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July 21, 2015

Employee Benefits Security Administration

Office of Regulations and Interpretations

Office of Exemption Determinations

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Regulatory Definition of the Term “Fiduciary” as it Relates to Investment Advice; Conflict of 

Interest Proposal (RIN 1210-AB32); Proposed Best Interest Contract Exemption; Proposed 

Class Exemption for Principal Transactions in Certain Debt Securities Between Investment 

Advice Fiduciaries and Employee Benefit Plans and IRAs; Proposed Amendment to 

Prohibited Transaction Exemption (PTE) 75-1, Part V, Exemptions From Prohibitions 

Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Certain 

Broker-Dealers, Reporting Dealers and Banks; Proposed Amendment to and Proposed 

Partial Revocation of Prohibited Transaction Exemption (PTE) 86-128 for Securities 

Transactions Involving Employee Benefit Plans and Broker-Dealers; Proposed Amendment 

to and Proposed Partial Revocation of PTE 75-1, Exemptions From Prohibitions Respecting 

Certain Classes of Transactions Involving Employee Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks; Proposed Amendments to Class Exemptions 75-1, 

77-4, 80-83 and 83-1; Proposed Amendment to and Proposed Partial Revocation of 

Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance 

Agents and Brokers, Pension Consultants, Insurance Companies and Investment Company 

Principal Underwriters (RIN 1210-ZA25)

To Whom It May Concern:

On April 20, 2015, the Department of Labor (Department) published its notice of 

proposed rulemaking regarding the definition of the term “fiduciary” of an employee benefit 

plan1 and related proposed prohibited transaction exemptions2 (Proposal). The Department 

proposes to revise the definition of “fiduciary” investment advice provided to a plan subject to 

the Employee Retirement Income Security Act of 1974 (ERISA) or its participants or beneficiaries. 

 

1 Definition of the Term "Fiduciary," 80 Fed. Reg. 21,928 (Apr. 20, 2015). 2 Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21,960 (Apr. 20, 2015); Proposed Class Exemption for 

Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and Employee Benefit 

Plans and IRAs, 80 Fed. Reg. 21,989 (Apr. 20, 2015); Proposed Amendment to Prohibited Transaction 

Exemption (PTE) 75-1, Part V, 80 Fed. Reg. 22,004 (Apr. 20, 2015); Proposed Amendment to and Proposed 

Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24, 80 Fed. Reg. 22,010 (Apr. 20, 2015); 

Proposed Amendments to and Proposed Partial Revocation of PTEs 86-128 and 75-1, 80 Fed. Reg. 22,021 

(Apr. 20, 2015); Proposed Amendments to Class Exemptions 75-1, 77-4, 80-83 and 83-1, 80 Fed. Reg. 22,035 

(Apr. 20, 2015).
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The Proposal also applies to the definition of a “fiduciary” of a plan or Individual Retirement 

Account (IRA) under section 4975 of the Internal Revenue Code of 1986 (Code).

Under the Proposal, an individual who provides investment advice or recommendations to 

an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner 

would be treated as a fiduciary in a wider array of advice relationships than under current 

requirements. This expansive definition will mean that more independent financial advisors will 

be subject to ERISA fiduciary standards and liabilities. 

The Financial Services Institute3 (FSI) appreciates the opportunity to comment on this 

important proposal. We support a carefully-crafted, uniform fiduciary standard of care that 

would be applicable to all professionals providing personalized investment advice to retail 

clients. However, the current Proposal is based on flawed assumptions and creates a new 

regulatory regime that is too complex, too cumbersome, and far too costly to manage. We are 

concerned that the Proposal will make it significantly harder for consumers to receive highquality, personalized retirement advice. We are especially concerned that advice for clients with 

small account balances will become cost-prohibitive if the proposal goes forward as written, thus 

decreasing investor access to retirement advice from a trusted advisor.

While we cannot support the Proposal as currently written, our goal is to constructively 

engage with the Department, and help ensure that the Proposal does not detrimentally impact 

access to retirement advice. We are committed to developing an alternate approach that 

reflects the investor protection goals that guide the Department in this effort, and guides our 

industry and the various federal and state regulatory entities that supervise our industry, as a 

result, our comments address various concerns with the Proposal, and offer alternatives that will 

serve to further protect investors by expanding upon the already robust broker-dealer 

regulatory regime.

Background on FSI Members

The independent financial services community has been an important and active part of 

the lives of American investors for more than 40 years. In the U.S., there are approximately 

167,000 independent financial advisors, which account for approximately 64.5% percent of all 

producing registered representatives. These financial advisors are self-employed independent 

contractors, rather than employees of Independent Broker-Dealers. 

FSI member firms provide business support to financial advisors in addition to supervising 

their business practices and arranging for the execution and clearing of customer transactions. 

Independent financial advisors are small-business owners who typically have strong ties to their 

communities and know their clients personally. These financial advisors provide comprehensive 

and affordable financial services that help millions of individuals, families, small businesses, 

associations, organizations and retirement plans with financial education, planning, 

implementation, and investment monitoring. Due to their unique business model, FSI member firms 

and their affiliated financial advisors are especially well positioned to provide middle-class 

 

3 The Financial Services Institute (FSI) is an advocacy association comprised of members from the independent 

financial services industry, and is the only organization advocating solely on behalf of independent financial 

advisors and independent financial services firms. Since 2004, through advocacy, education and public 

awareness, FSI has been working to create a healthier regulatory environment for these members so they can 

provide affordable, objective financial advice to hard-working Main Street Americans.
Employee Benefits Security Administration

July 21, 2015

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Americans with the financial advice, products, and services necessary to achieve their investment 

goals. 

I. Executive Summary of FSI’s Comments 

FSI stands ready and willing to work with the Department and others toward achieving the 

goal of enhancing investor protection while ensuring access by all to affordable retirement 

advice, products, and services. FSI offers the following executive summary of the comments and 

issues raised in this comment letter: 

• Public Policy Context and Adverse Impacts of Department’s Proposal 

o FSI Supports a Uniform Fiduciary Standard: Since 2009, FSI has supported a 

uniform fiduciary standard of care applicable to all professionals providing 

personalized investment advice to retail clients. Consistent with the 

Department’s intent, this standard of care would require financial advisors to 

act in the best interest of their clients. 

o Barrier to Uniform Fiduciary Standard: The Proposal would be a barrier to a 

uniform fiduciary standard of care that could apply to all investment advice 

professionals for all retail accounts.

o Adds Regulatory Complexity: The Proposal will add complexity to an already 

complicated regulatory environment for broker-dealers, investment advisers, 

financial advisors, and investors. It overlays the existing regime with an 

intricate regulatory framework that will raise new barriers to the availability 

of professional investment services for millions of Americans. 

o Exponential Increase in Number of Standards: The Proposal would require 

investors to transition from understanding two standards of care to 

understanding six different standards of care. 

o Reduces Access: The Proposal would reduce access to retirement advice and 

services for low and middle-income investors by favoring passive investment 

"robo-advice" over professional and personalized investment guidance. The 

Proposal would also establish road blocks that prevent or deter financial 

advisors from offering their services to small businesses seeking to create 

retirement accounts for their employees.

o U.K. RDR: The United Kingdom’s experience with Retail Distribution Review 

foreshadows the negative impact that the Proposal will have on small accounts 

in the U.S. 

• Carve-Outs from the Definition of Fiduciary Investment Advice Need Expansion

o Counterparty Carve-Out: The Counterparty Carve-out should be expanded to 

cover advice paid for through plan assets, and should cover plans of any size. 

All plan fiduciaries are required to have or obtain the type of financial 

expertise that the Department uses to justify the “large-plan” carve out. 
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o Education Carve-Out: The Education Carve-out must preserve investor access to 

meaningful investment education. The Proposal’s changes precluding 

identification of specific investment alternatives will deny investors access to 

helpful information that greatly benefits their investing experience. 

o Platform Carve-Outs: The Platform Provider/Selection and Monitoring 

Assistance Carve-outs should be expanded to cover IRA platforms. IRA owners 

are fully capable of understanding that a provider’s standardized IRA 

platform is not individualized to the needs of the IRA owner. 

• The Department’s Regulatory Impact Analysis is Incomplete

o Speculative Data: The Department’s Regulatory Impact Analysis contains data 

that is speculative, difficult to measure and far afield of solid empirical data 

gathered by independent experts. 

o Unaccounted Costs: The analysis fails to take into account the costs to retirement 

savers who would not be in the system without access to financial advice and 

are well served by advisors who work with them on a commission basis.

o Underestimates Compliance Costs: The compliance costs outlined in the analysis 

are significantly understated. Based on FSI research, the costs will be several 

multiples higher than the Department’s estimates.

• Best Interest Contract Exemption (BICE) Requires Significant Changes to Ensure Investors 

Have Access to Personalized Retirement Advice

o Written Contract Requirement: The BICE written contract requirement is 

inconsistent with customary practices in the financial services industry and 

reasonable investor expectations. FSI encourages the Department to reconsider 

the BICE pre-advice, pre-transaction contract requirement.

o Private Right of Action: The creation of a new private right of action appears 

to be beyond the scope of the Department’s delegated authority. The BICE 

private right of action displaces SEC and FINRA authority over industry 

enforcement and investor disputes.

o Definition of Asset: The BICE definition of “Asset” hinders best interest advice 

by impeding diversification in retirement accounts and exposing investors to 

greater risk. FSI proposes a broader definition of “Asset” to ensure financial 

advisors can recommend the best investments for a client’s specific needs.

o IRA Rollovers: The unclear application of the many BICE requirements to IRA 

rollover advice creates uncertainty that will jeopardize retirement savings. FSI 

urges the Department to clearly state that rollover advice is eligible for 

protection under BICE, requiring advisors to meet a best interest standard.
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o Levelized Compensation: The BICE restrictions on compensation are duplicative 

and do not serve investor interests. Levelized fee arrangements would make 

access to financial advice cost-prohibitive for small investors.

o Compliance Costs: The BICE exposes financial institutions to a myriad of 

compliance costs and added liability risks that render the exemption unusable 

in its current form.

o Operational Difficulties: The BICE disclosure requirements will require access to 

third-party information and massive overhauls of administrative systems 

thereby increasing costs substantially.

o Grandfathering Provision: The BICE grandfathering provision is ineffective and 

should be expanded to account for customary client maintenance procedures.

• The Proposal’s Prohibited Transaction Class Exemption for Debt Securities Transactions 

Effected on a Principal Basis is Inadequate

o Riskless Principal Trades: Riskless principal trades are the functional equivalent 

of agency transactions and should be excluded from the PTE.

o Operational Difficulties: The separate contract requirements, confirmation markup disclosure requirements and pricing requirements are all costly and very 

challenging to implement.

o Investor Confusion: The multiple disclosures will not provide sufficient context 

and education to be useful for investors.

• The Proposal’s Prohibited Transaction Class Exemption 84-24 Will Reduce Access

o Restricts Access: The amendments to PTE 84-24 will require many firms to 

discontinue relationships that have traditionally relied on the protections of PTE 

84-24, thereby reducing access to professional advice.

o Lack of Clarity: Uncertainty regarding the definition of “insurance commission” 

clouds the compliance landscape and exposes the industry to liability risks 

many financial advisors will be unwilling or unable to assume.

• Proposal Requires Longer Implementation Period

o Applicability Date: Our members will need, at minimum, 36 months to put the 

Proposal into place, assuming that the Department eliminates many of the BICE 

disclosures, adopts a conventional grandfathering rule, and that many of the 

existing prohibited transaction class exemptions are preserved in current form. 

If the Department does not make these changes to BICE, our members require 

additional time to achieve compliance.
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• FSI Proposes a Workable Alternative Standard 

o Uniform Fiduciary Standard: We support a fiduciary standard of care that can 

be adopted uniformly across all types of investment accounts and can apply to 

all investment professionals.

o Compensation Governance: We support requiring policies and procedures 

reasonably designed to manage material conflicts of interest.

o Robust Disclosures: We suggest a comprehensive two-tiered disclosure regime, 

supplemented by a point-of-sale disclosure and an annual disclosure.

o Interagency Coordination: The alternative should be produced through 

coordination between the Department, SEC, FINRA and state securities 

regulators.

We look forward to working collaboratively with the Department during this regulatory 

process to refine the Proposal’s conditions and requirements and ensure access to retirement 

advice, products, and services for all investors. Now more than ever, individual investors need to 

have confidence in the reliability of the investment advice they receive. 

II. History of FSI Support of a Uniform Fiduciary Standard

Since 2009, FSI has publicly supported a carefully-crafted, uniform fiduciary standard of 

care applicable to all professionals providing personalized investment advice to retail clients.4

This standard of care would require financial advisors to act in the best interest of their clients, 

consistent with the Department’s intent. While broker-dealers are already subject to a robust 

regulatory and enforcement regime designed to protect investors, we recognize that the differing 

standards of care between broker-dealers and registered investment advisers may lead to 

unnecessary client confusion. As such, FSI supports the creation of a uniform fiduciary standard of 

care that would be applicable to all financial advisors and all asset classes. FSI is uniquely 

situated to provide input on such a standard because our members are dually-registered firms 

that provide both brokerage and advisory services to middle class Americans. 

Part XI of this comment letter outlines the specific contours of our suggested uniform 

fiduciary standard for professionals providing personalized investment advice to retail clients. The 

standard of care we support is designed to address the same investor protection goals motivating 

the Department, but goes a step further by making this the standard for advice for all financial 

advisors regarding all investment products, not just tax deferred retirement savings. Therefore, 

we encourage the Department to work with the Securities and Exchange Commission (SEC) and the 

Financial Industry Regulatory Authority (FINRA) on developing this standard jointly and in a 

unified manner. 

 

4 See, e.g., Letter from David T. Bellaire, Executive Vice President & General Counsel, Financial Services Institute, to 

Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange Commission (Jul. 5, 2013) (commenting on Duties of 

Brokers, Dealers, and Investment Advisors, Release No. 34-69013; IA-3558; File No. 4-606), available at 

https://www.sec.gov/comments/4-606/4606-3138.pdf.
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Furthermore, our suggested approach is designed to reflect the Congressional intent 

expressed in section 913 of the Dodd-Frank Act.5 Section 913 granted the SEC the authority to 

evaluate the effectiveness of existing standards of care and promulgate a uniform standard of 

care for broker-dealers and investment advisers.6 The SEC was specifically charged with 

evaluating how the current standards of care affect the ability of financial advisors to provide 

personalized investment advice about securities to retail customers, and identify any places for 

improvement in these standards.7 Congress expressly stated that any such uniform standard 

should be reflective of the varied business models and regulatory regimes imposed on each of 

these entities.8 Our members strongly believe that any rulemaking by the Department prior to 

SEC rulemaking would contradict Congressional intent and lead to inconsistent standards, creating 

unnecessary compliance burdens for advisors and increasing costs for investors.

