the full authority to regulate the securities
industries and the insurance industries.
The Fifth Circuit decision made exactly that point, that
Congress had reserved regulation of the securities industry to
the SEC. It is reserved regulation of the insurance industry to
the states, and the DOL has the power to regulate the operation
of plans. There is some overlap amongst the three, but they
belong in separate regulatory spheres, thank you.
Chairman Good. Thank you for bringing some wonderful
common-sense perspective to that. I appreciate you making, you
know, you could argue that every business broken down to the
very base level is in conflict with every consumer's interest.
If you have a restaurant, when the customer walks in he wants
to get the absolute best meal, the absolute best price, with
the absolute best service.
The business wants to make money off the transaction, but
they also have a--the business has a shared interest that they
want to make that customer happy, so that customer comes back
again and again, and tells their friends, and enjoys that
experience. They want it to be a healthy meal.
They want it to be a satisfying meal, so it really is a
devoid of understanding on the other side of that, that there
is a long-term shared best interest for businesses that want to
succeed and thrive and help those whom they serve. Do you
believe that the State, the SEC's regulation best interest and
the state's rules are effectively protecting retirement
investors?
Mr. Roberts. I do. I do. I mean and we have been fortunate
to hear from Commissioner Ommen this morning, and Commissioner
Ommen has shared with us how his office protects consumer
interests actively, weeds out and disciplines bad actors for
not adhering to a best interest standard of conduct, as does
the SEC and FINRA on the securities side.
One point Mr. Ommen made also in his written testimony is
that bad actors can be found in the fiduciary space. Bernie
Madoff, for example, was a so-called unconflicted fiduciary.
Chairman Good. Well said. I would suggest, I was going to
ask you, but the costs of implementing the proposal, the
proposed Fiduciary Rule is not justified. With that, I am out
of time, and so I am going to recognize our Ranking Member, Mr.
DeSaulnier, for a closing statement.
Mr. DeSaulnier. Thank you. I want to thank the witnesses,
and I also want to thank the Chairman for the reference to the
restaurant business. As he knows, I used to be in the
restaurant business, I use to own them, but being from the Bay,
San Francisco Bay area, I just did it for my masochistic
fulfillment until I became a politician.
The analogy is a good one. I do think, you know, this is
well, Madison, one of my favorite quotes from Madison was that
if people were angels there would be no need for government. I
think this is sort of the sentiment of what we are getting at
in good faith from all the witnesses, is how do we make people
professionally get the standards whether that conflict is based
on enumeration, or other beliefs-.
We are trying to get that. I really believe the
administration particularly as a result of the Fifth Circuit's
decisions, is doing that in a targeted way. Mr. Peiffer, I
would ask you for the record, to respond to some of the, I will
not use your termination about lawyers that you used earlier,
and I am not relating this to anyone on the panel, but maybe
you could submit for the record a response to what we heard
from Mr. Roberts, versus the technical legal aspects.
You do not need to respond now, this is my closing, so you
could submit it for the record, and our staff will be happy to
help you with that. Let me just conclude with that I really
hope we can get this right. I believe this is right. As I said
earlier, I do not believe in doing regulation for regulation's
sake, which I have heard from the republican witnesses.
We just want to get at the bad behavior, and I have heard
that, as I have said, from friends and financial advisors in my
district, both on this rule and the Obama Rule. What we are
really looking for, and I disagree with Mr. Banks in this
regard, from my perspective, and our perspective, and the Biden
administration's perspective, and DOL's perspective, is that a
lot of workers are suffering right now.
There is more pressure on middle income people than ever,
and thanks for all our supporters of this regulation in the
room. I would love to go to the AARP store after to get a
jacket, so I can appropriately be affiliated with you, besides
my age. The people who are being abused have less disposable
income. A lot of people in my area are--in my generation--are
completely dependent on their home investment for their
retirement.
Subsequently, to helping their kids with that, so this rule
getting right and protecting their retirement is really
important. Neither the SEC's regulation, in our opinion, on
best interest, nor the far weaker NAIC Rule again, in our model
rule comes close to fixing the problem. In my estimation, the
Biden administration's proposed Retirement Security Rule is
necessary, narrowly tailored, and responsive to the Fifth
Circuit's decision.
