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the exemptions. This would not meaningfully benefit investors, who have adequate recourse
against Advisors for non-technical breaches of investor protection standards.

We believe Advisor firms would ultimately decide not to accept the burden - and
litigation risks - of strict compliance with the exemptions’ detailed requirements. Instead,
we believe the likely consequence of imposing these requirements would be to drive
Advisor firms out of the commission brokerage business entirely with respect to IRAs.
Investors would lose the option of paying for advice on a per transaction basis, and would
be forced into either a self-directed account with no personalized advice, or into a fee-
based advisory relationship with potentially higher costs.

Accordingly, Bank of America recommends eliminating the various disclosure,
warranty, recordkeeping, and related sections of the proposed exemption entirely, and
streamlining the Impartial Contract Standards of the Best Interest Contract exemption to
mandate four enforceable promises by Advisors and Advisor firms to investors with
respect to their IRAs:

Best Interest. Advisor firms would agree that when they provide personalized
investment advice and recommendations about whether to transfer 401(k) assets to an
IRA, or to purchase, sell, or hold securities or other assets in an IRA, their advice and
recommendations will be prudent and in the client’s best interest. This means the Advisor
firm will provide investment advice and make recommendations with care, skill, prudence
and diligence, and taking into account the client’s particular financial circumstances,
liquidity needs, goals, time horizon, and tolerance for risk. It also means that, although the
Advisors will receive compensation for services, including compensation from third
parties, the Advisors will put the client's interests first, ahead of the interests of the
individual Financial Advisor, the Advisor firm and its affiliates, or any third party.

Conflicts of Interest. The Advisor firm would agree to disclose to the client material
conflicts of interest with respect to the Advisor’s investment advice and recommendations to
purchase, sell or hold securities or other assets in an IRA.

Fees. The Advisor firm would agree that the amounts charged for its services will be fair
and reasonable, and that the fees for the products recommended will be fair and reasonable.
And, the Advisor would agree to disclose to the client the fees for its services and the fees for the
products it recommends.

Policies and Procedures. Finally, the Advisor firm would represent that it has established
policies and procedures, including supervisory procedures, that are reasonably designed so that:
a) investment advice and recommendations are in the client’s best interest; b) material conflicts
of interest are disclosed; c) the costs and fees charged are fair and reasonable; and, d) the
Advisor firm complies with the laws and regulations that apply to an IRA.

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APPENDIX

To the extent the Department determines to issue specific rules with respect to
compensation or the Seller’s carve-out for institutional accounts, we suggest that the
Department consider the following changes to specific sections of the Fiduciary Proposal
and Exemptions in order to eliminate ambiguity in interpretation, or to avoid difficulties in
implementing the Exemptions themselves.

With respect to payment of differential compensations the Fiduciary proposal
should include the following language:

“The Financial Institution or its Affiliate and Related Entities may compensate their
Advisers relating to investment advice specifically directed to Plans, participant or
beneficiary accounts, or IRAs. To the extent that the compensation is paid as
differential compensation, such compensation shall be deemed to have met the Best
Interest standard if the Financial Institution or its Affiliate and Related Entities (i)
establish policies and procedures reasonably designed to mitigate and manage the
risks relating to commission-based advice, (ii) establish a governance process for
compensation practices relating to commission-based advice, (iii) establish
reasonably designed supervisory procedures regarding commission-based advice
and compensation practices, (iv) provide adequate disclosure to account owners of
commissions charged and other compensation received (e.g., compliance with SEC
Rule 10b-10), and (v) establish reasonably designed policies and procedures and
supervisory systems to comply with FINRA guidance on the fairness of prices and
commissions (e.g., Rules 2121 and 2122).

e With respect to the Exemption for Pre-Existing Transactions in Section VII of the BIC
Exemption, sub-section b(3) should read as follows:

“The Adviser and Financial Institution do provide additional advice to the Plan
regarding the purchase, sale or holding of the Asset after the Applicability Date and
in accordance with the Best Interest Contract Exemption.”

e With respect to including FINRA defined “institutional accounts” in the seller’s
carve-out and clarifying that it covers services, we suggest revising Section 2510.3-
21(b)(1)(i)(A) of the Fiduciary Proposal to read as follows:

“Counterparties or service providers to the plan - (i) Counterparty or service
provider transactions with plan fiduciary with financial expertise.(A) In such
person’s capacity as counterparty or service provider (or representative of a
counterparty or service provider) to an employee benefit plan (as described in
section 3(3) of the Act) the person provides advice to a plan fiduciary who is
independent of such person, with respect to an arm's length service arrangement,

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would be enhanced by a “best interest” standard for advice. Eliminating these investment
choices would be extremely disruptive to significant numbers of our clients.

