COMMENT LETTER, Retirement Security Rule, Definition of an Investment Advice Fiduciary

Comment Letter

File No: IN 1210-AC02
From: Joseph C. Peiffer, President, Public Investors Advocate Bar Association
To: Lisa M. Gomez, Assistant Secretary, Office of Regulations and Interpretations Employee Benefits Security Administration, US Department of Labor
Date: Tue, 01/02/2024 – 12:00pm
Comment Letter Link: COMMENT LETTER, Retirement Security Rule, Definition of an Investment Advice Fiduciary (January 2, 2024)

January 2, 2024

Via Federal eRulemaking Portal

Assistant Secretary Gomez Lisa M. Gomez
Office of Regulations and Interpretations
Employee Benefits Security Administration
Room N-5655
U.S. Department of Labor
200 Constitution Ave. NW
Washington, D.C. 20210

Re: Retirement Security Rule; Definition of an Investment Advice Fiduciary RIN 1210-AC02

Dear Assistant Secretary Gomez:

I write on behalf of the Public Investors Advocate Bar Association (“PIABA”), an international bar association comprised of attorneys who represent investors in disputes with the securities industry. Since its formation in 1990, PIABA has promoted the interests of the public investor in all securities and commodities arbitration forums, while also advocating for public education regarding investment fraud and industry misconduct. Our members and their clients have a strong interest in rules promulgated by the Department of Labor relating to investor protection and fiduciaries.

PIABA submits this comment to the above-referenced Department of Labor’s rule proposal concerning the definition of investment advice fiduciary. PIABA generally supports this rule proposal and it believes the proposed rule changes would improve investor protection. A prevailing theme of the financial services industry when they are soliciting the business of public investors is “trust us with your financial future.” For example, Morgan Stanley advertises its “core values” to include “do the right thing” and “put clients first.”1 Merrill Lynch claims that “[Y]our advisor is someone who can be there for you for years to come, providing more than just stock recommendations and who will focus on your short- and long-term goals.”2 Edward Jones says that “[O]ur financial advisors know their clients best: what they need, what they value, and what it will take to help them achieve financially what is most important.”3 Many clients believe these claims, and entrust irreplaceable life savings and retirement accounts with financial services firms.

Unfortunately, when those accounts are mismanaged, these same firms have very different beliefs about their relationships with these clients. They claim that “putting clients first” does not mean they are held to the legal standard of fiduciaries. They argue that non-security investment products, such as equity indexed and fixed annuities, are not securities and therefore the brokers were “merely” acting as an insurance agent with a minimal duty of care, not even subject to a suitability rule. They insist that pervasive conflicts of interest between various related issuer companies and the sales force are not problems, even when the firms make recommendations which result in drastically larger commission payments to the broker.

PIABA believes that the proposed rule would reduce, if not necessarily eliminate, some of this double-talk between how firms market themselves to investors before the onset of a customer relationship compared to what they claim their duties are later. Clients are never told that certain investments or financial decisions that their broker is advising them on are subject to differing standards of care. As far as a public investor knows, they have one broker, and all of the conversations and recommendations from that broker have the same value and importance. Changing the rule to eliminate firms’ purported legal defenses that different investment recommendations are subject to different legal rules, moves the industry towards what public investors already reasonably believe is true.

Unfortunately, the payment structure of the financial services industry is still largely transactional, commission-based. That means that some brokers will say or do anything they have to convince a public investor to roll over the client’s retirement savings, which is often the vast majority of the client’s entire life savings, to that broker’s “management.” But when the broker gets paid his commission from the assets moving over, suddenly he disappears. Having a different standard of care for a single transaction is counterintuitive. Public investors simply do not expect that to be the case, and there is no legitimate reason that it should be. Additionally, recommendations to a plan sponsor should not be governed by a different standard of care. A small business owner having a discussion with his advisor about which funds to invest in his personal savings account in the corporate plan should not carry a different standard than that same business owner having a conversation with that same advisor about whether or not he should make changes to the plan itself. These rules and regulations should match what the reasonable expectations of the investing public are, rather than creating a patchwork system where there are hidden traps left for consumers who are unaware that certain types of advice they receive from their broker are not held to same strict standard of care as other advice they receive from the same broker.

PIABA thanks the Department for the opportunity to comment on this proposal.

Very Truly Yours,
Joseph C. Peiffer
President, Public Investors Advocate Bar Association

1 Morgan Stanley, About Us; Core Values, at https://www.morganstanley.com/articles/why-you-may-need-a-trust (last visited December 22, 2023).

2 Merrill Lynch, Our Advisors, at https://www.ml.com/working-with-merrill-lynch-financial-advisor/ouradvisors. html (last visited December 22, 2023) (emphasis added).

3 Edward Jones, Benefits of working with a financial advisor, https://www.edwardjones.com/us-en/workingfinancial-advisor/benefits-working-financial-advisor (last visited December 22, 2023).

Hear what our members say about PIABA.

See how PIABA has helped protect others in investment disputes within the securities industry.

“The resources and networking opportunities provided by PIABA have been instrumental in my career development. When I was new to the practice, I was surrounded by mentors and friends who were always willing to help. Over the 12+ years I have been a member, PIABA has consistently been my most valuable support. As an experienced lawyer, PIABA offers leadership roles and opportunities to give back by mentoring the next generation of attorneys in this area. You won’t regret getting involved.”

Meyer Wilson

Courtney M. Werning, Esq. | Principal

“I have been a PIABA member since the year of its founding in 1991. For 33 years PIABA has been an unparalleled source of information and ideas, and remains an integral part of my law practice. More important, I count many of its members as my friends. PIABA has greatly enriched my life, both professionally and socially.”

Leonard Steiner

STEINER & LIBO

“Piaba has been instrumental to the growth of my career. I have made lifelong friends and have attended every annual meeting for the last 15 years. The list-serve, the dedication of its members and its national reach is the gold standard for any bar association.”

Gana Weinstein

Adam J. Gana | Managing Partner

“PIABA is the greatest bar association I have had the privilege of being a part of. PIABA and its membership have been instrumental in my growth and development as a securities litigation attorney in representing and fighting for investors. As a member of PIABA you will find many attorneys across the country who are willing to help you from sharing practice tips to arguments. There is no organization doing more good for the investing public than PIABA.”

Michael C. Bixby

Bixby Law PLLC | Founder & Managing Attorney