This rule is not the same as the Obama era Fiduciary Rule,
and the Department of Labor acted well within its statutory
authority under ERISA when proposing it. The Biden
administration proposed rule will significantly reduce costs to
help small businesses, including restaurants, and benefit small
savers who are most vulnerable to conflicted advice.
There is no credible study on this rule that suggests
otherwise. The proposed rule will level the playing field to
ensure that workers, retirees, and plan sponsors receive advice
that is in their best interest. That is what they expect and
deserve. I very much support this Biden administration's
Retirement Security Rule, and encourage the Department of Labor
to promptly finalize it.
Finally, I ask unanimous consent to enter into the record
statements from our friends at AARP and the Consumer Federation
of America in support of the Retirement Security Rule. Thank
you, Mr. Chairman, and I yield back the balance of my time.
Chairman Good. Without objection.
[The information of Mr. DeSaulnier follows:]
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Chairman Good. Thank you, Mr. DeSaulnier. In my experience,
from 17 years in the financial services industry on the lending
side, mind you, but almost no new regulation that I saw over my
17 years, almost no mandate, no rule from the Federal
Government, often for the State government as well, was truly
in the consumer's best interest.
Whether it is the Privacy Rule, I was working in the
industry when we had the new privacy rule, where now every
year, you have got to send every consumer in the country the
stacks of paper to throw away, telling them what their privacy
rights are. The redundancy of paperwork and repetitive
requirements, increased pass-through costs, from an
administration by the way, that says literally the President
said, ``Don't pass on your increased costs to your consumers.''
``Don't pass those on to your customer.''
When your costs go up don't pass them on to the customer.
Having no understanding, after 50 years in government where a
business where an organization gets their revenues, is the only
way to pass through to their customers.
The unnecessary delays and less efficiency that results
from these mandates, regulations and rules, the explosion as a
result of the compliance and legal departments, or what we used
to call the business prevention department, that small firms by
the way cannot afford, like the large firms can.
I worked for a Fortune 100 company that could afford those,
but I guess it did provide job growth and security for the
examiners and the auditors that I had to enforce these things.
Federal rules and regulations are costing consumers thousands
of dollars a year. It has exploded, particularly in the last 3
years. Who does that hurt most?
These are hidden taxes, hidden fees that are regressive in
nature, that do not hurt the big investor, but they do hurt the
small savers, the small investors, the seniors, the regular
income folks and so forth. Bureaucrats, and they do not know
best.
Ronald Reagan famously said you know, the nine scariest
words in the English language was hey, I am here from the
Federal Government, I am here to help you. That is so rarely
the case. Business and industry professionals have again, long-
term shared interests perspectives.
Truly one of the best for those who they assist, those whom
they serve. They recognize that everybody wins when that is the
case, and they want to stay in business for a long time, and
have satisfied repeat clients and consumers. We should not
punish everyone. Quality firms and professionals should not be
punished, and the costs that impair--the increased costs and
fees and the impaired service for investors, that should not
happen.
Everyone should not be punished because of the very few bad
actors that helps lawyers enrich themselves via class action
lawsuits by the way. The Biden administration's fiduciary rule
purports to address unfair sales practices by retirement
advisors. However, more overregulation industry is not the
answer.
Implementing the proposed Fiduciary Rule would disrupt an
industry that is already making progress in protecting
consumers. In fact, in the last few years the SEC, and 42
states have implemented new standards to protect consumer
interests. The rule discussed today is a classic case of heavy-
handed regulatory overreach by the Biden administration.
Americans of all income levels should be free to choose
sound financial advice on how to best save for their
retirement. It really is offensive, the contempt for the
consumer. If you are low-income, or if you are regular income,
or you are blue collar, then you just do not know how to make
choices for yourself.
That's really an offensive thing for some to suggest. We
know this rule will negatively impact missions of Americans'
ability to receive the investment advice that they need, so I
urge the Department of Labor to take note of our hearing and
withdraw the rule. Without objection, there being no further
business, the Committee stands adjourned.
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[Whereupon, at 12:08 p.m., the subcommittee was adjourned.]
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