Bank of America believes that returning to a static “legal list” approach to
permissible investments would be a mistake, significantly reducing client choice while
simultaneously causing client confusion (clients could purchase “impermissible” assets in
their non-retirement accounts) and stifling product innovation.® Assets covered under the
BIC and Principal Trading exemptions should include any asset or security an investor is
otherwise legally permitted to hold in a taxable account.

We understand the Department intends to preserve investors’ choices about the
nature and extent of advice they receive (e.g., investment education; or transaction based
recommendations about purchasing, selling, and holding a security; or ongoing investment
management and account monitoring), and how to pay for that advice (e.g,, transaction
based commissions; or ongoing asset-based fees).” We believe the language of the
proposed rule should be clarified or amended on these points, including explicit
authorization of differential compensation arrangements. See our suggested revisions in
the Appendix.

2. The Best Interest Contract Exemption Should Be Streamlined.

Bank of America believes the Best Interest Contract exemption, in concept, could
provide a framework for establishing a fiduciary standard of care for the benefit of retail
investors while preserving client choice and enhancing existing regulatory protections. As
currently drafted, however, the complicated and detailed requirements of the Best Interest
Contract exemption are unworkable in practice, and would impose unacceptable burdens
on Advisor firms with few or no-offsetting benefits to retail investors.

Requiring strict compliance with the DOL’s proposed detailed, complex, and
sometimes ambiguous rules creates too much uncertainty and risk. Failure to meet the
requirements of an exemption — even if inadvertent, technical, and resulting in nominal or no
harm to a beneficiary — could have severe consequences for Advisor firms.’ Even absent
material harm to investors, it is all but certain that the plaintiffs’ class action bar will seek to
exploit any technical violation or perceived ambiguity against Advisors trying to operate within

* For example, exchange-traded funds were introduced in 1993, almost twenty years after ERISA’s enactment and could
not have been included in a circa 1974 “legal list.” Since 2005, the US ETF market has grown from $300 million to nearly
$2 trillion AUM, and the number of funds has grown from 204 to 1,411. 2015 Investment Company Fact Book.

71d. at 21.964

* ‘The penalties for engaging in a prohibited transaction under ERISA and the Code include forfeiting compensation and
payment to the IRS of punitive excise taxes.

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We believe that this streamlined BIC standard can be incorporated as representations
into the account opening process on a “notice” basis,? and bind the Advisor and the Advisor

firm at an appropriate stage of the client relationship without the need for a client
signature. A similar notice based approval could be used with respect to existing clients.

To the extent the Department believes the Best Interest Contract exemption requires
more detailed standards, we urge the Department to explicitly import relevant rules and
guidance from other regulators.” For example, with respect to the Best Interest
component, the Department should explicitly permit firms to follow FINRA Regulatory
Notice 13-45 when discussing rollovers from employer plans into IRA account, and should
adopt FINRA’s distinction between “education” and “recommendation.” With respect to
disclosure of material conflicts of interest, the Department should incorporate the
requirements of the SEC’s Form ADV. With respect to fees, we believe the Department
should incorporate FINRA guidance regarding fair pricing and markups (Rule 2121),
charges for services performed (Rule 2122), and best execution (Rule 5310), and SEC Rule
10b-10 with regard to fee disclosures, or fee and compensation disclosures similar to those
under Section 408(b)(2) of ERISA. We believe this approach would reduce costs and
increase efficiency, improve compliance, and result in better outcomes for investors.12

3. The Seller’s Carve-Out for Institutional Accounts Should Be Consistent with FINRA’s
Standards

The Department asked for comments on whether the plan size limitations and $100
million asset requirement are appropriate conditions for the Seller’s carve out for
institutional accounts. We believe an appropriate standard would be to include
“institutional accounts” as defined in FINRA Rule 4512(c) as an additional type of
sophisticated investor in the carve-out. Accordingly, we suggest the Department consider
expanding the seller’s carve-out to include employee benefit plan accounts that are
managed by an independent plan fiduciary who has responsibility for managing at least
$50 million in assets or who is a bank, savings and loan association, insurance company or
a state or SEC registered investment adviser. (See our suggested language in the
Appendix). Including such FINRA institutional accounts in the seller’s carve-out would
better harmonize the Department proposal with current FINRA standards for investor
sophistication, and would be consistent with other Department standards of sophistication,

° As currently proposed, the Best Interest Contract Exemptions requirement that the client sign the contract before the
Advisor makes a recommendation would be unnatural for clients, and unlike any of their other commercial experiences.

