Accounts of abused investors and high-living brokers competed for sympathy with brokers' professed fears about their businesses in the debate about a proposed fiduciary rule on day two of the Labor Department's hearings on the issue.

That rule, if the department imposes it, would require all retirement account advisors to put their clients' financial interests before their own.

"Workers and retirees cannot afford to wait any longer as their retirement savings are being depleted by conflicts of interest every day," Stephen Hall, a securities specialist at Better Markets, a nonprofit that promotes Wall Street reform, told four labor officials at the hearing Tuesday.

The hearings, which began Monday and are scheduled through Thursday, give factions within the industry and investor advocates a chance to air their views on the proposal the department made in April.

The stakes are high, proponents contend. Americans lose about $17 billion a year to bad advice on their retirement savings, according to a recent study by the White House Council on Economic Advisors.


Today, brokers can legally put their own financial interests before their clients' when giving investment advice, as long as their recommendations comply with the lesser suitability standard.

One former broker explained how that standard worked in practice at a former firm, where he said the CEO urged brokers like him to develop a plan and stick with it.

"The model goes like this. First you have a goal," Joe Collins, now a certified fraud examiner, told the panel. "Faster horses, younger women, older whiskey, more money. Have a plan….

"You know, I plan to have 600 clients, make a $1 million a year," Collins continued, using shorthand for the long names of investments and insurance policies brokers sell to become high earners. "So I gotta sell, let's see, seven annuities. I've gotta sell three VULs this week. I've gotta sell some DIs, some long-term care and put $100,000 in a front load funds because that's where I make the most."

"You learn to keep score," he explained. "You learn how to channel your emotions in challenging circumstances. I mean, when grandma doesn't put her $100,000 into a variable annuity, that can kinda get emotional because you didn't make your car payment."

Collins' point seemed to be that a client's financial interest – such as that of the theoretical grandmother – didn’t factor at all into these brokers' advice, not to mention as a first priority.


Offering a sharp contrast to that portrait of routine investor abuse, an insurance broker brought one her clients – a dentist with a growing practice – along with her to show how a relationship of trust has developed between the two of them.

"Juli and I have been working together for 11 years," Jennifer Knoll, a dentist in Sparta, Wis., said of Juli McNeely, of the 45-year-old firm McNeely Financial Services in Spencer, Wis. "Quite simply, I value her expertise. Juli has helped me understand more about insurance, retirement planning and investing than I would ever have time to learn and implement on my own."

"I am very comfortable with the compensation model that Juli and I have. I am aware that other compensation models exist," Knoll continued. "I also know that Juli puts my best interests first." Knoll did not explain the mechanism by which she knows this. 

McNeely, president of the National Association of Insurance and Financial Advisors, said she's concerned that the proposed fiduciary rule would favor fee-based practices over commission ones.

While McNeely herself conducts both fee and commission planning, she says most of her 484 individual clients, whose average account size is $71,000, pay her by commissions.

McNeely said she supports putting clients' best interest first, but not as formulated in the proposal, which she thinks could prevent investors from saving in part by forcing them to sign too many contracts.


In arguing as to why some of the rule's provisions are unnecessary, other opponents argued that clients already understand the difference between sales and advice.

"We think that [retirement plan] participants can distinguish between a sales presentation and advice," Charles Nelson, CEO of Retirement at Voya Financial, told the panel at one point.

"Why do you think those are two different things, really?" the panel's chairman Timothy Hauser, a deputy assistant secretary in the department, asked Nelson in response, as part of a lengthy back-and-forth.

"I've heard the sales-advice dichotomy being drawn by lots of people," Hauser told Nelson, "but, as a rule, you know, aren't both things happening? Aren't people looking to your representatives for professional guidance on how they manage their money, even as they also understand that you may be selling them something?"

"Not necessarily," Nelson responded.

"That's a fascinating question," Nelson continued, "because in every commercial transaction there is someone who is providing the service or product and there is someone who is consuming or purchasing that product or service. You don't necessarily know what types of services or products that someone may ultimately select from and there could be a wide range so that, you know, in your characterization, I'm not sure that's completely fair to say that all participants want advice because some may want more advice, some may want just some education and some information."