III. Understanding the Public Policy Context of the Department’s Proposal

A. Regulation under ERISA has always recognized the role of broker-dealers and 

sought to fit them into the regulatory structure.

Independent broker-dealers and independent financial advisors have offered 

comprehensive financial planning services and objective, affordable investment advice to millions 

of individuals, families and businesses large and small for decades.

As explained in detail in our February 3, 2011 letter to the Department on the October 

2010 proposal to amend the rule defining a fiduciary under ERISA,9 since 1974, the Department 

has made a consistent and considered effort to fit the activities of independent broker-dealers 

into the regulatory structure of ERISA. For retirement plans, these activities primarily relate to: (i) 

sales of packaged products such as mutual funds and variable annuities, and (ii) the provision of 

investment advisory or management services, either as Registered Investment Advisers (RIAs) or as 

solicitors.10 Broker-dealers may also assist ERISA plans and IRAs with transactions in individual 

securities, and with their selection of retirement platforms and other investment-related services.

Furthermore, they often provide a number of services ancillary to these principal activities – for 

example cash management sweep services, or settlement accommodations in the event purchase 

and sale transactions do not clear on the same schedule. However, because independent brokerdealers are most fundamentally commission-based securities firms compensated on a commission 

basis, regulatory solutions have been necessary for broker-dealers to continue to provide their 

essential services to ERISA plans and IRAs. The regulatory structure carefully constructed by the 

Department over the last 41 years makes provision for the many instances in which financial 

services firms limit their activities to non-fiduciary services (e.g., the exemptions in PTE 75-1 for 

 

5 Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank Act), Pub. L. 111-203, 124 Stat. 

1376 (2010). 6 See Dodd–Frank Act § 913(b), (g). 7 See Dodd–Frank Act § 913(c). 8 See Dodd–Frank Act § 913(f) (requiring consideration in rulemaking of findings, conclusions, and 

recommendations of the study required by Dodd–Frank Act § 913(b)); see also Letter from Congressman Barney 

Frank, U.S. House of Representatives, to Mary L. Shapiro, Chairman, U.S. Securities and Exchange Commission 

(May 31, 2011), available at

http://www.thinkadvisor.com/advisorone/files/ckeditor/Barney%20Frank%20Letter.pdf. 9 Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat. 829, as amended. 10 See Letter from Dale E. Brown, President and Chief Executive Officer, Financial Services Institute, to Employee 

Benefits Security Administration at 8–9 (Feb. 3, 2011) (commenting on the Department’s 2010 proposed 

definition of the term “fiduciary”), available at http://www.dol.gov/ebsa/pdf/1210-AB32-172.pdf.
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principal and agency transactions) and the more limited instances in which financial services firms 

take on the function of investment advice fiduciary (e.g., PTE 84-24 and PTE 86-128).

The Department has devoted significant resources to building a regulatory structure that 

makes it possible for broker-dealers to continue to provide their services to plans and their 

participants. The investment services provided by broker-dealers are in many cases exclusively 

provided by these entities, as a matter of federal and state law, and integral to the purposes of 

ERISA plans. The requirements of this regulatory structure turn in many instances on whether the 

broker-dealer is acting as an investment advice fiduciary for the plan. As such, a distinction 

between non-fiduciary and fiduciary activity has been, and still is sensible both in the 

marketplace and at law.11 Whatever its perceived faults, the current five-part test for investment 

advice fiduciaries12 provides a means for plans and broker-dealers to arrange their relationship, 

as fiduciary or non-fiduciary, with substantial confidence.

The Proposal would sweep aside four decades of carefully developed regulation that, by 

the Department’s own assessment, has worked well. As the Department observes at several points 

in the Proposal, retail retirement investors generally have been well served by retirement 

advisors.13 Our members work hard on behalf of their clients to see that is so. In instances where 

retail retirement investors have been aggrieved, they have effective recourse under existing law 

that is not limited to litigation under ERISA. For example, our research shows that during the fiveyear period of 2010 to 2014, there were at least 51 FINRA arbitrations relating to IRAs (and 

another 18 dealing with qualified plans)—attesting to both the high level of success of the 

existing regulatory structure and the availability of remedies in the limited cases when “bad 

actors” fail to properly serve retirement investors.14 The problem the Department intends to solve 

through the Proposal thus remains unclear.

B. The Proposal will add complexity to an already complicated regulatory 

environment for broker-dealers, investment advisers, financial advisors, and 

investors.

Independent broker-dealers and independent financial advisors are subject to 

comprehensive regulation and legal obligations under federal and state securities laws, rules, and 

regulations. The SEC regulates broker-dealers through its antifraud authority in the Securities Act 

of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act), and certain 

Exchange Act rules.15 Under these rules, broker-dealers are required to deal fairly with their 

customers. Although broker-dealers are generally not subject to a fiduciary duty under the 

 

11 See, e.g., Farm King Supply, Inc. Integrated Profit Sharing Plan and Trust v. Edward D. Jones & Co., 884 F.2d 288, 

291–94 (7th Cir. 1989); Olson v. E.F. Hutton & Co., 957 F.2d 622, 626 (8th Cir. 1992); Ellis v. Rycenga Homes, 

Inc., 484 F. Supp. 2d 694, 703–06 (W.D. Mich. 2007); Blevins Screw Prods., Inc. v. Prudential Bach Sec., Inc., 835 

F. Supp. 984, 985–87 (W.D. Mich. 1993). 12 29 C.F.R. § 2510.3-21(c). 13 See, e.g., See Definition of the Term "Fiduciary," 80 Fed. Reg. 21,928, 21,935 (Apr. 20, 2015); DEPARTMENT OF 

LABOR, FIDUCIARY INVESTMENT ADVICE: REGULATORY IMPACT ANALYSIS at 4 (Apr. 14, 2015), available at

http://www.dol.gov/ebsa/pdf/conflictsofinterestria.pdf. 14 See FINANCIAL SERVICES INSTITUTE & BRIGGS AND MORGAN, PA, THE EFFICACY OF SECURITIES ARBITRATION AND PROPOSALS 

FOR CHANGE, (April 2010), available at

https://www.financialservices.org/uploadedFiles/FSI_Content/Advocacy_Action_Center/Resources_and_Refere

nce/White_Papers/fsi_white_paper_april2010_final.pdf. 15 U.S. SECURITIES AND EXCHANGE COMMISSION, STUDY ON INVESTMENT ADVISERS AND BROKER–DEALERS at iii (Jan. 2011), 

available at https://www.sec.gov/news/studies/2011/913studyfinal.pdf.
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federal securities laws, courts have found broker-dealers to have a fiduciary duty in certain 

circumstances.16

As independent broker-dealers and financial advisors, our members are also subject to 

self-regulatory organization (SRO) rules, oversight, and frequent examinations.17 A broker-dealer 

may transact business only after it satisfies the membership requirements of an SRO, which is 

typically the Financial Industry Regulatory Authority, Inc. (FINRA) for registered broker-dealers 

interacting with the public.18 SRO rules require broker-dealers to commit to observe just and 

equitable principles of trade and high standards of commercial honor.19 Contrary to the 

Department’s assertions in the Proposal,20 a broker-dealer’s obligation to meet minimum business 

conduct requirements under SRO rules cannot be satisfied through disclosure, and cannot be 

waived by a customer.21 In addition, broker-dealers are obligated to disclose certain material 

conflicts of interest to their customers, and federal securities laws and FINRA rules strictly prohibit 

broker-dealers from participating in certain transactions that may present acute potential conflicts 

of interest.22 Both the SEC and FINRA diligently pursue compliance through timely examination 

and vigorous enforcements.23

The Department now seeks to overlay this regime with a complex regulatory framework 

that will raise new regulatory barriers to the availability of professional investment services for 

millions of Americans. The Proposal would require investors to transition from understanding two 

standards of care to understanding six iterations, some of which will apply only to assets invested 

through qualified retirement plans and IRAs. Even prior to the Department’s Proposal, a 2008 

RAND study found that the roles of broker-dealers and investment advisers are confusing to most 

investors due to this regulatory system.24 The chart below contrasts the distinct regulatory regime 

currently applicable to broker-dealers with the complexity of the regulatory scheme proposed by 

the Department:

 

16 See, e.g., Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209 (2d Cir. 1987) (holding broker–dealer was fiduciary 

due to role as plan investment manager). 17 See U.S. SECURITIES AND EXCHANGE COMMISSION, GUIDE TO BROKER–DEALER REGISTRATION (Apr. 2008) 

http://www.sec.gov/divisions/marketreg/bdguide.htm; U.S. Securities and Exchange Commission, Study on 

Investment Advisers and Broker–Dealers (Jan. 2011), available at 

https://www.sec.gov/news/studies/2011/913studyfinal.pdf. 18 U.S. SECURITIES AND EXCHANGE COMMISSION, STUDY ON INVESTMENT ADVISERS AND BROKER–DEALERS 14 (Jan. 2011), 

available at https://www.sec.gov/news/studies/2011/913studyfinal.pdf. 19 See U.S. SECURITIES AND EXCHANGE COMMISSION, STUDY ON INVESTMENT ADVISERS AND BROKER–DEALERS at iii (Jan. 

2011), available at https://www.sec.gov/news/studies/2011/913studyfinal.pdf. 20 See Definition of the Term "Fiduciary," 80 Fed. Reg. 21,928, 21,941 (Apr. 20, 2015). 21 See Securities Exchange Act of 1934 [Exchange Act] § 29. 22 See, e.g. FINRA Rule 5121(a), (f)(5). 23 In fiscal year 2014, the SEC reported a record 755 enforcement actions (up from 686 in 2013), with orders 

totaling $4.16 billion in disgorgement and penalties. U.S. Securities and Exchange Commission, SEC’s FY 2014 

Enforcement Actions Span Securities Industry and Include First-Ever Cases (Oct. 16, 2014), 

http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370543184660. 24 See ANGELA A. HUNG ET AL., RAND INSTITUTE FOR SOCIAL JUSTICE, INVESTOR AND INDUSTRY PERSPECTIVES ON INVESTMENT 

ADVISERS AND BROKER-DEALERS 112–13, 117–18 (2008).
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Before the Department’s Reproposal

RIA Broker/Dealer

2 Iterations of 

Standard of Care

Retirement and Non-Retirement 

Assets:

Duty of Care

'40 Act25 fiduciary 

(avoidance/ disclosure of 

potential conflicts)26

Just and Equitable (J&E) 

Principles/ Suitability

After the Department’s Reproposal 

RIA Broker/Dealer

6 Iterations of 

Standard of Care

Non-Retirement 

Assets: Duty of Care

Retirement Assets: 

Duty of Care

(Financial Advisor is 

“conflicted”)

'40 Act fiduciary

(avoidance/ disclosure of 

potential conflicts)

'40 Act fiduciary

(avoidance/ disclosure of 

potential conflicts)

+

J & E/Suitability

J & E/Suitability

+

ERISA fiduciary (prudence, 

care loyalty – for ERISA 

plans)

+

After the Department’s Reproposal 

RIA Broker/Dealer

ERISA fiduciary (prudence, 

care, loyalty – for ERISA 

plans)

+

BICE Requirements (Best 

Interest standard – for 

small ERISA plans and IRAs)

BICE Requirements

(Best Interest standard –

for small ERISA plans and 

IRAs)

Retirement Assets:

Duty of Care

(Financial Advisor is 

“unconflicted”)

'40 Act fiduciary 

+

ERISA fiduciary (prudence, 

care, loyalty - for ERISA 

plans)

J & E/Suitability

+

ERISA fiduciary (prudence, 

care, loyalty - for ERISA 

plans)

In addition to adding to the complexity of the current regulatory environment, the Proposal is 

further troubling due to its ambiguity. The new Best Interest standard in the BICE is one such 

example. The exemption first introduces the Best Interest standard with the following language in 

the BICE section II(c)(1): 

When providing investment advice to the Retirement Investor 

regarding the Asset, the Adviser and Financial Institution will provide 

investment advice that is in the Best Interest of the Retirement Investor (i.e., 

advice that reflects the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent person would exercise based 

 

25 Investment Company Act of 1940 (1940 Act). 26 While the current RIA compliance regime mandates the avoidance and disclosure of conflicts, FSI members 

understand that disclosure alone may be insufficient for addressing potential conflicts of interest. Furthermore, 

ERISA’s fiduciary duty provisions apply to discretionary retirement plan accounts or when an RIA serves as an 

ERISA investment advice fiduciary pursuant to an agreement.
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on the investment objectives, risk tolerance, financial circumstances, and 

needs of the Retirement Investor, without regard to the financial or other 

interests of the Adviser, Financial Institution or any Affiliate, Related Entity, 

or other party).27

This formulation, which appears to have been drafted specifically for the Proposal, has caused 

considerable confusion, to which the preambles for the revised definition and the exemptions have 

contributed. For example, the BICE preamble variously states:

• “The best interest standard set forth in this exemption is based on longstanding

concepts derived from ERISA and the law of trusts.”28

• “The best interest standard is defined to effectively mirror the ERISA section 

404 duties of prudence and loyalty, as applied in the context of fiduciary 

investment advice.”29

• “Under this standard, the Adviser and Financial Institution must put the interests 

of the Retirement Investor ahead of the financial interests of the Adviser, Financial 

Institution or their Affiliates, Related Entities or any other party.”30

It is thus unclear whether the Best Interest standard is identical to section 404(a)(1)(A) and 

(B) of ERISA, or instead is “based on” but varies from the statutory standard in some unspecified 

respect. It is also unclear whether the Best Interest standard permits the retirement advisor to have 

a conflicted interest so long as it is subordinated to the retirement investor’s interest, which section 

404(a) and the preamble language would permit, or disallows any such interest.

