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T H E A D V I S E R ’ S A D V I S O R ®

July 21, 2015

VIA EMAIL ONLY (e-ORI@dol.gov)

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW. 

Washington, DC 20210

RE: RIN 1210-AB32

Dear Sir or Madam,

MarketCounsel appreciates the opportunity to comment on the U.S. Department of Labor’s 

(“Department’s”) April 20, 2015 proposal to expand the definition of “fiduciary” under the Employee 

Retirement Income Security Act of 1974 (“ERISA”) to cover a broader range of persons who provide 

investment advice to employee benefit plans, plan fiduciaries, plan participants and individual retirement 

account (“IRA”) owners.

For perspective, MarketCounsel is a business and regulatory compliance consulting firm to some 

of the country’s preeminent entrepreneurial investment advisors. In addition, our affiliated law firm, the 

Hamburger Law Firm, renders legal counsel to over 1,000 entrepreneurial companies, investment advisers, 

broker-dealers, hedge funds, family offices, and registered securities personnel. It would reason that we 

stand to benefit from a more onerous regulatory climate for our clients. However, this short-term view is 

outweighed by our interest in independent investment advice in America which has been, and seems poised 

to continue to be, the most significant gain for investors in decades. Therefore, while the Department’s 

proposal is only tangentially of interest to our clients, we felt this issue was too important not to supply our 

comments. 

At the outset, MarketCounsel agrees with the Department that the marketplace for advisory services 

in general, and retirement advisory services in particular, has evolved tremendously over the past several 

decades, which warrants a review of regulatory responsiveness to such changes. Among other things, the 

shift of retirement assets from defined benefit plans to participant-directed plans and self-directed IRAs has 

resulted in an increased number of retail investors seeking expert assistance to manage their assets. At the 

same time, an increasing number of institutions, including brokers and insurance agents, have entered into 

the marketplace to offer a wide range of investment advisory services, often holding themselves out to the 

public as “wealth managers,” “financial advisors” or “financial planners,” regardless of their actual legal 

status. Yet, under the Department’s current regulations and practices, many such institutions are not being 
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regulated as fiduciaries and therefore are not being held to ERISA’s fiduciary standards of prudence and 

loyalty despite entering into a relationship of trust with clients by rendering investment advice. Such 

circumstances have also created confusion among investors as to what they should expect from their 

financial service providers.

Generally, MarketCounsel agrees with the Department’s functional approach to eliminating the 

coverage gap by conferring fiduciary status based on the type of advisory services offered by a person or 

institution, as opposed to the legal status of such person or institution, which has little meaningful 

correlation with investor protection. For instance, as the Department has recognized, brokers and other 

institutions that solely engage in exempt activities, such as order taking and execution, need not be subject 

to ERISA’s fiduciary standards because they are not rendering investment advice to customers. 

Unnecessarily subjecting such institutions to ERISA’s fiduciary standards could cause such institutions to 

stop offering their services to retirement investors. On the other hand, where such brokers choose to receive 

compensation for rendering advice that is individualized or specifically directed to a particular plan sponsor, 

plan participant, plan beneficiary or IRA owner for consideration in making an investment decision, they 

would be considered ERISA fiduciaries under the rule proposal, which would require them to act in their 

clients’ best interests.

Nonetheless, in securities law circles, some have called for all brokers to be subject to a uniform 

fiduciary standard, arguing that the line between investment advisers and brokers has become so irrevocably 

blurred that investors can no longer distinguish between the two categories of service providers, thus 

necessitating an elevated level of protection. However, such a solution is unnecessary because the 

Investment Advisers Act of 1940 (“Advisers Act”), when strictly enforced, offers investors sufficient 

safeguards. For example, as a result of the Supreme Court’s decision in SEC v. Capital Gains Research 

Bureau, Inc., Section 206 of the Advisers Act subjects all investment advisers, whether registered or not, to 

statutory fiduciary duties requiring them to seek their clients’ best interests and to manage and disclose 

material conflicts of interest. Such fiduciary duties also apply to brokers engaging in the business of 

providing investment advice for compensation unless such investment advice is provided “solely incidental 

to” their brokerage business. Yet, for years, brokers who have rendered investment advice that is not solely 

incidental to the conduct of their brokerage business have been allowed to hold themselves out as 

investment advisers and to operate in the adviser arena despite not registering as investment advisers and 

becoming subject to the Advisers Act’s regulations. This practice has contributed significantly to investor 

confusion. In short, additional regulatory scrutiny by the U.S. Securities and Exchange Commission 

(“SEC”) would compel brokers rendering non-incidental investment advice to become subject to Advisers 

Act registration and regulation and cause brokers no longer wishing to render non-incidental investment 

advice to leave the adviser marketplace, which would result in added investor protection and eliminate 

much investor confusion. Additionally, conflicts and other disclosures required of newly-covered 

registrants would further clarify what investors should expect from their financial advisors.