Hauser tried a different, if related, line of inquiry.

"Before your representatives make a recommendation to somebody on how to invest their retirement assets," he asked, "do they make any inquiry into their individual circumstances?"

"Sure," Nelson said.

"Do they try to ensure that, at a minimum, that recommendation is suitable for them in light of their particular circumstances?" Hauser asked.

"Again," Nelson said, "it depends on the types of recommendations …"


"What do your representatives call themselves in their dealings with your customers?" Hauser continued. "Do they call themselves 'salesmen' or do they use some other nomenclature?"

"Representative of Voya Financial," Nelson responded.

"That's it? They don't call themselves advisors or consultants or investment professionals?" Hauser asked. "Do you have a preferred corporate term that your people use?"

"We do," Nelson said

"What is that, what is that?" Hauser asked.

"Well we have about 6,000 employees and lots of different titles, OK?" Nelson responded, "So, in fairness, you know, I'm not going to go through all 6,000 titles for ya, save you the torture there. However …"

"That is too many categories to manage, I would think," Hauser responded.

"It takes a lot to be able to distinguish the different types of roles," Nelson said, "and, so, I think it depends on whether you are talking about a call center rep, you are talking about a representative that is working with advisors … to 401(k)s or whether you are distributing 457, 403(b) plans or retail advisors as well."

After pausing, Hauser pressed on.

"OK, so let's maybe just take the latter," he said. "Do they call themselves advisors when they are dealing with their customers?"

"In our Voya Financial Advisor Network, many of them would yes," Nelson said.

Later in the day during another panel, Hauser made it clear that apparently neither Nelson, nor anyone else had managed to convince him that it's a simple thing to understand the difference between sales and advice.


"I confess, I don't understand the distinction," Hauser said, "You can both have advice and a sale."

The industry relies on confusion about its advisors' intent in order to generate commission revenue for brokers at their clients' expense, Joe Peiffer, president of the Public Investors Arbitration Bar Association, told the panel.

While Peiffer says he has personally represented 500 clients who lost much or all of their life savings to brokers' conflicted advice, he says the association's lawyers have represented tens of thousands of these victims. He spoke on the same panel with the dentist, Dr. Knoll, and her insurance broker.

"These are people who invariably trust their financial advisors," he said, looking fleetingly at Knoll. "They don't think they are getting bad advice. They don't think they are getting sales."

And the reason for this is obvious, he added.

"Brokerage firms' advertisements already say things like, 'They will not rest until their client knows she comes first,'" Peiffer said, "or state flatly, 'Our advisors are ethically obligated to act with your best interests at heart.'"

But, behind closed doors in arbitration cases, after investors lose money, Peiffer says, firms turn around and argue that they never claimed they would put their clients' best interests before their own.

Legally, they can take their commission and not worry about being held accountable, he said.

"We see here today, everyone from the financial industry coming up here and saying they are in favor of a best interest standard," Peiffer says. "But, when it comes [time] to be called to account for their behavior, they routinely contest that any sort of fiduciary duty exists. … The lack of this duty has real world consequences for retirees."

Peiffer says he often represents middle class retirees who saved enough to put their children through college and pay off their homes – only to have advisors talk them into rolling their retirements out of IRAs and into accounts that the advisors can manage for commissions.


By the time Peiffer meets them, often their savings are gone.

"These retirees often break down in my office," he says. "I've even had clients attempt suicide. I know the devastation that losing your life savings to conflicted advice can have on hard-working Americans."

While it's too late now to help those retirees who lost everything because they trusted advisors who prioritized commission-income over them, Peiffer says, "This rule should help prevent these conflicts on a macro level and hopefully will lead to less, not more, lawsuits because it will stop it on the front end."

And to those who argue that a uniform fiduciary standard will reduce access to financial planning services, Peiffer pointed to studies showing that states with strict fiduciary standards show no drop in available services.

"That argument," he says, "is a red herring."

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