C. The Proposal is a barrier to a uniform fiduciary standard of care.

The creation of a competing and distinctly different fiduciary duty for retirement and nonretirement accounts will serve only to exacerbate the existing lack of consistency in our regulatory 

system. Instead of increasing investor protection, the Proposal will foster investor confusion about 

professional standards. As recently noted by FINRA’s Chairman and Chief Executive Officer, an 

effective regulatory environment would apply a consistent best interest standard across, at least, 

all securities investments, and have the examination and enforcement mechanisms to oversee 

compliance with the standard.31

As previously stated, FSI has long supported a uniform standard of care applicable to all 

professionals providing personalized investment advice to retail clients. Uniformity is an important 

goal, as it will remove ambiguity by ensuring that investors receive the same protections no matter 

whom they choose as their financial advisor. In pursuit of that standard, FSI has provided 

comments to the SEC in response to the study mandated under the Dodd-Frank Act and a request 

for information regarding the standard of care of broker-dealers and investment advisers.32

 

27 Proposed Best Interest Contract Exception, 80 Fed. Reg. 21,960, 21,984 (Apr. 20, 2015) (emphasis added). 28 Proposed Best Interest Contract Exception, 80 Fed. Reg. 21,960, 21,970 (Apr. 20, 2015). 29 Proposed Best Interest Contract Exception, 80 Fed. Reg. 21,960, 21,970 (Apr. 20, 2015). 30 Proposed Best Interest Contract Exception, 80 Fed. Reg. 21,960, 21,970 (Apr. 20, 2015) (emphasis added). 31 Remarks by Richard G. Ketchum, Chairman and Chief Executive Officer, FINRA, May 27, 2015, Washington, D.C. 32 See Letter from Dale E. Brown, President and Chief Executive Officer, Financial Services Institute, to Elizabeth M. 

Murphy, Secretary, U.S. Securities and Exchange Commission (Aug. 30, 2010), available at 

http://www.sec.gov/comments/4-606/4606-2687.pdf.
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FSI’s alternative approach to a uniform fiduciary standard represents a more feasible 

option for achieving the Department’s goals. Given the concerns addressed above, as well as our 

more detailed concerns expressed throughout this comment letter, our members believe the 

Department should forgo the current Proposal and collaborate with the SEC and FINRA in a joint 

effort to craft a uniform fiduciary standard for all accounts that maintains the necessary 

flexibility. As part of this comment letter, FSI proposes an alternative uniform standard of care, 

complete with reasonable policies and procedures designed to manage material conflicts, a 

comprehensive two-tiered disclosure regime designed to inform investor decision making, point-ofsale and annual disclosure requirements, and a workable grandfathering provision.

The standard of care suggested by FSI in Part XI of this letter is designed to address the 

investor protection goals that have motivated the Department to release the Proposal. There are 

two key differences between this uniform fiduciary standard of care and the Department’s 

proposal: (i) this uniform fiduciary standard of care would not create the same disruption to the 

current retirement savings marketplace, and (ii) it would give financial advisors and firms the 

necessary flexibility to offer clients choices regarding which investments and payment models are 

in their best interest.

D. The Proposal will reduce access to retirement advice and services for low and 

middle-income investors.

The Department’s Proposal fails to acknowledge the impact it will have on low and 

middle-income investors’ access to financial advice. The Department relies on selective academic 

research and anecdotes to support its Proposal, despite the large body of quantitative research 

and evidence that demonstrate the essential and constructive role played by independent brokerdealer firms in this market. 

While the Department places its faith in, and gives preference to, “passive management 

solutions” such as “robo-advisers,”33 this approach ignores the importance of a holistic investment 

approach to saving for retirement and other important needs,34 particularly for low-income 

savers. Financial advisors help clients with their total financial picture. Retirement is just one aspect 

of that picture. Although technology firms can create tools and services to automate asset 

allocation or portfolio rebalancing at a modest price point, they cannot provide individualized 

advice with respect to the life events of their clients and tailored financial planning services 

designed to bring employers and participants into the retirement system and keep them there. For 

example:

• Our Financial advisors emphasize the importance of commencing and retaining retirement 

savings, encouraging employers to adopt plans and individuals to participate in those 

plans and/or IRAs. For example, independent broker dealers, their affiliated investment 

 

33 See, e.g., Ben Steverman & Margaret Collins, The Robots are Coming. To Put You in an Index Fund, 

BLOOMBERGBUSINESS.COM (Jun. 25, 2015), http://bloom.bg/1NfanGM; Mark Schoeff, Jr., DOL Secretary Perez 

Touts Wealthfront as Paragon of Low-Cost Fiduciary Advice, INVESTMENTNEWS.COM (Jun. 19, 2015), 

http://www.investmentnews.com/article/20150619/FREE/150619892/dol-secretary-perez-touts-wealthfrontas-paragon-of-low-cost. 34 These needs include organizing personal finances, setting financial goals, life and disability contingent planning, 

and estate planning.
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adviser firms and their financial advisors have been instrumental in promoting retirement 

savings to segments of our population underrepresented in the retirement system.

• Financial advisors help clients weather market volatility, where inexperienced retail 

investors often make impulsive and ill-informed decisions like buying securities at market 

highs and selling at market lows.

• Financial advisors offer their skill and expertise to help clients navigate major financial

pressures imposed by medical concerns, bankruptcy, deaths in the family, and caring for 

aging family members.

• Financial advisors assist clients in providing for other types of financial needs, such as life 

insurance, to provide security to clients’ family members as well as lifetime income and 

longevity protection in retirement. 

• Financial advisors protect investors from cashing out their retirement accounts for shortterm needs and help prevent retirement asset “leakage”.

• Finally, investors need professional financial advisors to assist them with decisions related 

to estate and tax planning and making their assets last through their retirement. 

The Department’s Proposal would give preference to on-line, algorithm-based allocation 

and rebalancing tools which would encourage the displacement of one-on-one, holistic investment 

advice delivered by a trusted professional. In practice, this would deny investors choices 

regarding who and how they want to receive and pay for financial advice and detrimentally 

impacting the amount saved in retirement plan solution.35

This is particularly problematic because research from a variety of sources has shown that 

investors who work with financial advisors save more and are better prepared for their 

retirement. The following is a small sampling of that research:

• According to a 2012 study by the Investment Funds Institute of Canada and a 2010 

survey by the ING Retirement Research Institute, individuals who spent at least some time 

working with a financial advisor had saved, on average, more than twice the amount for 

retirement than those that had not worked with an advisor.36

• An April 2014 study by Quantria Strategies found that retirement savings balances are 

33% higher for individuals who have access to financial advice; employees are less likely 

to take cash withdrawals out of their retirement savings if they discuss their distribution 

options with a financial advisor; and limiting access to this assistance could increase annual 

 

35 We also note that retirement investors who chose to work with investment professionals tend to have larger 

retirement savings than those who do not. See, e.g., ING RETIREMENT RESEARCH INSTITUTE, WORKING WITH AN ADVISOR:

IMPROVED RETIREMENT SAVINGS, FINANCIAL KNOWLEDGE AND RETIREMENT CONFIDENCE! 6 (2010), available at

http://voyacdn.com/file_repository/5151/help_wanted_wp.pdf. 36 JON COCKERLINE, THE INVESTMENT FUNDS INSTITUTE OF CANADA, NEW EVIDENCE ON THE VALUE OF FINANCIAL ADVICE (2012), 

available at https://www.ific.ca/wp-content/uploads/2013/08/New-Evidence-on-the-Value-of-FinancialAdvice-November-2012.pdf/1653/; ING RETIREMENT RESEARCH INSTITUTE, WORKING WITH AN ADVISOR: IMPROVED 

RETIREMENT SAVINGS, FINANCIAL KNOWLEDGE AND RETIREMENT CONFIDENCE! 6 (2010), available at

http://voyacdn.com/file_repository/5151/help_wanted_wp.pdf.
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cash outs of retirement savings for employees leaving a job by $20-32 billion, thus 

reducing the accumulated retirement savings of affected employees by 20-40%.37

• A study released earlier this month by Oliver Wyman found that investors working with a 

financial advisor had a minimum of 25% more assets than non-advised individuals, 

irrespective of age and income levels. The data was particularly notable with regards to 

a key demographic of retirement savers (individuals aged 35-54 with $100,000 or less in 

annual income); the study found that those in that demographic who worked with a 

financial advisor had 38% more assets than those who did not work with a financial 

advisor.38

• A 2012 survey conducted by LIMRA found that investors working with a financial advisor 

are more likely to be saving for retirement at higher rates (defined as contributing more 

than 7% of their salary to a retirement plan) with 61% of investors who worked with an 

advisor saving at the higher rates compared to 36% of investors that were not working 

with a financial advisor.39

• A 2014 study by Prudential found that African-Americans with a financial advisor were 

significantly more likely to participate in employer sponsored retirement plans, have a 

savings account, life insurance, long-term care insurance, annuities, and mutual funds. That

same study also found that African Americans who worked with a financial advisor were 

more financially confident than those who did not.40

• A 2013 Morningstar study found that by working with a financial advisor, a retiree can 

be expected to generate 22.6% more certainty-equivalent income.41 This has the same 

impact on expected utility as an annual return increase of 1.59%, which represents a 

significant improvement in portfolio efficiency for a retiree.42

Moreover, by promoting on-line automated advice, the Proposal also presumes that all 

investors have equal access to online investment resources. Research shows that this is not the case.

A 2013 Pew Research Center study shows that while 70% of Americans 18 and older have access 

to broadband at home, that number drops to only 64% among African-Americans and 53% 

among Latinos.43 Similarly, urban and rural households have lower rates of internet access than 

 

37 QUANTRIA STRATEGIES, ACCESS TO CALL CENTERS AND BROKER DEALERS AND THEIR EFFECTS ON RETIREMENT SAVINGS (Apr. 

2014), available at http://quantria.com/DistributionStudy_Quantria_4-1-14_final_pm.pdf. 38 OLIVER WYMAN, THE ROLE OF FINANCIAL ADVISORS IN THE US RETIREMENT MARKET 6, 16 (Jul. 2015), available at

http://fsroundtable.org/wp-content/uploads/2015/07/The-role-of-financial-advisors-in-the-US-retirementmarket-Oliver-Wyman.pdf. 39 See LIMRA, Advisors Positively Influence Consumers' Behavior and Sentiment Toward Preparing for Retirement (Jul. 

11, 2012), 

http://www.limra.com/Posts/PR/News_Releases/LIMRA__Advisors_Positively_Influence_Consumers__Behavior_a

nd_Sentiment_Toward_Preparing_for_Retirement.aspx. 40 THE PRUDENTIAL INSURANCE COMPANY OF NORTH AMERICA, THE AFRICAN AMERICAN FINANCIAL EXPERIENCE (2014), available 

at http://www.prudential.com/media/managed/aa/AAStudy.pdf. 41 Certainty-equivalent is defined as a guaranteed return that an investor would accept, rather than taking a 

chance on a higher, but uncertain, return. 42 DAVID BLANCHETT & PAUL KAPLAN, MORNINGSTAR INVESTMENT MANAGEMENT, ALPHA, BETA, AND NOW . . . GAMMA 16 

(Aug. 28, 2013), available at

http://corporate.morningstar.com/ib/documents/PublishedResearch/AlphaBetaandNowGamma.pdf. 43 Kathryn Zickhur & Aaron Smith, Home Broadband 2013, PEW RESEARCH CENTER (Aug. 26, 2013), 

http://www.pewinternet.org/2013/08/26/home-broadband-2013/.
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suburban households, and households earning $50,000 or less are far less likely to have home 

broadband service than households earning more than $75,000.44 While we dispute the wisdom 

of turning smaller investors’ retirement futures over to computer algorithms, it is clear that until 

broadband access is universally available in urban and rural areas, the Department cannot 

assume robo-advisers will appropriately serve these markets.45 We recommend that the 

Department revisit its assumption that robo-advice is an optimal solution for the challenges 

investors face when planning for retirement, and not offer preferential treatment to their business 

model.

E. The United Kingdom’s experience with Retail Distribution Review foreshadows the 

negative impact that the Proposal will have on small advisors and accounts in the 

U.S.

The United Kingdom’s (UK) Retail Distribution Review (RDR) proposal, issued in 2006, was 

structured in a manner similar to the Department’s Proposal. Like the Department’s Proposal, the 

RDR widened the category of investment products that were subject to a new, heightened 

standard of conduct, banned customary forms of commission sales, and implemented onerous new 

data collection, reporting, and notification standards.46 According to the UK’s Financial Conduct 

Authority (FCA), the RDR aimed to provide greater transparency in the retail investment market in

order to help investors learn what kind of advice they are getting, how much it will cost and how it 

will be paid for, and have confidence that their advisor is well-qualified and acting in their best 

interests.47 Unfortunately, the law’s good intentions were quickly eclipsed by the detrimental 

impact it had on small independent financial advisors and investors with small account balances. 

A study conducted by the Cass Business School at the City University of London just six 

months after the RDR’s January 2013 effective date noted a 25% drop in the number of 

independent financial advisors (IFAs) in the UK during the run-up to the RDR’s implementation.48 In 

order to remain in business, financial advisors were forced to focus more on higher net-worth 

clients, thus leading smaller net-worth clients to receive lower-tiered services.49 The study also 

found that small independent financial advisors were more likely to be negatively impacted by 

the reforms, and were increasingly likely to sell their practices to larger market participants.50

The reforms were equally damaging for investors with small account balances. As smaller 

firms and financial advisors found it increasingly difficult to serve clients with smaller portfolios, 

larger firms began to service those lower net-worth clients. However, those larger firms only 

offered access to a select number of investment advisors and offered little to no advice from a 

human independent financial advisor. The negative effect that RDR had on smaller investors could 

also be seen in the erosion of investment advice provided to smaller investors by the UK’s four 

 

44 Id. 45 We understand that the Department’s longstanding reluctance to endorse electronic communications from plan 

sponsors and administrators to participants is based on similar concerns. See Department of Labor Technical 

Release 2011-03, September 13, 2011. 46 See Financial Conduct Authority, Retail Distribution Review FAQs, http://www.fca.org.uk/firms/beingregulated/retail-investments/faqs (last visited Jul. 17, 2015). 47 See id. 48 ANDREW CLARE ET. AL., CASS CONSULTING, THE IMPACT OF THE RDR ON THE UK’S MARKET FOR FINANCIAL ADVICE (City 

University of London 2013), available at

http://www.cass.city.ac.uk/__data/assets/pdf_file/0016/202336/The-impact-of-RDR-Cass-version.pdf. 49 Id. 50 See id. at 7–11.
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largest banks. These banks had large outreach efforts dedicated to investors of modest means. 

However, after the RDR process began, large banks found it too costly and burdensome to serve 

these smaller investors and largely stopped providing advice to smaller investors.51 In essence, 

small financial advisors were effectively pushed out of the market, and low and moderate networth investors saw lower quality advising options as a result of the change to the law. Our 

members fear that the Department’s Proposal will have similar effects if issued in its current form.