10 We recognize the Department may be reluctant directly to incorporate the guidance of other regulators. An approach
to consider would be to incorporate specific guidance in effect on the rule's effective date, to be updated through the
Department's issuance of interpretive bulletins or other notice.

11 See also, Exec. Order No. 13563, Improving Regulation and Regulatory Review (2011) (each agency must “tailor its
regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account,
among other things, and to the extent practicable, the costs of cumulative regulations”). We also believe a streamlined
Best Interest Contract exemption which incorporates and enhances existing regulatory requirements might encourage
Advisor firms voluntarily to extend a best interest standard for advice beyond IRAs.

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sale, purchase, loan or bilateral contract between the plan and person (each a
“transaction”) (or with respect to a proposal to enter into a transaction), if prior to
or in connection with providing the advice with respect to the transaction the
person satisfies the requirements of either paragraph (b)(1)(i)(B) or (C) of this
section.”

We suggest revising the language of Section 2510.3-21(b)(1)(i)(C)(1) of the
Fiduciary Proposal to read as follows:

“(1) Knows or reasonably believes that the independent plan fiduciary (i) has
responsibility for managing at least $50 million in assets, or (ii) is a bank, savings
and loan association, insurance company, or an investment adviser registered
either with the SEC under Section 203 of the Investment Advisers Act or with a state
securities commission (or any agency or office performing like functions) (for
purposes of this paragraph (b)(1)(i)(C), a person may rely on representations from
the independent plan fiduciary regarding the value of assets under management or
its status as a bank, savings and loan association, insurance company, or registered
investment adviser;”

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R. Scott Henderson
Deputy General Counsel

July 21, 2015

e-ORI@dol.gov

Office of Regulations and Interpretations
Employee Benefits Security Administration
Attention: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

122 C Street N.W., Suite 400

Washington, DC 20001

RE: _ Proposed Definition of the Term “Fiduciary”; Conflicts of Interest Rule -
Retirement Advice (RIN 1210-AB32)
Proposed Best Interest Contract Exemption (ZRIN: 1210-ZA25)
Proposed Class Exemption for Principal Transactions in Certain Debt Securities
(ZRIN: 1210-ZA25)
Proposed Amendments to Various Exemptions (ZRIN: 1210-ZA25)

Dear Ladies and Gentleman:

Bank of America! appreciates the opportunity to submit this letter in response to
the Department of Labor’s request for comments on the proposed Definition of the Term
“Fiduciary”; Conflict of Interest Rule - Retirement Investment Advice, and the related
proposed prohibited transaction exemptions and proposed amendments to prohibited
transaction exemptions.? We hope that the Department finds our comments helpful and
constructive.

Bank of America, through its Merrill Lynch Pierce Fenner & Smith Incorporated
subsidiary and its consumer bank, Bank of America, N.A., administers 3.8 million IRA
accounts holding $430 billion for a diverse group of retirement investors. Our clients range

1 Bank of America Corporation is one of the world’s largest financial institutions, serving its clients with a full range of
banking, investing, asset management and other financial and risk management products and services. It is among the
world’s leading wealth management companies. Of particular note for purposes of this letter is that Bank of America
Corporation and/or its affiliates are registered as both broker-dealers and investment advisers.

2 Definition of "Fiduciary"; Conflict of Interest Rule-Retirement Investment Advice; Proposed Rule (Fiduciary Proposal) 80
Fed. Reg. 21, 928, et seq. (proposed Apr. 20, 2015).

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such as the “qualified professional asset manager” (QPAM) definition under Prohibited
Transaction Exemption 84-14 and the “in-house asset manager” (INHAM) definition under
Prohibited Transaction Exemption 96-23. We also ask the Department to clarify the

language of the seller’s carve-out to cover services. (See our suggested changes in of the
Appendix).

FOR AAR RAK AKA
Bank of America appreciates and supports the Department's efforts to produce a
workable and effective best interest standard for personalized investment advice to retail
investors. We believe the current proposal demonstrates substantial progress and reflects
the Department's open communication with interested parties over the last five years. We

hope that we will continue to have opportunities to work with the Department to further
refine and improve this proposal for the benefit of retail investors.

Sincerely,

@/ cade heuderiu—

R. Scott Henderson

ce: John W. Thiel
Andrew M. Sieg

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from small balance savers to ultra high net worth investors, with widely divergent financial
circumstances, retirement goals, and investment strategies. Bank of America seeks to meet
the needs of these investors with an array of IRA services and products, from self-directed
“no advice” brokerage to discretionary investment management, with differing levels of
advice, types of investable assets, and fee arrangements. Bank of America also has one of
the largest institutional retirement businesses in the United States, providing 401(k) plan
administration and related services to more than 34,000 defined contribution plans
covering over 3.7 million plan participants, with close to $200 billion in plan assets. In
addition, through its Global Banking and Global Markets businesses, Bank of America
provides products and services to institutional investors, including pension funds.

