July 21, 2015 

VIA Email: e-ORI@dol.gov and e-OED@dol.gov 

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

Re: Definition of the Term “Fiduciary” (RIN 1210-AB32); 

Best Interest Contract Exemption (ZRIN 1210-ZA25)

Ladies and Gentlemen: 

The Public Non-Listed REIT Council (PNLR Council) of the National Association of Real 

Estate Investment Trusts (NAREIT) submits the following comment with respect to the 

Department’s regulatory package redefining fiduciary investment advice. Specifically, we submit 

comments on the proposed regulation (the Proposal)1 redefining the term “fiduciary” with 

respect to investment advice under ERISA §3(21)(A)(ii), and the proposed prohibited transaction 

class exemption “Best Interest Contract Exemption” (the BIC Exemption).2 The PNLR Council 

appreciates the opportunity to comment on these very important regulatory initiatives.

The PNLR Council supports the Department’s goal of ensuring that financial advisors put the 

best interests of retirement plans, plan participants and IRA owners first. We agree that it is 

prudent and reasonable to update the 40 year-old fiduciary advice definition in the current 

regulation, given the significant changes that have occurred in retirement savings since 1975.

However, we have a number of specific concerns about the negative effect the Proposal and the 

BIC Exemption would have on the availability of investments, like Public Non-Listed REITs 

(PNLRs), used by IRA owners and participants to diversify their retirement portfolios. In 

addition to our specific comments below, we want to associate ourselves with, and formally 

endorse, the comment letters filed by the Investment Program Association and the U.S. Chamber 

of Commerce. These letters raise important concerns on this issue and many others that the 

Department should consider during its development of any final rule. 

About PNLRs

PNLRs are public companies whose securities are registered with the SEC, though not listed on a 

stock exchange. PNLRs own, manage and lease investment-grade, income-producing 

commercial real estate in nearly all property sectors. PNLRs are subject to IRS requirements that 

include distributing all of their taxable income to shareholders annually in order to be subject to 

just one level of taxation, and must make regular SEC disclosures, including quarterly and yearly 

 1 80 Fed. Reg. 21,928 (Apr. 20, 2015). 2 Id at 21,960.
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financial reports, which are publicly available through the SEC’s EDGAR database. Interests in a 

PNLR are public offerings, exchanged primarily through broker-dealers registered with and 

regulated by the SEC, the Financial Industry Regulatory Association (“FINRA”), and the 

relevant state securities regulatory authorities. 

PNLRs help build diversified portfolios for retirement plan investors. Typically paying 

meaningful dividends due to the IRS REIT distribution requirements, PNLRs also provide the 

potential for moderate, long-term capital appreciation. As the leases, rents, properties and other 

underlying investments have tended to be responsive to inflation, PNLRs generally offer the 

potential for some protection from inflation risks. Further, PNLRs potentially provide an 

additional source of portfolio diversification because their investment returns reflect the 

performance of income-producing real estate, which typically has been only moderately 

correlated with the returns of other assets over long investment horizons.

As with mutual funds or any other pooled investment, there are a variety of fees charged in 

connection with PNLRs that are reflected in net returns and clearly disclosed in the prospectus, 

which is publicly available from the SEC. These fees will become even more transparent to 

PNLR shareholders when FINRA Regulatory Notice 15-02 comes into effect next year.

Specific Concerns with the Proposal and BIC Exemption

The PNLR Council is concerned that as currently written, the Proposal and the BIC Exemption 

would prevent many IRA owners and plan participants from having access to investments, like 

PNLRs, that can play an important role in diversifying retirement investment portfolios.3 We are 

particularly concerned with the BIC Exemption’s definition of “assets” in Sec. VIII(c)4 of the 

proposed exemption. In this definition, the Department lists only certain types of investments, 

and PNLRs are not on the list. Investments not on the list cannot be the subject of advice 

provided in connection with the exemption. As a result, many advisors would be effectively 

prohibited from being able to discuss PNLRs at all, no matter how much doing so might be in the 

best interests of their clients. 

This inability to discuss PNLRs would be particularly harmful if the advisor provides an 

investment analysis and recommendations for a client’s total portfolio and the client owns shares 

in PNLRs outside of his or her retirement accounts. For example, advisors would be effectively 

unable to advise clients to use such assets inside retirement accounts, preventing them, for 

example, from taking into account tax efficiency in investing. Placing such limitations on the 

information, analysis and recommendations of investment advisers in such circumstances would 

inevitably compromise the ensuing advice and would depart from “best practices” dictating that 

assessments and recommendations be based on comprehensive information about the investors’

 3 The Investment Program Association estimates that nearly half of the PNLRs owned by retail investors are held in

IRAs, although plan participants may hold PNLRs through a brokerage window. 4 80 Fed. Reg. 21,987 (Apr. 20, 2015).
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assets and accounts.”5 Such information limits could also conflict with other regulatory 

requirements applicable to advisers.