As part of its Regulatory Impact Analysis for the Proposal, the Department asserts that, 

unlike the UK’s RDR, the Proposal does not ban payment of commissions, and therefore the 

potential for unintended negative consequences is far lower.52 However, with the BICE’s 

complexities (e.g., disclosure requirements), ambiguities (e.g., definition of reasonable 

compensation) and likely burdens (e.g., litigation risk), our members believe that offering 

retirement services via a commission-based broker-dealer business model will become practically 

impossible to maintain. These complexities will be more fully addressed in Section VI, below.

IV. Definitional Carve-Outs 

A. Introduction.

Our members appreciate that the Department recognizes that, in many circumstances, plan 

fiduciaries may provide recommendations that may meet the definition of “fiduciary advice”, but 

should not be treated as such due to the context in which the recommendation is provided.53

According to the preamble for the proposed definition, the Proposal’s carve-outs cover 

communications that the Department believes Congress did not intend to be considered fiduciary 

“investment advice,” and that the parties would not ordinarily view as communications 

characterized by a relationship of trust or impartiality.54

However, the language of the proposed carve-outs excludes investment activities that 

should not be considered fiduciary in nature. As a result, we believe the Department has limited 

the usefulness of each of the carve-outs, and has done so to the detriment of retirement investors.

We discuss these concerns more fully below.

B. The Counterparty Carve-Out should be expanded to cover all advice, and should 

cover plans of any size. 

The Department states that the purpose of the Counterparty Carve-out is to “avoid 

imposing ERISA fiduciary obligations on sales pitches that are part of arm’s length transactions 

where neither side assumes that the counterparty to the plan is acting as an impartial trusted 

adviser, but the seller is making representations about the value and benefits of proposed 

deals.”55 To some extent, the Department acknowledges that certain sales activities will include 

investment recommendations regarding products and services offered by a broker-dealer, and 

that financial advisors should not be viewed as fiduciaries under ERISA or Code section 

4975(e)(3)(B) when they are clearly acting in a sales capacity.

 

51 See id. at 12–16. 52 See DEPARTMENT OF LABOR, FIDUCIARY INVESTMENT ADVICE: REGULATORY IMPACT ANALYSIS at 37, 40–41, 47 (Apr. 14, 

2015). 53 See Definition of the Term "Fiduciary," 80 Fed. Reg. 21,928, 21,941 (Apr. 20, 2015). 54 See id. 55 Id.
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However, our members were concerned to find that the Counterparty Carve-out under the 

Proposal is far more restrictive, and less useful, than the Department’s 2010 “seller’s exception.”

For example, the Department’s decision to deny the carve-out to an advisor if the plan directly 

pays a fee for investment advice is both unjustified and unhelpful. This distinction, which did not 

appear in the 2010 proposal, suggests that the fiduciary nature of the recommendation changes 

depending on the source of the compensation. Many small employers with new plans often offset 

the cost of obtaining sound investment advice by spreading the initial costs of the advice among 

plan accounts. If the advice provided is not “fiduciary in nature”, the nature of the advice should 

not change (and access to advice should not be denied) simply because the employer is not in a 

position to pay for the advice out-of-pocket. This distinction does a disservice to small plans and, 

to a similar extent, individual investors who choose to pay for professional advice with IRA assets.

Distinguishing between advice that is purchased with plan or IRA assets and advice that is 

purchased otherwise does little to protect investors. The seller’s carve-out should therefore apply 

to any advice, irrespective of the source of the compensation paid to the advisor. 

Furthermore, unlike the 2010 seller’s exception, the Counterparty Carve-out draws an 

unwarranted distinction between large and small plan fiduciaries. The carve-out is not applicable 

to advice provided to fiduciaries for plans with fewer than 100 participants and fiduciaries 

managing less than $100 million in plan assets.56 The preamble states that small plans are “much 

more similar to individual retail investors than to large financially sophisticated institutional 

investors.”57 The exclusion of small plans from the carve-out thus presumes that “large” plan 

fiduciaries exclusively possess the requisite competence and skill to understand when an advisor is 

acting in a selling capacity. There is no legitimate basis for this distinction. ERISA demands 

competence and prudence from plan fiduciaries, irrespective of plan size. The Proposal should not 

waiver on this requirement. Therefore, FSI strongly encourages the Department to consider 

extending the Counterparty Carve-out to plans with fewer than 100 participants.

Because all plan fiduciaries are already required to have or obtain the type of financial 

expertise that the Department uses to justify the large-plan carve-out,58 it stands to reason that 

all plan fiduciaries, including those serving plans with less than 100 participants, should be 

covered. Therefore, FSI strongly encourages the Department to consider extending the 

Counterparty Carve-out to plans with fewer than 100 participants. 

The Department has specifically requested public comment on whether existing and 

proposed prohibited transaction exemptions eliminate or mitigate the need for any Counterparty 

Carve-out.59 Our members do not believe that this is the case. The proposed exemptions narrow, 

rather than broaden, the protections provided to customary marketing practices. They also

significantly increase exposure to potential fiduciary liability for activities in which the seller may 

be simply discussing the value of an investment service or option, rather than offering investment 

advice. Because of the increased exposure to “inadvertent fiduciary” liability and the 

uncertainties inherent in many of the Department’s proposed exemptions, an expanded seller’s 

carve-out is absolutely necessary. 

 

56 See id. 57 See id at 21,942 n.20. 58 In addition, courts have held that ERISA requires plan fiduciaries to understand when they lack the expertise to 

satisfy ERISA’s prudent expert standard, and to hire independent experts. See Kastsaros v. Cody, 744 F. 2d 

270, 279 (2d Cir. 1984). 59 Definition of the Term "Fiduciary," 80 Fed. Reg. 21,928, 21,942 (Apr. 20, 2015).
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C. The Education Carve-Out must preserve investor access to meaningful investment 

education.

Investment education is at the very core of the services provided by our members. In order 

for investors to make educated decisions regarding their financial futures, it has always been

imperative that they receive professional guidance. However, as defined-contribution plans have 

replaced traditional pensions and investors bear greater responsibility for funding their 

retirements, investor education has become even more important. Furthermore, as Americans live 

longer lives, they will require more savings to benefit from a dignified retirement. Therefore, it is 

critical that the Department provide investors with access to the proper tools and information to 

make informed decisions. Our members firmly believe that any regulation in the retirement 

savings sphere must not erect additional barriers for individuals to receive vital education 

regarding their investments and retirement savings.

While the Proposal strives for this goal, in practice it will have a detrimental impact on the 

availability of investment education. The Department has recognized that, under Interpretive 

Bulletin (IB) 96-1, advisors currently find it difficult to clearly illustrate longevity risks and the 

effects of “decumulation” on retirement savings. We appreciate the Department’s decision to take 

action on this issue and broaden the Education Carve-out include education regarding 

decumulation. This is a significant improvement from the 2010 proposal.

Despite this improvement, the Department would serve investors well by reconsidering the 

current structure of the Education Carve-out. The proposed carve-out would supersede IB 96-1, 

replace it with a carve-out in the revised fiduciary definition, and substantially modify its content 

in several respects. One of the most potentially detrimental changes would preclude the 

identification of specific investment alternatives available under the plan or IRA. This change will 

deny investors access to the type of helpful information regarding their investment options that 

they have come to expect. In addition, the proposed changes to IB 96-1 regarding asset 

allocation models will prove to be a disservice to investors. Financial advisors use asset allocation 

models and similar illustrations to demonstrate how plan participants and other retirement 

investors can diversify their portfolios to manage risk. To a great extent, investor comprehension is 

contingent upon being able to identify what funds or other investment options available to them 

align with a certain category of investment. By removing the financial advisors’ ability to provide 

the proper context in these educational materials, the Department will curtail the effectiveness of 

these important educational resources. Unfortunately, this will lead to confusion among investors 

and a decrease in the overall financial knowledge of individuals when making important decisions 

regarding their retirement investments.

Given the importance of allowing broker-dealers and investment advisers to provide 

investment education to clients without exposure to potential fiduciary liability, we encourage the 

Department to revise the Education Carve-out to allow financial advisors to specifically identify 

investments and distribution options available under a plan or IRA. “Education” is clearly not 

“advice.” Investment education does not constitute a “call to action” in the vein of a 

recommendation,60 and there is little risk of confusion between the two among investors. In 

addition, the Education Carve-out should be revised to protect recommendations that relate to 

 

60 FINRA Suitability Rule 2111.
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previous investment products, and education regarding activities that reduce plan leakage, such 

as rollovers to IRAs.

D. The Platform Provider/Selection and Monitoring Assistance Carve-Outs should be 

expanded to cover IRA platforms.

Consistent with the other carve-outs proposed by the Department, the Platform Provider and 

the Selection and Monitoring assistance Carve-outs (“Platform Carve-outs”) are “designed to 

draw an appropriate line between fiduciary and non-fiduciary communications, consistent with the 

text and purpose of the statutory provisions.”61 The Platform Carve-outs allow service providers 

who might otherwise be treated as advice fiduciaries to offer investments to a participantdirected plan, its participants, or beneficiaries through a standardized platform. Providers will 

also be able to assist fiduciaries in selecting and monitoring investment alternatives made 

available to participants without triggering fiduciary status, provided the investments are not 

individualized to the needs of the plan.62

FSI’s members believe that the principles that the Department applies to demonstrate the 

need for a Platform Carve-out for plans apply equally to IRAs, and that platforms offered to 

IRAs (as well as related IRA platform services) should therefore be covered under the carve-out. 

The platform provider exceptions are intended to “recognize circumstances where the platform 

provider and the plan fiduciary clearly understand that the provider has financial or other 

relationships with the offered investments and is not purporting to provide impartial investment 

advice.”63 Despite the fact that the premise for the carve-out applies equally in the IRA market, 

the Proposal does not extend the Platform Carve-outs to IRAs, under the theory that there is 

typically no separate independent plan fiduciary interacting with the provider to protect the 

interest of the account holders.64 However, IRA owners are fully capable of understanding that a 

provider’s standardized IRA platform is not individualized to the needs of the IRA owner, and that 

the providers who offer such platforms are not, therefore, offering impartial investment advice. To 

the extent that the Department remains concerned, an IRA platform carve-out lends itself easily to 

a disclosure requirement in which an advisor clearly states that the platform is standardized and 

not intended to be personalized investment advice. FSI therefore supports a carve-out for 

providers marketing platforms to IRA owners if the revised definition is adopted substantially in its 

current form. However, we again stress the importance of a uniform standard that does not 

trigger the need for complex carve-outs, and strongly recommend the alternative standard 

proposed in Section IX as a superior alternative.

V. Regulatory Impact Analysis

With current assets of approximately $19.5 trillion, the U.S. private retirement system 

provides substantial equity and debt capitalization for the U.S. economy.65 The overextension of 

ERISA fiduciary status has the potential to create significant disruption in the U.S. capital markets. 

Accordingly, the Department should seek to balance the strict requirements ERISA imposes on 

fiduciaries with the structure of national policies served by the U.S. financial markets as governed 

by their primary regulators. Regrettably, the Proposal does not take this approach. Instead, the 

 

61 Definition of the Term "Fiduciary," 80 Fed. Reg. 21,928, 21,929 (Apr. 20, 2015). 62 Id. at 21,943. 63 Id. 64 Id. at 21,944. 65 Investment Company Institute Fact book available at https://www.ici.org/research/stats/factbook.
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Department simply relies on unsubstantiated academic and anecdotal evidence to conclude that 

the investment advice market for retirement plans is fundamentally flawed.

In an effort to better understand the potential impacts of the proposal on the independent 

financial services channel, we partnered with Oxford Economics66 to assess the economic impact 

of complying with the Department’s Proposal. Oxford Economics has conducted approximately a 

dozen interviews with FSI member firms and related parties, and has made use of survey results 

from 54 member firms in order to evaluate the Department’s economic impact assessment. During 

the post-hearings comment period, we will be releasing a detailed report, but we will be sharing 

some early impressions of the study’s findings in this section.

A. The Department’s Regulatory Impact Analysis is dubious.

The flaws in the Department’s Regulatory Impact Analysis are particularly alarming given 

the gravity of the Proposal and the inevitable impact it will have on the retirement system 

specifically, and financial markets generally. 

The fee data cited in the academic studies that serve as the foundation for the 

Department’s analysis are speculative, difficult to measure, and far afield of solid empirical data 

gathered by independent industry experts. This data was recently called into question by 

economists during a hearing regarding the Proposal before the United States House of 

Representatives Committee on Education and the Workforce.67 The oral and written testimony of 

these economists effectively contradicts the studies on which the Department’s Regulatory Impact 

Analysis relies, including the Department’s assertions regarding the current harm caused to 

investors by potentially conflicted advice, and the need to take regulatory action in the absence 

of coordination with the SEC.68 While the Department has clearly invested considerable time and 

resources into defending the need to revamp the fiduciary standard, the significance of the 

Proposal warrants a deeper, more nuanced perspective on investor costs and returns than the 

points cited in the Department’s advocacy. 

First, the Department’s analysis fails to take into account the interests of retirement savers 

that would not be in the system without, or that are in the system and well served by, financial 

advisors who work on a commission basis. In 2015, the retirement plan market is largely one 

where plans are sold, not bought. As a result the Proposal should not establish road blocks that 

prevent or deter financial advisors from offering their services to small businesses. Unfortunately, 

the Department’s effort to impose a new fiduciary duty standard on the act of selling a plan may 

actually retard the adoption of new employer-sponsored plans, and thus the opportunity for 

individual savings. 

Second, the compliance costs outlined in the regulatory impact analysis are significantly 

understated. According to a recent survey we commissioned regarding the Proposal conducted by 

Oxford Economics, we believe that the costs for both large and small firms will be several 

multiples higher than what the Department estimated. While our full economic analysis of the costs 

related to complying with the Proposal is still being finalized, it is clear that the Department has 

 

66 http://www.oxfordeconomics.com/. 67 See, e.g., Oral Testimony of Brian Reid, Chief Economist, Investment Company Institute, Subcommittee on Health, 

Employment, Labor and Pensions, Committee on Education and the Workforce, United States House of 

Representatives, June 17, 2015, available at http://edworkforce.house.gov/uploadedfiles/testimony_reid.pdf. 68 Id.
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overlooked certain complexities such as the need to create an enterprise-wide reporting and 

disclosure system, enhance data security requirements, increase compliance logistics, and the 

associated costs to third-party service providers. Many firms predict that only very large financial 

institutions will have the resources to bear these costs which will result in the demise of smaller 

firms, who will be acquired, merged with larger entities, or simply disappear.