Bank of America supports the fundamental objective of the Department’s proposed
rule: to hold Advisors to a “best interest” standard when they provide personalized
investment advice to IRA account holders. While we believe the current draft of the rule
overreaches in several important areas, in one respect it does not go far enough: retail
investors should get the benefit of an enforceable best interest standard whenever they
receive personalized investment advice, whether from broker-dealers or investment
advisers and for all accounts, not just IRAs. Bank of America has long supported a
“harmonized” best interest standard, with consistent rules for all advisers providing
personalized investment advice, to all retail clients, in any account.3

We recognize the limits of the Department's jurisdiction and that seamless
cooperation among regulators is difficult, particularly when they operate under different
statutory regimes. But, the Department, the SEC, FINRA and other regulators must make
their standards and rules as consistent as possible in practice. As noted below, we are
encouraged by recent examples of regulatory consistency in this area. For example,
FINRA’s recent guidance on IRA rollover conversations arises out of a “suitability” standard
but should satisfy the Department's fiduciary best interest standard as well.+ We believe
the Best Interest Contract exemption could provide a framework for the Department to
import existing rules from the SEC, FINRA and other regulators. This approach would
bring efficiency and consistency to the best interest project, and facilitate much faster
implementation of the rule.

As currently drafted, however, the proposed rule has the potential to create an
additional set of requirements that are inconsistent with existing investor protections and

° Letter from R. Scott Henderson, Deputy General Counsel, Bank of America to Elizabeth M. Murphy, Sec.’y, U.S. Sec. and
Exch. Comm'n (Aug. 30, 2010) (addressing comments on File No. 4-606: Study Regarding Obligations of Brokers, Dealers,
and Investment Advisers). We note that the primary “harm” to investors identified by the SEC study was confusion over
different standards attached to advice from broker-dealers and investment advisors. Without close coordination among
regulators, the proliferation of standards would exacerbate investor confusion.

4 FINRA Regulatory Notice 13-45, “Rollovers to Individual Retirement Accounts”, (December 2013). We believe that the
final Rule should acknowledge that FINRA’s guidance on this point contains all the elements required to meet a “best
interest’ standard. Similarly, we support the Department's adoption of FINRA’s guidance on “recommendation,”
including NASD NTM 01-23 and FINRA RNs 12-55, 12-25, and 11-02.

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likely to increase investors’ costs, limit their choices, and cause them greater confusion. We
have three major concerns about the rule in its current form:

° It would eliminate whole categories of investments that many investors want
and need to meet their retirements goals;

° Many of its requirements — notably, in the Best Interest Contract exemption -
would be unworkable in practice, highly burdensome and expensive, and of
little or no benefit to retirement investors; and,

e As a consequence, it would cause Advisor firms to exit the commission
brokerage business, depriving investors of a choice about how to pay for
investment advice, and effectively reducing the availability and increasing
the costs of personalized investment advice.

We believe that the Department can resolve all of these concerns and still meet our shared
objective of promoting and protecting retirement savings through an enforceable best
interest standard.

1. The Rule Should Preserve Investors’ Choices

The BIC Exemption and the Principal Transactions Exemption effectively prohibit
investments in many types of assets that our clients want and need to meet their
investment objectives. The Department states that the assets “needed to build a basic
diversified portfolio” would still be available, including assets that are “relatively
transparent and liquid”.5 But, “basic” portfolios are not sufficient to meet many investors’
retirement goals, especially investors with substantial net worth.

Although we do not agree that only “liquid” assets can be appropriate investments
for retirement, we note that the proposed exemptions would exclude a number of them.
For example, the BIC Exemption’s definition of “Assets” excludes listed equity options,
which trade on highly liquid and transparent markets, and which are important tools to
diversify the risks of concentrated equity portfolios. The Principal Trading Exemption
permits only three types of bonds and excludes assets which typically trade on a principal
basis such as brokered certificates of deposit, preferred shares, and equity and debt new
issues -- all typically transparent and liquid assets, which may have an important role in
some clients’ diversified portfolios.

We recognize these types of investments are not for everyone, but they are right for
some investors. Existing regulatory requirements and internal policies, procedures and
resources are already in place to ensure that these and other complex products are
recommended only to appropriate investors for appropriate purposes; those protections

5 Id. at 21,967

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