6

It is a decidedly odd result that a regulation intended to prevent conflicts that could cause an 

advisor to act against your best interest would actually prohibit an advisor from acting in your 

best interest. Further, the asset definition does not provide any additional conflict protection to 

IRA owners and participants. We believe the Department should not attempt to restrict the type 

of investments about which IRA owners or participants may receive advice, or attempt to restrict 

investments by IRA owners and participants that are otherwise permitted by law.

• The Definition of Assets Should Be Removed from the BIC Exemption 

 

A close review of the Department’s rationale for including the definition of assets, as well as the 

practical effects of the definition in operation, lead us to ask that the Department remove the 

definition from the BIC Exemption entirely. It serves only to limit investment and advice options 

for IRA owners and participants, while offering them no additional benefits.

The Asset Definition Provides No Additional Protection from Advisor Conflicts

The BIC Exemption’s asset definition provides no additional protection against conflicts beyond 

those already provided by the Proposal and the BIC Exemption conduct and compensation 

conditions. Instead, the asset definition simply would limit the types of investments IRA owners 

and plan participants would be advised to make. 

The Proposal would impose a general level-fee requirement on advisors by defining them to be 

fiduciaries for the purposes of the prohibited transaction rules. Under this general rule, advisors 

to plan participants and IRAs could have no financial incentive to recommend one investment 

over another. The BIC Exemption also would prohibit advisors from receiving compensation that 

would affect their advice. While the BIC Exemption would be a limited exception to the 

prohibited transaction rules, it generally would not allow the advisor to receive differential 

compensation.7 According to Section II(d)(4), the advisor could not receive compensation 

incenting him or her to act against the best interest of the IRA owner or participant, and may not

 5 See, e.g., “Questions Advisers Should Ask While Establishing or Reviewing Their Compliance Programs,” SEC,

May 2006, available at https://www.sec.gov/info/cco/adviser_compliance_questions.htm, last accessed July 19, 

2015, (SEC registered investment advisers should “maintain current and complete information regarding each 

client’s financial and family circumstances, investment objectives and restrictions, and risk tolerance..” and this 

information should be the basis for “...provid[ing]clients suitable investment advice.”); FINRA Rule 2090 (Know 

Your Customer) (requiring a broker to seek to obtain and consider all relevant customer-specific information 

when making a recommendation); and FINRA Rule 2111 (Suitability) (requiring brokers to exercise “reasonable 

diligence” to ascertain the customer’s investment profile prior to making a recommendation). 6 See, e.g., 31 U.S.C. §§ 5311-5330 (Bank Secrecy Act), and associated regulations 31 C.F.R. §§ 1023 et seq., and 

FINRA Rule 3310 (Anti-Money Laundering Compliance Program). 7 While the BIC Exemption might permit a rollover to take place despite the fact that the advisor typically receives a 

higher proportional fee in an IRA than in a plan, the differential compensation in such a rollover is due to the 

structural differences in cost between a retail IRA and an institutionally-priced plan.
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receive differential compensation unless it is in connection with a “neutral factor” that presents 

no conflict.8 

Removing the asset definition from the BIC Exemption would not diminish the Department’s 

efforts to reduce conflicts in any way.

The Asset Definition would be Contrary to the Intent of the BIC Exemption, ERISA’s History, 

and the Practical Realities of Retirement Investing

The structure of the asset definition—its narrow application only to specifically identified 

assets—would be exactly contrary to the Department’s stated intentions in crafting the 

exemption. In the Preamble to the BIC Exemption, the Department writes, “Rather than create a 

set of highly prescriptive transaction-specific exemptions...the proposed exemption would 

flexibly accommodate a wide range of current business practices...The Department has [taken] a 

standards-based approach...”9 In other words, the Department’s intent was to permit flexibility 

in the execution of principles that protect participants and IRA owners from conflicted advisors. 

The Asset Definition, by contrast, would apply rigidly with no flexibility—an asset is either on 

the list, or not. Given the significance of the asset definition in limiting the scope of the 

exemption, the change in approach makes a material difference in the application of the 

exemption. 

This list-based approach also contradicts ERISA’s legislative and regulatory history. Plans and 

IRAs are permitted wide latitude under the law to invest in vehicles they deem prudent and 

appropriate—indeed, other than prohibited transaction restrictions that prevent the plan sponsor 

or IRA owner from inappropriately using the plan or IRA to benefit themselves, the few 

prohibitions on investments for plans and IRAs, pertain to certain “collectibles” and special rules 

for precious metals.10 Other than these restrictions, virtually any asset class is permissible as a 

potential investment under ERISA.