The Oxford Economics study that will be submitted to the Department during the posthearing supplemental period will cover the following concerns that the Department appears to not 

have adequately considered in its economic impact assessment:

• Increased pass-through costs for investors;69

• Elimination of choice for investors as firms reduce their catalog of investment options;

• Homogenization of investing strategies that will create greater risk for investors;

• The push into “robo-investing,” which will be particularly detrimental for inexperienced 

investors, who need greater hand holding from human investment advisors;

• Information overloads that will be faced by investors and inhibit their ability to properly 

comprehend their investment choices;

• Loss of access to commission based accounts and products that are more appropriate for 

some investors than fee-based accounts and products.

B. The compliance costs outlined in the analysis are significantly understated. 

Through the analysis conducted by Oxford Economics, we are able to project that the costs 

related to the proposal’s implementation will be several multiples larger than the Department 

stated in its economic impact assessment. This is true for both broker-dealer and investment 

advisory firms. While the Department appears to believe that costs will be minimal for non-broker 

dealer investment advisory firms, the interviews conducted for this study do not bear out that 

conclusion. In part, this is because most of these firms expect that they too will have to fully 

implement the BICE requirements in order to be in compliance with the proposal.

Furthermore, the Department’s description of the adjustments necessary to firms’ current 

business practices is incomplete. The four categories of adjustments identified by the Department 

are: firm costs;70 switching/training costs for broker-dealers transitioning to investment adviser 

status; errors & omissions insurance; and PTE/Exception Costs (Best Interest Contract Exemption).71

However, they do not cover all of the direct implementation costs that firms will bear. Moreover, 

because the costs of distinct requirements of the new rules on firms are not broken out by the 

specific burdens faced by firms, this makes it impossible to perform cost-benefit analysis on 

specific elements of the regulation. Through their interviews, Oxford Economics found that 

substantial costs were apparently either excluded or underestimated by the Department. These 

include:

• Disclosure requirements (including the public-facing website requirement contained in the 

BICE);

 

69 76% of respondents to FSI’s member firm survey indicated customer costs would increase. 70 Firm costs are described as including the costs of “developing and maintaining a disclosure form and customer 

relationship guide,” and the cost “to develop and implement a new, comprehensive compliance and supervisory 

system and procedures and related training programs to adapt to the new uniform fiduciary standard.” 71 Department of Labor, Fiduciary Investment Advice, Regulatory Impact Analysis, April 14, 2015, pg. 178.
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• Record keeping costs (including the six-year retention requirement contained in the BICE);

• Implementation costs of Best Interest Contracts for both new and existing clients;

• Supervisory, compliance and legal oversight costs;

• System interface development costs related to the need to accept new data feeds 

required by the proposal;

• Training and licensing costs;

• Litigation costs (including potential class action lawsuits stemming from the BICE).72

C. The Proposal will have substantial deleterious effects on independent brokerdealer firms as small businesses.

In addition to the likely cost increases on retirement products and advice that retail 

investors will see, the research conducted by Oxford Economics also will show that the higher cost 

estimates discussed above will result in the regulatory burden falling disproportionately on 

smaller firms who cannot take advantage of scale. Small firms will also bear the proportionally 

higher pass-on costs from their clearing brokers.73 Additionally, the Oxford Economics research 

will also show that the Department appears to have failed to account for various other unintended 

consequences to small businesses in the industry and the investors that they serve, including:

• Impact of revealing sensitive business information to competitors;

• Dramatic changes to the retirement fund industry’s structure (i.e. consolidation);

• Impact of Offering fewer product choices and diversification strategies concentrates 

investors into fewer asset classes creating greater systemic risk that will disproportionately 

hurt smaller firms; and

• Ambiguity caused by undefined terms in the Proposal change and expected conflicts with 

the rules of other regulatory agencies and organizations will create significant uncertainty 

as to how the Proposal will be implemented and enforced.

VI. Proposed Best Interest Contract Exemption

A. Introduction.

The Department stated that the intent of the BICE is to preserve the ability for investment 

advice fiduciaries to receive variable compensation and compensation from third parties.74 These 

compensation and fee arrangements are vital to ensuring that investors of modest means have 

access to critical financial advice. While FSI appreciates the Department’s recognition that these 

compensation practices facilitate the provision of investment advice to retirement savers, the BICE 

as currently crafted will in fact have a detrimental impact on access to investment advice. The 

BICE poses various operational and administrative burdens, has limited applicability, and imposes 

liability risks and compliance costs that may be too great for many firms to bear.

 

72 During the interview process conducted by Oxford Economics, many FSI members stated that the anticipated 

substantial litigation risks would likely cause many critical aspects of the industry to be fundamentally reshaped. 73 A clearing firm is a brokerage firm that handles the confirmation, settlement, and delivery of transactions, and 

maintains custody of securities and other assets. 74 80 Fed. Reg. 21960,21967.
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B. The BICE should be expanded to cover a wider range of eligible investors and 

advice services. 

As currently conceived, the BICE applies to the provision of advice to (i) a participant or 

beneficiary of a plan who is able to direct the investments of the plan account, (ii) the beneficial 

owner of an IRA, or (iii) a plan sponsor of a non-participant directed plan with fewer than 100 

participants. FSI believes the Proposal should be expanded at a minimum to include plan-level 

advice for participant-directed plans. The Department asserts that it limited the universe of 

eligible investors under the BICE in light of the Counterparty Carve-out. However, FSI believes 

that the narrow provisions of the Counterparty Carve-out do not adequately ensure access to 

plan-level advice. FSI believes that they should be included in any exemption designed to 

preserve existing brokerage industry compensation practices. 

In addition, the BICE currently does not provide protection for advice provided to 

participants and beneficiaries of Keogh plans that do not cover common-law employees. While 

these plans are not subject Title I of ERISA, the Department has held that investment services 

provided to Keogh plans are subject to the prohibited transaction provisions of Code section 

4975. Unless Section (b)(1) of the exemption is amended to cover advice provided to all plans 

subject to the Code’s prohibited transaction provisions, financial advisors will be prohibited from 

providing investment advice to participants in these plans.

C. The BICE definition of “Asset” hinders Best Interest advice.

The Department has limited the products available to retirement plan and IRA investors by 

excluding a variety of investments from the list of assets eligible for BICE treatment (Asset or 

Assets). The Department asserts that it has endeavored to ensure that investors are eligible to 

build “basic diversified” portfolios while ensuring that eligible assets feature an appropriate 

degree of transparency, liquidity, and marketability.75 The Department does not detail its process 

for selecting the Assets that deserve protection under this important exemption, or why certain 

other assets were excluded from the BICE. Rather, the Department states that the investments 

excluded from the list can be obtained through pooled investment funds covered by the BICE.

However, the exclusion of specific investments from the list is confusing in light of the BICE 

requirement to act in the best interest of the investor. It appears as if the Department has reached 

the conclusion that the excluded investments would never, under any circumstances, be in the best 

interest of any retirement investor. As described below, we determine this is an inappropriate 

conclusion.

The Department’s limitations regarding the definition of covered Assets impede 

diversification in retirement accounts, and as a result expose investors to greater risk. Furthermore, 

the limitation will stifle capital formation as well as innovation and evolution in the investment 

product development market. Many investors, particularly high-net worth and sophisticated 

investors, want access to products such as non-traded real estate investment trusts (REITs) and 

Business Development Companies (BDC) to diversify risk exposure. For purposes of long-term 

investment, mass affluent clients often seek out alternative investments as part of their IRA 

investment strategy. FINRA suitability rules, as well as other securities laws, restrict investments in 

certain of these assets to institutional and high-net worth clients. Very recently, the SEC approved 

amendments to FINRA Rule 2310 and NASD Rule 2340 to modify the requirements relating to the 

 

75 “Proposed Best Interest Contract Exemption,” 80 Fed. Reg. 21960, 21,967 (April 20, 2015).
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inclusion of per share estimated values for direct participation program (DPP) and non-traded 

REIT securities on customer account statements. These changes significantly improve the 

transparency of the per share estimated values of these securities on customer account statements

by ensuring that investors receive more accurate information regarding the nature and worth of 

their holdings of DPP and REIT securities. In addition, these products are also subject to multiple 

layers of rigorous due diligence. As such, there is little risk that expanding the definition of Assets 

would result in more middle and lower income Americans being steered toward alternative 

investments for their IRAs.

Furthermore, we also find the Department’s narrow definition of Assets and its use of that 

term throughout the proposal confusing when placed in context. In the broker-dealer context, the 

term “asset” is generally used to refer to classes of underlying investments, such as equities, fixed 

income, cash equivalents, commodities or real estate. However, as defined in the BICE, “Asset” is 

used as a synonym for investment product, and BICE uses the term “investment option” 

interchangeably with “Asset.” The 13 items listed in the BICE definition of “Assets” should be 

considered investment products, not assets. The BICE definition of the term “Assets” therefore 

conflicts with the general understanding of “asset” in the financial services industry. With regard 

to the BICE requirement to offer “a broad array of Assets”, the use of this term leaves our 

members unsure as to whether the Department intended to require a financial institution to 

provide a broad array of different types of investment products, or instead intended to refer to 

classes of their underlying investments, such as equities, fixed income, cash equivalents, 

commodities or real estate. We encourage the Department to clarify its intention as part of any 

final rule. 

Irrespective of the Department’s intent in defining the term “Assets,” FSI believes that 

financial advisors are in the best position to understand their clients’ unique retirement savings 

needs and recommend the best investments in the context of those specific needs. But the BICE 

would limit a financial advisor’s ability to make recommendations that reflect the goals, risks and 

unique circumstances of a particular investor. Advisors will not be able to confidently say that they 

recommended the product that is in the best interest of the investor without an ability to 

recommend from a full range of investment options. FSI encourages the Department to reconsider 

its approach to limit the universe of eligible Assets. It is unclear why this limitation is necessary in 

light of the best interest obligations to which a financial advisor would be contractually bound.

Instead, we encourage the Department to consider our alternative uniform standard proposed in 

Section XI which would eliminate the need for an overly restrictive Assets definition.

The decision to only include the listed products as eligible for BICE treatment is particularly 

troublesome given recent research and experience applying Modern Portfolio Theory76 and 

endowment portfolio strategies77 for individual investors. Academic research has demonstrated 

that risk-adjusted returns of a portfolio can be improved by diversification across assets with 

varied correlations.78 Large college endowments, like those at Yale and Harvard, have 

distinguished themselves by generating above market-rate returns and lower volatility through 

diversified portfolio strategies that include illiquid direct investments in alternative investments 

 

76 See, e.g., Harry Markowitz, Portfolio Selection, 7 J. Fin., Mar., 1952, at 77-91. 77 See David F. Swenson, Pioneering Portfolio Management (Free Press, 1st ed. 2000). 78 See, e.g., Franco Modigliani & Leah Modigliani, Risk-Adjusted Performance, 23 J. Portfolio Mgmt., Winter 1997, 

at 45-54.
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including real estate, timber, oil and gas leases partnerships, and others.79 Over the last 10 

years, Yale had an average annual return of 11 percent net of fees, while domestic equities had 

an average annual return of 8.4 percent and domestic bonds an average of 4.9 percent.80 The 

Department’s assumption, that “limiting the exemption to those investments that are relatively 

transparent and liquid” will “ensure[] that the investments needed to build a basic diversified 

portfolio are available to plans”81 is demonstrably false, and will deny investors many of the 

same strategies that large college endowments have successfully utilized. 

Endowment portfolio models for individual investors seek to replicate similar asset 

allocation strategies as large university endowments. Although operating on a shorter time 

horizon, current retirees and investors nearing retirement must meet on-going cash needs while 

managing overall portfolio risk to overcome extreme and unpredictable market events. Wide 

diversification and disciplined utilization of alternative investments is an important characteristic of 

large university endowment success, and an important strategic element for individual investors 

utilizing endowment portfolio strategies. Alternative investments, such as non-traded REITs, and 

other publicly-registered securities that allow investors to access markets that provide steady 

inflation-adjusted income that is non-correlated to disruptions in the equity markets. Long-term 

investors seeking the benefits of inflation-adjusted income streams during volatile market events 

are in fact well-served by the relative illiquidity of these products. Alternative investments allow 

investors to enjoy the benefits of inflation hedging and protection from volatility in the broader 

equity markets. In addition, many of these investments allow investors to capture the additional 

return paid to compensate them for the illiquidity risk of these long-term assets, often referred to 

as the “illiquidity premium.”82 Many direct illiquid alternative investments allow investors to make 

long-term commitments that will generate higher-yielding income compared to other liquid 

investment options. Retirees especially benefit by securing higher earnings to cover the loss of 

income when they are no longer working. 

Financial advisors have successfully assisted clients in utilizing endowment portfolio models 

for their IRAs. Like endowments, retirement accounts seek to generate income to cover immediate 

and ongoing liabilities while managing overall risk. Of significant importance is diversifying 

retirement portfolios to overcome extreme volatility and so-called “Black Swan” events. Recent 

scholarly work has raised serious concerns increasing correlation of domestic equity and domestic 

bonds. This work points to a variety of causes for this trend, including aggressive central bank 

policies.83 Restricting the list of available investment options under the BICE would lead to a 

homogenization of investment strategies and a loss of portfolio diversification, increasing the risk 

to which retirement investors would be subject to. The BICE would forbid financial advisors from 

 

79 See, e.g., Yale Endowment Annual Report 12–13 (2014); Harvard Management Company Annual Endowment 

Report 5-6 (2014). 80 Yale Endowment Annual Report 20 (2014). 81 Proposed Best Interest Contract Exemption, 80 Fed. Reg. at 21,967. 82 See Renato Staub, Modeling Illiquidity Premiums for Alternative Investments, CFA Institute, June 2010, at 40,

available at http://www.cfapubs.org/doi/pdf/10.2469/cp.v27.n2.3 (“Alternative investments generally require 

investors to commit funds for a specified lockup period. Illiquidity premiums provide compensation for the 

associated loss of investment flexibility. A modified version of the Sharpe ratio along with the length of the 

lockup period and the riskiness of the asset help in determining the amount of the premium.”). 83 See PIMCO Quantitative Research Report, The Stock-Bond Correlation 8 (Nov. 2013) available at 

https://media.pimco.com/Documents/PIMCO_Quantitative_Research_Stock_Bond_Correlation_Oct2013.pdf

(“Over the last 15 years, many investors have been able to ignore inflation risk and have taken for granted the 

very negative correlation between stocks and Treasuries. In the next decade, particularly in light of aggressive 

and expansive central bank monetary policy, the importance of the inflation risk factor may indeed resurface. If 

so, many of the correlation dynamics that investors have become accustomed to may be less relevant.”).
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working with their clients to build portfolios that allocate to liquid and illiquid alternatives that can 

meet the intermediate and long-term inflation-adjusted spending needs of retirement.