The confusion over when someone is an investment adviser versus when they are merely a broker 

has led to a lack of understanding over duties owed by industry participants. Consumers are confused 

because a review of the activities provided by advisers and brokers are often identical. In furtherance of 

this confusion, the Department is proposing extending the definition of “fiduciary” to include many brokers. 

The proposal is years in the making and countless hours have been spent by the Department and all sides 

of the securities industry in debating the topic. MarketCounsel respectfully submits that more rules will 

lead to more confusion. Quite simply, if the SEC would limit the “solely incidental” exemption from 

adviser registration to those broker-dealers that were truly only providing incidental advice, most confusion 

would come to a sudden end. Those providing investment advice would be fiduciaries, and those merely 

selling securities would not. This could then be extended to the Department’s fiduciary analysis as well. 

We understand that, unfortunately, the Department is not vested with the authority to enforce the Advisers 

Act so we will address the proposal more specifically.
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MarketCounsel proposes a carve-out from the definition of fiduciary investment advice for 

advisory services that are solely incidental to the traditional services offered by brokers, insurance agents 

and other institutions. As referenced above, the Advisers Act includes such a carve-out from the definition 

of an “investment adviser” where a broker provides incidental advisory services that are connected with or 

reasonably related to its brokerage services. Nonetheless, to qualify for the Advisers Act exemption, a 

broker cannot receive any special compensation for providing such advisory services and may not hold out 

or provide any financial planning services. We are not proposing adopting such an exemption word for 

word from the Advisers Act, but rather, are focusing on the spirit of the exemption, which is to avoid 

regulation where only de minimis advisory activity is taking place. Ultimately, MarketCounsel believes

that the benefits of such an exemption would outweigh the costs. For starters, providing such a carve-out 

would minimize the marketplace disruption that could result if brokers elected to stop providing advisory 

services to ERISA plans or IRAs. Invariably, middle-class and lower-income individuals would be 

disproportionately impacted as a result of such defections as some brokers may no longer find it profitable 

to serve this segment of the market. On the other hand, MarketCounsel does not believe that investor 

protections would be weakened in any meaningful way by the adoption of such a carve-out, particularly 

given the other regulatory regimes governing such brokers’ conduct. 

Such a carve out should be coupled with a requirement that anyone providing securities advice that 

is not solely incidental to brokerage services must be a registered investment adviser with the SEC or 

applicable state regulator. This would make the need for the “best interest contract exemption” moot, 

because registered investment advisers would already meet the requirements. The best interest contract 

exemption is just going to add to consumer confusion. Why? First, the rule itself calls the advice providers 

“advisers.” How can we expect a consumer to understand that their “adviser” (with an “e”) is not an 

investment adviser. Also, how are they going to differentiate that their adviser is only a fiduciary when 

providing advice about their retirement assets, and not when providing advice about their other assets. 

Requiring securities advice to be provided by registered investment advisers would result in a simpler 

regime to comply with and one that is less confusing to industry participants and clients alike. 

Finally, MarketCounsel believes that the requirement of the best interest contract exemption for 

individual advisers to contractually acknowledge fiduciary status (as well as other liability 

acknowledgments) will result in brokers walking away from certain retirement services. This will result in 

less options for investors. 

In conclusion, MarketCounsel applauds the Department for taking the difficult and controversial 

step of redefining “fiduciary.” We just feel that many of the challenges that the Department is trying to 

cure, namely mitigating consumer confusion, may get even worse while adding a great deal of regulation 

to industry participants. Especially in light of the fact that the simplest solution rests with the SEC to merely 

enforce its existing rules. We are not alone in this analysis. In fact, while not absolutely unified in our 

positions, we find ourselves with strange bedfellows in that our conclusions align with FINRA and SIFMA. 

MarketCounsel recommends that the Department should reject the proposal and re-propose, as necessary, 

after the SEC either commits to enforcing its “solely incidental” exemption or it chooses to take on a 

fiduciary rule itself. 

Once again, MarketCounsel appreciates the opportunity to comment on the rule proposal. Should 

you have any questions or require any additional information regarding the foregoing, we remain available 

at your convenience.
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Best regards,

MARKETCOUNSEL, LLC

By: ______________________ ______________________

Brian S. Hamburger, JD, CRCP, AIFA Daniel A. Bernstein, JD

Managing Director Chief Regulatory Counsel