The Department historically has rejected investment category limitations, instead focusing on the 

prudent selection and monitoring of such investments. Rather than telling plans what they could 

invest in, the Department instead issued guidance and regulations governing the investment 

decision process. In adopting its regulations governing the prudent investment process, the 

Department wrote that it,“...does not consider it appropriate to include in the regulation any list 

of investments, classes of investments, or investment techniques...no such list could be 

complete; moreover, the Department does not intent to create or suggest a ‘legal list’ of 

investments for plan fiduciaries.”11 The Department should retain this approach in the BIC 

Exemption and rely on the fiduciary process employed by advisors to IRA owners and 

participants to determine which investments should be considered for any individual’s account.

 8 80 Fed. Reg. 21,984 (Apr. 20, 2015). 9 Id. at 21,961 10 See, 26 USC §408(m). 11 44 Fed. Reg. 31,639 (June 1, 1979).
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Finally, as the Department explained in its rejection of a “legal list” of investments in 1979, no 

list could ever be complete. If the Department in any final exemption provides an asset definition 

that includes a specific list, it would be fixed as of that point in time. No new investments would 

be eligible for the BIC exemption absent a separate regulatory approval granted on a case-bycase basis. This would result in a rule and an exemption that would not adapt to an evolving 

marketplace, and an ever-growing number of IRA owners and participants would not be exposed 

to these investment opportunities arising after the adoption of the exemption.

For all of these reasons, we ask the Department to remove the asset definition from any final 

exemption. It would not provide any additional conflict protection to IRA owners and plan 

participants, but it would result in additional costs through reduced access to investment advice. 

In effect, the Department would be substituting its own judgment, on a one-size-fits-all basis, 

regarding which investment categories are appropriate for individual retirement investors, for the 

professional, impartial, and individualized decisions of financial advisors. The universe of 

individual retirement investors encompasses a diverse pool of Americans with a range of 

retirement needs and investment requirements, whose retirement needs are best served by 

considered financial advice. A contrary result disserves the statutory purpose of ERISA, to 

facilitate the retirement savings of all Americans. 

• If the Definition of Assets is Retained, PNLRs Should Be Added to the List

In the Preamble to the BIC Exemption, the Department explained that the asset definition 

included those assets it determined were “commonly purchased”12 by retirement plans and IRAs. 

The Department did not provide much additional insight into how it concluded which 

investments were “commonly” utilized, but suggested the listed assets should contribute to a 

“basic diversified portfolio” with investments that are “relatively transparent and liquid,” but it 

did not require a “ready market price” for inclusion.13 We believe that PNLRs meet these 

criteria, and request that they be added to the asset definition. 

Commonly Purchased

Large numbers of Americans are now invested in PNLRs, including thousands now held in IRA 

accounts. More than $15.6 billion was invested in in PNLRs in 2014,

14and as indicated 

previously the Investment Program Association estimates that roughly half of PNLR investments 

are through IRAs. Investors have invested an additional $8.7 billion to date in 2015.15 While we 

recognize that there may be other retirement plan investments that are more common than 

PNLRs, these numbers demonstrate that they are a common investment for a large number of 

IRA owners.

 12 80 Fed. Reg. 21,968 (Apr. 20, 2015). 13 Id. 14 The Stanger Report TM ( Winter 2015). 15 The Stanger Report TM (

(Summer 2015).
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Contribution to a Basic Diversified Portfolio

As the Department notes, diversification is a basic legal obligation of a prudent investment 

fiduciary, taking into account the role various asset classes play within the portfolio’s investment 

strategy.16 PNLRs can play an important role in basic diversification as they offer access to a 

portfolio of real estate assets that typically are not closely correlated with fixed income or equity 

markets, and that can offer potential inflation protection. The dividends required of PNLRs can 

also offer assistance in meeting cash flow requirements in various investments.

Relatively Transparent and Liquid

PNLRs are transparent public companies registered with the SEC and providing annual and 

quarterly reporting. In public offerings, PNLRs provide a prospectus describing the fees, risks, 

investment strategies and other material information for advisors and investors to make informed 

decisions. While they are not traded on an exchange, and thus do not have a daily market price, 

PNLRs are not illiquid—the terms and conditions under which distributions are made are clearly 

disclosed, as are any redemption fees or other charges. We note that other investments on the 

“approved” asset list are not traded on an exchange and have redemption fees or other 

restrictions applicable to investments—these features apparently do not disqualify an investment 

from inclusion as an eligible asset.