While the BICE does allow investors to access alternative investments through Investment 

Company shares, these offerings alone are insufficient for investors implementing endowment style 

model portfolios. Investors cannot capture the illiquidity premium, as publicly traded securities 

convert quickly into cash without any price discount. Non-traded products also address the 

vulnerabilities and correlation problems of publicly traded securities, and are less subject to the 

emotions that drive public markets and individual investors. By forbidding these investment options 

under the BICE, the proposal will negatively affect retirement investors who would otherwise be 

able to enlist the help of a financial advisor to build an endowment model portfolio. 

FSI suggest that the DOL alter the definition of “Assets” under the BICE to include 

securities that are registered with the SEC. The SEC registration process allows investors and 

financial professionals to receive and analyze financial and other significant information on these 

investments. The registration process protects investors by allowing the SEC’s Division of Corporate 

Finance to examine registration statements to determine whether the investment has adequately 

complied with disclosure requirements. The SEC enforces its rules by bringing enforcement actions 

against investments or companies that have made misrepresentations or committed fraud. The 

registration process also provides investors with important recovery rights if they can prove that 

there were incomplete or inaccurate disclosures of important information. 

D. BICE uncertainty regarding IRA rollover advice jeopardizes retirement savings.

The Proposal treats recommendations regarding IRA rollovers and distributions as 

fiduciary advice. However, the BICE does not clearly afford protection for such recommendations, 

because the BICE, as currently drafted, is limited to the purchase, sale or holding of an investment.

As such, it is unclear whether firms will be able to continue to provide this fundamental service. IRA 

rollovers have recently received additional focus from FINRA in Regulatory Notice 13-45.84 This 

additional focus reflects the significance of a recommendation to undertake a rollover into an IRA. 

Following the publication of Regulatory Notice 13-45, broker-dealers have undertaken the task 

of ensuring that firms’ policies and procedures regarding rollovers are in line with FINRA’s 

expectations.

FSI urges the Department to clearly state that rollovers are eligible for protection under 

the BICE and describe how this protection interacts with Regulatory Notice 13-45. Specifically, the 

final BICE should state that exemptive relief is available for the receipt of compensation received 

in connection with rollover advice, provided that financial advisors (i) act in their clients’ best 

interest, and (ii) ensure that conflicts of interest do not impair their judgment. Absent such an 

explicit statement, regarding the treatment of rollovers under the BICE, retirement savers will lack 

access to important advice when deciding whether to rollover plan assets. To the extent that the 

Department does not include such language in the final BICE, we encourage the Department to 

give serious consideration to the alternative uniform standard proposed by FSI in Section XI, which 

would cover rollover advice. 

 

84 Rollovers to Individual Retirement Accounts, FINRA Regulatory Notice 13-45 (December 30, 2013), available at 

https://www.finra.org/sites/default/files/NoticeDocument/p418695.pdf.
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E. The BICE written contract requirements are inconsistent with customary practices in 

the broker-dealer industry and investor expectations. 

To the extent that a broker-dealer chooses to enter into a written contract with a client, 

FINRA rules only require the inclusion of “pre-dispute” arbitration clauses,85 otherwise, the content 

and timing of the contract is left to the discretion of the broker-dealer. It is customary for brokerdealers to request that clients execute a written agreement only at such time as they effect a 

transaction.

As proposed, the BICE would require that a client execute a contract with a broker-dealer 

and financial advisor prior to the provision of any investment advice. Due to the Proposal’s 

expansion of the definition of investment advice, the contract would be presented to a potential 

client at the very beginning of the engagement process, potentially during introductory greetings.

This is inconsistent with customary practices in the broker-dealer industry. Basic notions of diligence 

dictate that an investor will not, and should not, sign a contract with a financial advisor he or she 

does not know. Financial Advisors spend time with potential clients to ensure that the investor 

understands the variety of investing options. An investor develops an appropriate level of comfort 

with the financial advisor and then has time to digest all of the information prior to making a 

hiring determination. A contract between that financial advisor and the investor should only be 

operative in the event that the customer actually effects a transaction. FSI therefore encourages 

the Department to reconsider the BICE requirement and develop an exemption that reflects the 

personal nature of these relationships better than a rigid contract executed prior to execution of 

any transaction.

Consider, for example, the operational challenges of requiring a contract in the call center 

setting. The investor typically has no individual relationship with a particular call center 

representative; most often, calls from investors are randomly assigned to the next available 

representative. It makes no sense that (i) each time she calls, the investor must enter into a new 

contract that includes the call center representative taking that call, and (ii) the call center must 

operate a reliable mechanism for execution and delivery of that contract while the call is 

pending, but prior to any substantive discussion between the investor and the representative. To 

take another example, there is a growing practice of multiple financial advisors operating as an 

“ensemble” practice, with each advisor providing focused expertise in a particular type of 

investment or aspect of investment or financial planning. Investors are finding these practices very 

beneficial, both for the specialized expertise provided in investments and for the continuity of 

service and succession planning among the financial advisors. It is a needless complication, 

operationally, to require that each financial advisor must execute the contract, or that the contract 

must be re-executed each time an advisor joins or leaves the ensemble practice.

To the extent that the written contract requirement is made part of the final exemption, the 

exemption should allow for negative consent to the BICE contract. In the absence of a negative 

consent provision, it will be extremely difficult for broker-dealers and investment advisers to 

obtain new signatures for all of their long-standing and existing clients, exposing firms to 

considerable liability risk, particularly given Department’s anticipated eight-month timeline for 

implementing the final rule. Furthermore, a negative consent provision is necessary in special 

circumstances, for example with clients who decline to respond to a request to enter into a new 

contract even after a firm employs its best efforts. Finally, we propose an alternative approach 

 

85 See FINRA Rule 12200.
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that would address the Department’s concerns regarding the advisor-client relationship without the 

necessity of a pre-transaction contract.

F. BICE restrictions on compensation are duplicative, and do not serve investor 

interests.

The preamble to the BICE suggests that the exemption is intended to be a business-model 

neutral approach to differential compensation that seeks to preserve existing compensation 

practices.86 However, despite these statements, the Department appears to be expressing a 

preference for a level-fee structure, free of any potential conflicts created by bonuses or other 

incentive compensation.87 The Department’s apparent preference for this structure ignores the fact 

that level-fee structures and anti-conflict compensation requirements already apply to many 

broker-dealers, and that including these structures under the BICE will do little to protect investors 

or increase savings. 

The BICE requires broker-dealers and investment advisers to warrant that their policies 

and procedures do not authorize compensation or incentive systems that would “tend to 

encourage individual advisors to make recommendations that are not in the Best Interest of 

Retirement Investors.”88 In the preamble, the Department states that a “level-fee” structure in 

which compensation for financial advisors would not vary based on the particular investment 

product recommended would comply with this requirement.89 In addition, the contractual 

warranties also prohibit the use of quotas, appraisals, bonuses, awards, differential compensation 

or incentives.90

The SEC began encouraging, but not requiring, broker-dealers to use compensation 

schedules that levelize compensation between proprietary and non-proprietary products more 

than 20 years ago. These SEC rules do not suggest that all fees should be levelized to the extent 

required by the BICE.91 While we agree that levelized fee structures may be appropriate for 

some accounts, they are certainly not appropriate as a standard practice for all accounts. Studies 

have shown that level-fee accounts generally result in higher fees over time than commissionbased accounts, particularly for investors who do not engage in frequent transactions.92

Furthermore, the Department’s preference for level fees is based on the flawed assumption that 

levelized compensation at the broker-dealer level will result in a lower amount of investmentrelated costs to investors. In fact, broker-dealer compensation is typically paid by or negotiated 

with the issuer of the investment product, not the investor. 

The Department’s bias in favor of levelized fee arrangements would adversely impact 

investors’ ability to obtain retirement security. With an increasing number of individuals 

dependent upon making their savings last throughout their retirement years, the importance of 

 

86 Proposed Best Interest Contract Exemption, 80 Fed. Reg. at 21,971. 87 Id. (“one way for a Financial Institution to comply [with the Best Interest standard] is to adopt a ‘level-fee’ 

structure”) 88 Id. 89 Id. 90 Id. at 21,984. 91 See Report of the Committee on Compensation Practices (1995), available at

https://www.sec.gov/news/studies/bkrcomp.txt (the “Tully Report”).

92 See Bullard, Friesen, and Sapp, Investor Timing and Fund Distribution Channels, 2008, available at 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1070545.
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lifetime income protection and guarantees through annuities and similar products should not be 

overlooked, and it is important that the Department’s proposal not reduce their availability.

Unfortunately, rather than encouraging the use of such protections and guarantees, the BICE 

would constrict their availability by substantially constraining the ability of a financial advisor to 

receive commissions for the offering of such solutions inside ERISA plans and IRAs.

With regard to non-cash compensation, the BICE compensation standards overlap with 

certain standards already applicable to broker-dealers, and conflict with others. The 

requirements do little to offer increased investor protections, but add significant confusion to the 

current regulatory landscape. Existing broker-dealer rules generally do not impose standards on 

compensation for brokers except for certain public securities offerings which impose restrictions on 

brokers’ receipt of non-cash compensation.93 These restrictions generally require any non-cash 

incentive arrangements to use total production and equal weighting concepts, which are intended 

to limit the impact of non-cash sales incentives at the point-of-sale. Furthermore, while existing 

FINRA rules do not prohibit cash incentives or bonuses, FINRA has identified this practice as a 

potential conflict of interest.94

As noted in recent comments by Richard Ketchum, FINRA Chairman and Chief Financial 

Officer, the Proposal bears no relation to existing broker-dealer in models in this regard. These 

overlapping standards will foster confusion in the marketplace, but may also encourage firms to 

exclude transactions in Retirement Investor accounts from incentive or bonus programs offered to 

its brokers in order to comply with the warranty. Doing so, however, could run afoul of total 

production requirements imposed by FINRA rules for non-cash incentive compensation, creating 

yet another unforeseen conflict between FINRA regulation and the Department’s Proposal. We 

noted for the Department’s consideration that adopting the alternative standard proposed in 

Section XI would eliminate the potential for regulatory conflict.

G. The BICE exposes broker-dealers to a myriad of liability risks and compliance 

costs that render the exemption unusable in its current form.

1. The BICE should not be premised on broad-based acknowledgement of 

fiduciary status.

As financial intermediaries, broker-dealers are not generally fiduciaries. The functional 

nature of the ERISA fiduciary definition means that a broker-dealer should not be a fiduciary at 

all times and in all respects simply by virtue of seeking the protection of the BICE for the receipt 

of compensation. An evergreen acknowledgement of fiduciary status should not, therefore, be a 

requirement for the exemption. 

In addition, the BICE may have implications under the Investment Adviser’s Act of 1940 

(“40 Act”) for investment advisers that enter into BICE agreements acknowledging fiduciary status.

In accordance with the ’40 Act, anyone in the business of providing investment advice for 

compensation is treated as a fiduciary, and is required to register as an investment adviser.95

However, the ’40 Act specifically excludes brokers from its registration requirement, to the extent 

that the broker provides advice that is solely incidental to the sale of securities, and receives no 

 

93 See FINRA Rule 2320(g) and NASD Rule 2830(l). 94 See, e.g., FINRA Report on Conflicts of Interest, October 2013 available at https://www.finra.org/file/conflictinterest-report. 95 See, e.g. Form ADV Part 2, available at https://www.sec.gov/about/forms/formadv-part2.pdf.
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special compensation.96 As the exemption is currently drafted, the BICE would require even 

advisors who provide incidental advice to declare fiduciary status, which will therefore trigger 

fiduciary status and a registration obligation, under the ’40 Act. This would be true even in 

instances where the investor did not seek, and does not desire to pay for, ongoing fiduciary 

investment advice.

2. BICE principles should clearly define “reasonable compensation.”

The impartial conduct standards under the BICE require that broker-dealers agree that 

they will not recommend an Asset if the total amount of compensation anticipated to be received 

in connection with the purchase, sale, or holding of the Asset will exceed reasonable compensation 

in relation to the total services the broker provides to the investor.97 The ambiguity surrounding 

this “reasonable compensation” requirement triggers significant liability exposure for brokerdealers. In the absence of clear guidance regarding permissible compensation structures, brokerdealers will be subject to allowing state courts to decide, in hindsight, whether their fees were 

indeed ‘reasonable’. This exposure alone renders the BICE effectively unworkable in its current 

form. 

The Proposal does not offer any factors that brokers might use to determine reasonable 

or excessive compensation, and it does not elaborate on the meaning of “total services” in this 

context. Moreover, we know of no source for obtaining reliable, objective information regarding 

standard broker fees or compensation. This places broker-dealers in the untenable position of 

being subject to a standard that is impossible to meet accurately and consistently. In addition, the 

text of the BICE compensation standard offers no true recognition of individual circumstances, and 

does not account for the many factors that may cause fees to vary from broker-dealer to brokerdealer and from financial advisor to financial advisor.

Compensation deemed to be unreasonable for purposes of the BICE standards could be 

considered reasonable and appropriate under existing broker-dealer regulations. Federal 

securities laws, FINRA rules, and certain state securities rules impose “fair and reasonable” 

standards or explicit limits on broker-dealer compensation.98 Although the Department seeks 

comments on standards for determining reasonable compensation in the context of existing law, 

the BICE exemption does not guarantee any harmonization of those rules with the Department’s 

final standard. 

For these reasons, the BICE reasonable compensation requirement should be clearly 

defined or eliminated in its entirety until the Department can offer an objective, consistent 

standard by which broker-dealers, investors, and ultimately, courts can evaluate a financial 

advisor’s compensation.

In addition, we request the Department confirm its intention to apply a consistent definition 

of “reasonable compensation” under the Proposal. At various instances throughout the Proposal, 

the Department appears to apply dissimilar or inconsistent definitions of this term. For instance:

 

96 See 17 C.F.R. § 275.202(a)(11)-1. 97 Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21,960, 21,984. 98 Investment Adviser’s Act §211(g)(11).
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• With regard to the Impartial Conduct Standards, the preamble to the BICE states: “The 

obligation to pay no more than reasonable compensation to service providers is long 

recognized under ERISA. See ERISA section 408(b)(2), 29 CFR 2550.408b-2(a)(3), and 29 

CFR 255.408c-2. The reasonableness of the fees depends on the particular facts and 

circumstances."

• With regard to the conditions for offering a limited range of investment products under 

the BICE, the preamble states: “...the proposal provides that the payments received in 

connection with these limited menus be reasonable in relation to the value of specific 

services....This is more specific than the reasonable compensation requirement set forth 

under [the BICE Impartial Conduct Standards]...” 

• In connection with the annuity exemption, the preamble states: “...the combined total of all 

fees and compensation received by the insurance company is not in excess of reasonable 

compensation under the circumstances...”. No further guidance is provided. 

• With regard to the general conditions under PTE 84-24, the exemption states: “The 

combined total of all fees, Insurance Commissions, Mutual Fund Commissions, and other 

consideration received by the insurance agent or broker...is not in excess of ‘reasonable 

compensation’ within the contemplation of ERISA section 408(b)(2) and [Internal Revenue] 

Code section 4975(d)(2) and 4975(d)(10).” 

Based on discussions during the notice and comment period, we understand that the 

Department intends to apply existing guidance regarding the interpretation of “reasonable 

compensation” for all purposes under the Proposal. We request that the Department confirm this 

approach in writing as part of any final guidance. However, to the extent that the Department 

intends to apply a higher standard to the definition of “reasonable compensation” for purposes 

of the requirement to offer a range of investment options, we request that the Department clearly 

identify a process for meeting this standard.

3. The BICE “broad range of investments” requirement is unclear and 

inconsistent with existing broker-dealer practices and rules. 

The BICE currently requires a financial institution to offer a range of investment options 

that is broad enough to enable the financial advisor to make recommendations from all of the 

asset classes reasonably necessary to serve the investor’s Best Interest. This requirement is 

inconsistent with broker-dealer practices and potentially conflicts with FINRA rules. 

A broker-dealer’s decisions regarding which investments to offer on its platform are driven 

by many factors and should not be subject to second-guessing or scrutiny by the Department 

simply because the investments may be offered to retirement plans or IRAs.

The BICE investment range requirement would place platform requirements on brokers that 

even SEC and FINRA have not seen necessary to implement. Under FINRA guidance, brokerdealers are permitted, but not required, to maintain a menu of investment options.99 If a brokerdealer opts to provide a platform, neither SEC nor FINRA guidance set standards regarding 

composition of the platform. The broker may choose to limit product offerings to just one or two 

 

99 See, e.g. FINRA Rule 2111.
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available investments, or may choose to offer an array of products. In some instances, a brokerdealer’s membership agreement with FINRA may limit the firm’s ability to engage in transactions 

in certain types of securities. Brokers may also choose to voluntarily limit lines of business for 

reasons wholly independent of their client relationships, such as internal support, risk management 

or relationship with a product manufacturer. In addition, FINRA rules impose a due diligence 

obligation on broker-dealers with respect to all securities that they offer to customers. The review 

and analysis necessary to satisfy this obligation can be considerable, and as a result, many firms 

choose to limit their products offerings to those which they possess the relevant expertise. In many 

circumstances, the business model or client base of a given firm may be such that the firm does not 

see significant demand for a given product or service, and chose not offer it. In its current form, 

the BICE would appear to require firms to expand their product offerings without any real benefit 

to customers.

The “broad investment range” requirement has no real bearing on an investor’s ability or 

a firm’s willingness to offer appropriate investments that are in the Best Interest of the investor.

As financial advisor who offers a broad range of investments may not offer investments that 

would align with a particular client’s best interest; by contrast, a financial advisor with a deep 

understanding of her potential client base may offer only a few investment options that are 

keenly targeted to meet her clients’ needs. An advisor’s ability to seek relief under the BICE 

should not be denied simply because a financial advisor chooses to offer a limited range of 

investments.

Finally, we request that any final guidance address current ambiguities regarding preselected IRAs in light of BICE Section IV. The BICE requirement to offer a “broad range of 

investment products” is inconsistent with the nature of IRA products that are not “self-directed”, i.e., 

those that offer a preselected core group of investments or a specific investment. Furthermore, the 

supplemental requirements for products that offer a limited range of investment options do not 

contemplate the structure and business model applied to a pre-selected IRA product. In order for 

sales of these products to continue, we request that the Department provide additional guidance 

regarding the intended application of Section IV to these important products.

H. The BICE Disclosure Requirements will require access to third-party information and 

massive overhauls of administrative systems.

FSI believes investors can make better choices when they are properly informed of 

considerations and factors relative to the advice and services being offered. In order to provide 

investors with the information they need, investors should receive concise, consolidated disclosure 

documents written in plain English. However, the Proposal creates a complex set of new disclosure 

requirements that may have the perverse effect of limiting the availability of affordable 

investment advice. The disclosures mandated by the BICE are voluminous, costly, and in certain 

respects in conflict with federal securities rules. Furthermore, it is unclear whether the proposed 

disclosures could be delivered in a manner and format that will allow investors to make betterinformed decisions.

1. The Point-of-Sale and Annual Disclosure requirements are duplicative, 

and, in the format requested, may conflict with existing regulations.
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The BICE requires that, before executing a new asset purchase, advisors must provide 

investors with an individualized disclosure estimating the total cost of the investment.100 The 

Proposal also mandates an annual disclosure to each investor that lists: (i) each asset that the 

investor purchased or sold during the prior year and the corresponding transaction price; (ii) the 

total dollar amount of all fees and expenses paid with respect to each asset that the investor 

purchased, held, or sold during the year; and (iii) the total amount of all direct and indirect 

compensation that the advisor and firm received in relation to the purchase, retention, or sale of 

the investor’s assets.101

These requirements duplicate disclosures that advisors already provide to investors, and

they will increase financial advisors’ ongoing compliance burdens significantly. To ensure that they 

capture all of the information required by the Department in the disclosures, financial advisors will 

be forced to retain accounting, financial, and programming experts to redesign their sales, 

transaction, accounting, reporting, and information technology systems. It will also require 

significant legal and consulting resources to ensure that the content, format, timing, and delivery 

of the disclosures comply with the BICE.

The point of sale disclosure, in particular, raises additional concerns. The BICE would 

require an advisor to furnish a chart to a Retirement Investor that shows, for each Asset 

recommended, the total projected cost for 1-, 5- and 10-year periods, expressed as a dollar 

amount, assuming an investment of the dollar amount recommended by the financial advisor and 

applying “reasonable assumptions” regarding investment performance.102 While this information 

superficially resembles the information provided in the fee table included in prospectuses for 

mutual funds and variable annuities, the BICE disclosure differs in certain material respects:

• The BICE requires the information to be expressed in terms of the amount proposed to be 

invested, rather than the $10,000 required by SEC requirements for mutual fund and 

variable annuity prospectuses.103

• Although SEC requirements mandate that costs be calculated based on a 5% return 

assumption, the BICE instead requires that the return assumption be “reasonable” and 

further provides no comfort that the 5% rate of return used as a proxy or safe harbor for 

a rate that would be considered to represent a “reasonable” assumption of investment 

performance.

• The BICE requires the advisor to make an assumption of “reasonable performance” in 

order to calculate the cost information, but making an assumption of future performance 

would violate SEC and FINRA rules prohibiting broker-dealers from using communications 

projecting future performance of an investment.104

 

100 Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21960, 21985.

101 80 Fed Reg. 21960, 21985.

102 Id. at 21,985. 103 See Item 3 of Registration Statement Form N-1A (for mutual funds) and Item 3 of Registration Statement Form N4 (for variable annuities), adopted by the SEC. 104 The SEC does not permit future performance projections. See, e.g., 17 C.FR. §§ 230.156, 230.482 (Rules 156 

and 482). Disclosure of future fees (by projecting future performance) effectively conflicts with such rules. See 

also FINRA Rule 2210(d)(1)(F), which prohibits member firms from using communications that project performance 

of an investment.
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• Even if SEC and FINRA rules did not prohibit such projections, broker-dealers and 

investment advisers do not have access to the tools and data necessary to create the 

cost projections. To the extent such projections exist, financial institutions would need to 

purchase this information from third-party services. In this regard, FSI members are 

uncertain whether there are any third party services currently available that could 

reliably provide the tools and data necessary. Moreover, firms may end up providing 

different cost disclosures on the same exact investment given different disclosure 

requirements thereby confusing investors.

• Since the “fee table” information is not required for most Assets available under the 

BICE, the existing SEC requirement is not transferable to the BICE requirement. 

Thus, while the BICE appears to draw on an existing SEC disclosure requirement in the 

content of the point of sale disclosure, its efforts are ineffective in application. Even if brokerdealers and investment advisers had access to the tools necessary to project future costs, doing so 

based on proposed investment amounts would be enormously time-consuming and cost-prohibitive. 

For the reasons cited above, FSI recommends that the Department reconsider the scope of 

the initial and annual disclosure requirements. If it does not eliminate these requirements, the 

Department should at a minimum reconsider the scope of the disclosures and ensure that they 

provide investors with useful information that is concise and that does not conflict with existing 

regulatory requirements. In Section XI of this letter, FSI offers for the Department’s consideration 

an alternative disclosure regime that our members believe strikes the appropriate balance 

between investor protection and the Department’s disclosure goals. 

2. The scope, breadth, and complexity of the BICE web page disclosure 

requirement render it unmanageable. 

The BICE requires massive and overly-burdensome internet disclosures. The exemption 

requires that each financial institution maintain a machine-readable public website that reports: 

(i) the direct and indirect compensation to the firm, each individual financial advisor, and each 

firm affiliate that was provided in connection with each asset that was purchased, held, or sold 

through or by the financial institution within the prior 365 days; (ii) the source of all of the 

compensation; and (iii) how the compensation varied within and among the classes of assets that 

were available to be purchased, held, or sold through or by the firm.

In the independent financial advisor model, advisors have access to a vast array of 

investment products that they offer to their clients. Each product has unique pricing structures, and 

several versions of each product are typically offered. For example, when one factors in the 

various share classes available, a single mutual fund family might offer more than 500 versions 

of their funds. In addition, multiple broker-dealer representatives may receive compensation for 

the sale of a particular product as a result of a team-based sales approach employed by the 

firm, or ensemble practices that require financial advisors to split compensation for the sale of a 

particular product or group of products. Therefore, compiling, presenting, and maintaining the 

required internet disclosure for each financial advisor affiliated with a financial institution—some 

of whom are affiliated with thousands of financial advisors—will be a monumental undertaking 

that will impose significant costs on advisors and firms. In addition, the scope, breadth, and 

complexity of such an undertaking will lead to inadvertent errors that could confuse investors or 

expose financial advisors and financial institutions to an unreasonable risk of litigation.
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Moreover, it is questionable how useful this information would be to investors, especially given 

the enormous expense and effort that would be required to produce it. The Department should, 

therefore, eliminate this requirement from the BICE.

The Department’s efforts to provide massive amounts of data to investors will likely 

oversaturate investors rather than induce greater transparency. Investors already receive more 

information than they can consume in any reasonable amount of time. However, very little of this 

information allows investors to make true, meaningful comparisons between investment products. 

We believe that investors would benefit from more simplified, standardized disclosures that allow 

them to make direct comparisons between investment products not only concerning price and fees, 

but on quality and features as well. The summary prospectus provided for mutual fund investments 

is an example of simplified disclosures that can be useful and can lead to greater transparency 

for investors. The Department’s approach will only increase “information overload” by providing 

information that will be so complex, and so detailed, that even sophisticated investors will find it 

daunting rather than enlightening.

In addition, the website disclosures may be cost-prohibitive for small firms that would be 

required to develop a BICE compliant disclosure system. Large broker-dealer firms often have a 

significant level of control over the information sources needed to gather and process the 

information required by the web disclosure. By contrast, our members’ experiences with the 

section 408(b)(2) disclosure have demonstrated that firms that clear on a fully disclosed basis will 

find it much more difficult to obtain all of the information necessary to comply with these 

disclosures. For purposes of section 408(b)(2) compliance, many independent broker-dealers have 

been forced to hire outside service providers to collect the necessary data, at costs of up to $100 

per account. Even assuming half that cost for a much more complex disclosure regime under BICE, 

small firms will once again spend millions of dollars attempting to locate and retain providers to 

assist with data collection. These website costs alone will be significant enough to cause certain 

small independent broker-dealers and investment advisers to exit the retirement plan market.

Moreover, the website disclosure raises significant concerns regarding potential advisor 

recruiting and may have the unintentional consequence of driving inflation in certain segments of 

the investment market, resulting in higher investment costs. We fear that as a result many smaller 

firms will likely decide that the benefits of servicing retirement assets simply to do not outweigh 

the costs – real or potential.

Our members negotiate commission terms with each individual financial advisor. Collecting 

information on the terms of each individual financial advisor’s compensation with regard to each 

asset that an investor could possibly purchase, hold or sell, and formulating that information into a 

webpage will result in a massive disclosure, and massive costs.

I. FSI questions the Department’s authority to create a new private right of action.

The BICE would create a private right of action against a financial advisor for breaching 

the terms of the contract at the core of the exemption. The creation of this new right of action 

raises concerns amongst our members for several reasons. First, there appears to be no statutory 

authority under ERISA that would permit the Department to make a failure to comply with the 

terms of a regulation (or, in this case, an exemption) subject to a private right of action under 

state law. Second, the Department’s attempt to transfer broker-dealer enforcement to a contract 

law regime impinges upon the ability of both the SEC and FINRA to apply their own enforcement 
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authority in this area. Finally, by creating a private right of action under the BICE, the Department 

attempts to replace the will of Congress with its own desire to enforce ERISA’s fiduciary duties in 

the context of IRAs by leveraging state court contract enforcement authority.