• The Existing Arrangement or “Grandfather” Clause in the BIC Exemption Is Too 

Limited and Does Not Apply to Assets Not Covered by the Exemption, Including 

PNLRs. The Effective Date of the General Rule Should Be Amended to Apply 

Prospectively to New or Renewed Advice Arrangements, Leaving Existing 

Arrangements in Place Until Their Normal Expiration. 

The Department suggests that the new fiduciary definition and its associated exemptions would 

take effect eight months following the publication of the final rule in the Federal 

Register. Without a transition rule, this would result in tens of millions of existing advice 

arrangements having to be fundamentally reformed on a single day. Unfortunately, the only 

transition rule provided by the Department is in Section VII(b)(3) of the BIC Exemption, which 

would permit only certain eligible existing arrangements to continue, and only up to the point 

that additional advice would be provided after the effective date. If additional advice would be 

provided, the existing arrangement would have to be modified. This approach to the effective 

date is fundamentally flawed.

First, PNLRs and other investments not on the “legal list” of assets set forth in the BIC 

Exemption would be ineligible for even this limited transition rule. There is no logical rationale 

for a transition rule that discriminates among various asset categories, all of which were lawful 

prior to the effective date. Such a rule would result in the anomalous outcome that even within 

the same account, certain assets would be allowed to remain under the prior arrangement (at least 

until additional advice is provided) while other assets would immediately force account holders 

to negotiate a different advice arrangement. This is another example of why the asset limitations 

 16 See ERISA §404(a)(1)(C) and 29 CFR §2550.404a-1(b).
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under the BIC Exemption should be removed—they affect the entire structure of the exemption 

in ways unrelated to the goal of preventing conflicted advice to account holders.

Additional deleterious collateral consequences would follow from this limited transition 

rule. Permitting existing arrangements to stand only until such point that additional advice is 

provided would deny IRA owners and participants the benefit of the original bargain they made 

for advisory services, and create obvious disincentives to advisers to provide further 

advice. Many IRA owners have paid an up-front fee for advice to be provided in the 

future. Compelling the dissolution of such arrangements would deny account holders the benefit 

of the advice they have already paid for, and force the reformation of previously lawful contracts 

under then prevailing market conditions (favorable or otherwise). We question whether the 

Department has the legal authority to force two private parties who entered into a valid and legal 

contract for services to dissolve the contract to the detriment of the IRA owner or participant.

Accordingly, we ask the Department to adopt the following clear and straightforward 

“grandfather rule” applicable to all account assets acquired prior to the effective date of any final 

rule. With respect to new advice arrangements entered into on or after the effective date, the 

new regulatory standards would apply. With respect to existing advice arrangements entered 

into prior to the effective date —including assets acquired pursuant to such previous 

arrangements—the previous regulatory standards governing these arrangements would remain in 

effect, unless or until, they would be terminated or renewed by the parties. To do otherwise 

would violate common sense principles of due process respecting the rights of private parties to 

make and keep contracts legally entered into.

We further request that this effective date language be included in the general rule, not in the 

BIC Exemption. The asset definition in the BIC Exemption is linked to the “grandfather” clause, 

giving rise to the anomalous result that the same account could include assets that are 

“grandfathered” and assets that are not, further illustrating the unworkability of the BIC 

Exemption asset list.

In proposing the grandfather rule above, we acknowledge the difficulties posed in attempting to 

devise a fair BIC Exemption transition rule applicable to existing account assets acquired 

pursuant previous lawful arrangements. We respectfully submit that this, too, points to the 

impracticability of any rule prescribing “legal assets” in this manner and furthers supports our 

earlier arguments that this asset list should be eliminated altogether.

• Conclusion

We believe IRA owners and plan participants would be best served by removing the asset 

definition in the BIC Exemption. This would ensure they get individualized advice from 

financial advisors to determine what is in their individual best interests, rather than having the 

Department make that decision for IRA owners and plan participants. If the Department decides 

to retain the asset definition, we urge the Department to add PNLRs to that list.
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The PNLR Council looks forward to working with the Department as it continues its efforts on 

this important regulatory project. We would be pleased to answer any questions the Department 

may have regarding PNLRs or REITs generally.

We appreciate your consideration of our comments, and please feel free to contact me if you 

would like to discuss our positions in greater detail.

Respectfully submitted,

Executive Committee

NAREIT PNLR Council

CHAIR:

Daniel L. Goodwin

Chairman and CEO, The Inland Real Estate Group, Inc.

 Robert S. Aisner

CEO, Behringer

William M. Kahane

Managing Member, AR Capital, LLC

Charles J. Schreiber

CEO, KBS Realty Advisors

Sherri W. Schugart

Senior Managing Director/CEO, 

Hines Interests Limited Partnership

Kevin A. Shields

CEO, Griffin Capital Corporation

Thomas K. Sittema

CEO, CNL Financial Group