The creation of a new private right of action appears to be beyond the scope of the 

powers delegated to the Department pursuant to ERISA. Congress authorized certain private 

rights of action under ERISA section 502. ERISA section 502(a)(3) authorizes a private action “to 

enjoin any act or practice which violates [ERISA]” or “to obtain other appropriate equitable 

relief.” Private ERISA actions are based on the terms of the plan or program under which benefits 

are sought, and state law, such as contract law, is effectively preempted. In drafting the statute, 

Congress carefully defined the circumstances in which a private right of action would be 

appropriate in the context of an ERISA plan benefit105, and years of jurisprudence have served to 

further develop principles that provide for private rights of action by participants and 

beneficiaries.106 The BICE would unilaterally upend these principles based solely on whether a 

financial advisor would receive differential compensation associated with the provision of 

investment advice. It would allow plaintiffs to seek damages that extend far beyond the benefits 

lost and associated investment gains, and would allow the plaintiffs’ bar to plead for vague and 

often unquantifiable “benefit of the bargain” damages, including expectation damages, 

consequential damages, and even punitive damages in some cases. There is no indication that 

Congress intended to endow the Department with the authority to create such an expansive right 

of action against any fiduciary. Neither the preambles in the Proposal, nor the Department’s 

lengthy regulatory analysis, identify the source of any Congressional authority that directs or 

authorizes the Department to create a new private right of action under state contract law with 

regard to plans and IRAs. Furthermore, there is certainly no indication that Congress would 

authorize the Department to craft such a right to apply only to financial advisors, and no other 

fiduciaries in any context.

In addition, the BICE private right of action displaces SEC and FINRA authority over 

brokerage industry enforcement, and resolution of investor disputes. In particular, FINRA rules 

provide for both a dispute resolution process and an investor complaint process.107 These 

processes allow investors to seek redress for many of the activities that would be at issue in a 

BICE contract dispute, such as a failure to disclose a material conflict or a broker’s receipt of 

excessive commissions. However, the new state law contract right of action will prompt the 

plaintiffs’ bar to encourage investors to forgo FINRA’s complaint processes in favor of proceeding 

directly to court and the potential for lucrative damage awards. FINRA, in many cases, may not 

have an opportunity to investigate and enforce its own regulatory regime before BICE disputes 

appear in court. The BICE private right of action will therefore undermine the certainty associated 

with current agency dispute and enforcement practices in the broker-dealer industry, and will 

create new risk exposures that will result in increased advice costs and cause certain investment 

firms to exit the market.

By relying on state contract and tort remedies, rather than uniform federal law, to enforce 

the fiduciary standards it would impose on retirement advisors, the BICE would be highly 

disruptive. It is one of the great successes of ERISA that uniform law generally applies nationally 

to the retirement system and the enforcement of the legal standards under ERISA. To our 

knowledge, the Proposal represents the first instance in which the Department has purposefully 

 

105 No such cause of action currently exists for purposes of an IRA. 106 See, e.g., Alexander v. Sandoval, 532 U.S. 275 (2001). 107 See, e.g. FINRA Rule 12200. 
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abandoned that essential principle and remitted the enforcement of ERISA standards to the 

vagaries of state law. Similar precepts apply under the securities law, because of the national 

interest in the applicability of uniform law in that area as well. For example, Congress enacted (i) 

the Private Securities Litigation Reform Act of 1995 (PSLRA) to provide uniform national law on 

certain aspects of securities litigation; (ii) the National Securities Markets Improvement Act of 

1996 (NSMIA) to define the boundaries of state regulatory authority over securities offerings in 

the context of a national securities market, making the SEC the exclusive regulator of offerings in 

many circumstances; and (iii) the Securities Litigation Uniform Standards Act of 1998 (SLUSA) to 

preempt certain class actions that alleged fraud under state law "in connection with the purchase 

or sale" of securities. This lack of uniformity under the BICE will complicate the availability and 

delivery of services to plans, participants and IRA owners in entirely unanticipated ways.

Furthermore, the BICE includes a provision which would require financial advisors to 

warrant that they are in compliance with all applicable laws. Broker-dealers are subject to a 

myriad of laws and regulations from many jurisdictions, including the SEC, FINRA, and all 50 

states. Investment advisers are subject to a well-defined system of regulation under state or 

federal law supported by SEC regulations. Dual registrant firms, like the vast majority of FSI 

members, are subject to both regulatory regimes. The BICE would create a situation in which even 

an inadvertent breach of a law or rule that has nothing to do with the individual investor’s 

situation could create a right of action for rescission or damages under the terms of the 

agreement between the firm and the customer. This would create potentially unlimited liability 

exposure for broker-dealers and investment advisers, and may prompt many firms to consider 

leaving the market for advice to retirement plans.

Finally, we are concerned that the enforcement of fiduciary principles through a private 

right of action impinges on Congress’s exclusive right to legislate at the federal level. The 

Department clearly has the authority to issue “regulations, rulings, opinions, and exemptions” 

pursuant to section 4975 of the Code, including those that relate to IRA plans. However, we find 

no provision under ERISA or the Code that would allow the Department to enforce ERISA’s 

fiduciary principles with regard to IRAs, and certainly no ability to direct state courts to use 

contract or tort principles as a surrogate for such enforcement authority. To the extent that the 

Department asserts that ERISA’s fiduciary duties should apply ERISA section 404 principles to IRAs 

in the same manner as they apply to plans, the Department has the ability to work with Congress 

in the legislative process. And we note that responsibility for the tax provisions that are the 

analogues to ERISA section 404(a) – the “exclusive benefit” requirement of Code section 401(a) 

and related provisions -- were not transferred to the Department in Reorganization Plan No. 4. 

Instead, the Department uses the BICE private right of action to place IRAs on par with employersponsored ERISA plans from a fiduciary perspective, substituting state court power for 

Departmental regulatory authority in an area where Congress has affirmatively declined to 

legislate. We urge the Department to review and elaborate on its statutory authority as part of 

this public rulemaking process or eliminate the contract requirement from the BICE.

J. The BICE grandfathering provision should be expanded.

While the Department appears to have recognized a need for relief with regard to IRA 

accounts established prior to the effective date of the BICE for advisors who did not consider 

themselves to be fiduciaries,108 in order to rely on the relief, the financial advisor is prohibited 

 

108 Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21960, 21977.
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from providing any further advice to the IRA account owner regarding the purchase, sale, or 

holding of the Asset after the applicability date of the BICE.109 Therefore, a broker-dealer or 

investment adviser relying on this ‘grandfather’ provision would need to implement controls to 

ensure compliance with this “stand still” provision. Therefore, the provision would require a 

massive re-papering of existing accounts in order to move forward with any subsequent advice –

a process that, for the reasons described in Sections VI.G. and VI.H. above, would be 

prohibitively costly for broker-dealers and investment advisers in many respects, and 

inadvertently expose them to liability for a prohibited transaction in others. 

The structure of the current grandfathering provision is impractical given customary client 

maintenance procedures for most broker-dealer and investment adviser firms. Many firms offer 

quarterly or annual reviews of investment accounts on an individual basis. The grandfather 

provision would preclude this practice, and would therefore present an immense repapering 

challenge involving tens of millions of accounts.

Moreover, it is unclear whether the grandfather provision would allow financial advisors to 

provide ongoing services under certain existing IRA arrangements. To the extent that a financial 

advisor services an existing IRA arrangement that requires the advisor to rebalance the investment 

portfolio after the effective date of the BICE, it is uncertain whether such action would be 

considered the provision of “advice,” and would destroy grandfather protection. Similarly, 

because the grandfather provision provides no protection for existing IRA arrangements that 

contain investments that are not Assets under the BICE, it is unclear how advisors will be expected 

to handle these assets as of the exemption’s effective date. Adding to this complexity is the fact 

that several of these assets will be illiquid and may also have dividend reinvestment provisions.

The final exemption should address these matters and provide a clear path to compliance for 

advisors.

In addition, the current grandfather provision could have certain incongruous consequences 

for Retirement Investors. Currently, the grandfather provision requires a financial advisor and a 

firm to discontinue the receipt of certain types of compensation, such as revenue sharing, if the 

advisor provides investment advice to the accountholder after the BICE effective date. However, if 

the financial advisor simply provides no additional advice regarding an existing arrangement, the 

advisor would not need to avail himself of the protection of the BICE, and the advisor and the firm 

would be permitted to continue to receive payments otherwise permitted under the current rule.

The financial advisor would also avoid the disclosure and liability costs associated with the 

exemption in its current form. As a result, financial advisors would have a perverse incentive to not 

provide further advice, which surely is not what the Department intends, and stands contrary to 

our interest in protecting the best interests of investors. 

While we appreciate the Department’s attempt to provide an exemption for pre-existing 

accounts, the relief proposed is extremely narrow and not likely to be meaningful in practice 

given the rule’s conditions. Instead, we support replacing the proposed pre-existing transaction 

rule with a conventional grandfather rule that offers existing protections for transactions 

(products, platforms, and underlying investments, where applicable) and relationship agreements 

executed prior to the effective date of the final rule. The grandfathering provision would apply 

to a product or platform (and underlying investments) without regard to whether the product or 

underlying investment is eligible for protection under the BICE.

 

109 Id. at 21,987.
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K. The BICE recordkeeping and data request requirements are costly and 

administratively cumbersome.

The BICE requirement that financial institutions retain all records relating to their 

compliance with the BICE for six years, and that they provide unconditional access to those 

records during business hours to the Department, the Internal Revenue Service, retirement plan 

participants, retirement plan fiduciaries, and IRA owners (and their representatives) will create a 

significant administrative and financial burden on financial services firms. Upon request by the 

Department, firms would also be required to produce massive amounts of information about each 

asset that their customers purchase, hold, or sell, and that information would be required to be 

reported within six months of the Department’s request. These data requests could include 

detailed information about investors’ accounts and the assets managed by the firm, including 

information about the aggregate shares or units purchased, the aggregate purchase price and 

the investor cost of those purchases, the revenue the firm and its affiliates received related to the 

assets (including the identity of each revenue source), and comparable information related to all 

asset sales and holdings.

Firms would also be required to disclose detailed information about each investor, 

including the identity of the investor’s financial advisor, quarterly return information for the 

investor’s portfolio, and external cash flows into and out of the investor’s portfolio (including the 

date of the transfers). Most troubling of all, perhaps, is that the Department would have the 

power to publicly disclose any and all of the information it obtains pursuant to Section IX(d), so 

long as it removes individually-identifiable financial information of the investor. As the 

Department would maintain the right to disclose the identity of the financial advisor servicing the 

particular investor we request that the Department clarify the circumstances in which information 

collected pursuant to BICE Section IX(e) would be publicly disclosed.

Retaining and producing this data will be a massive undertaking that will require the 

expenditure of logistical, technical, legal, and financial resources to ensure compliance with the 

BICE requirements. This huge undertaking will come with astronomical costs that ultimately will be 

passed on to investors. Moreover, these data retention and disclosure requirements may duplicate 

or overlap with existing regulations, and the massive data pools that financial institutions will be 

required to compile are certain to attract criminals and others who wish to use identification 

techniques to appropriate investors’ personal financial information for their own uses. In order for 

the BICE to be a workable exemption, these data retention and disclosure requirements must be 

greatly scaled back so that the costs of compliance are reasonable. The Department must also

clarify whether the BICE requires the maintenance of records and recordkeeping standards that 

are beyond those required under other regulations (e.g., SEC Rules 17a-3 and 17a-4). Lastly the 

Department must take steps to ensure that it can guarantee the safety and security of the 

individually-identifiable financial information that it will receive. FSI notes that FINRA, which 

proposed a comprehensive customer data collection project last year, has indicated that it is 

reconsidering the proposal in light of, among other things, security concerns associated with 

collecting and maintaining sensitive customer information.110

 

110 See, e.g., SIFMA Letter to Marcia E. Asquith ,Office of the Corporate Secretary, FINRA, Re: Regulatory Notice 

14-37 available at http://www.sifma.org/issues/item.aspx?id=8589952228 See also, FINRA’s statement regarding 

changes to CARDS proposal, available at

https://www.finra.org/file/regulatory-notice-13-42-update.
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L. The BICE should not be limited to nondiscretionary advisory arrangements. 

Finally, while the BICE was developed and proposed in connection with the expansion of 

the investment advice fiduciary definition, we suggest that it provides sufficient safeguards (with 

the refinements suggested in this letter and by other commentators) that it can also be 

appropriately available to fiduciaries with discretion over the investment of plan and IRA assets.

The core principles of the BICE – an obligation to act in the best interest of the retirement investor, 

supported by useful and effective transparency – are equally applicable to both discretionary 

arrangements and nondiscretionary arrangements. It may be that required disclosures would 

differ in these two circumstances, but otherwise we see no reason why the Department could not 

make the required findings under ERISA section 408(a) for both types of arrangements. And this is 

an opportunity to introduce a small measure of efficiency into the Proposal; the availability of the 

same exemptive relief for both types of arrangements would permit the construction of a single 

ERISA compliance procedure, rather than separate compliance procedures for discretionary and 

nondiscretionary arrangements that are otherwise administered on the same basis (which is often 

the case in the industry). We encourage the Department to act on this opportunity.

VII. Proposed Class Exemption for Debt Securities Transactions Effected on Principal 

Basis

In addition to the BICE class exemption, the Department has proposed to create a 

separate class exemption for certain transactions in debt securities effected on a principal basis, 

titled “Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and 

Employee Benefit Plans and IRAs” (Principal Transactions PTE). The Department stated that the 

exemption would permit principal transactions in certain debt securities by a financial advisor and 

his or her financial institution under conditions that would safeguard the interests of Retirement 

Investors. FSI is supportive of a class exemption for principal transactions in debt securities as it is 

customary for purchases and sales of debt securities to be effected on an principal basis in the 

fixed income markets, and broker-dealers who are deemed to be “fiduciaries” under the 

Proposal would be foreclosed from providing advice to Retirement Investors with regard to debt 

securities if class exemption relief were not provided. However, FSI has concerns with various 

requirements of the Principal Transactions PTE that it believes will be unworkable or contrary to 

the best interests of Retirement Investors. 

A. The Department should confirm that riskless principal transactions are not subject to 

the Principal Transactions PTE.

It appears from the text of the Principal Transactions PTE that the Department intended to 

limit the PTE to transactions in which the debt security purchased from or sold to a Retirement 

Investor is for or from the financial institution’s inventory. More particularly, in several contexts, the 

Principal Transactions PTE describes the principal transactions covered by the PTE as transactions 

in which a financial institution purchases or sells “out of inventory.” The Principal Transactions PTE 

does not in any way mention or reference transactions effected on a riskless principal basis.111

The clear implication is that the Principal Transactions PTE is limited to principal transactions from 

inventory, and does not cover “riskless principal” transactions. Transactions effected on a riskless 

principal basis do not present the same degree of conflicts as those presented by principal 

 

111 A riskless principal transaction refers to a situation in which a broker-dealer after receiving a customer order 

purchases a security for resale to a customer to fill the customer’s order.
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transactions out of inventory. Riskless principal trades are the functional equivalent of agency 

trades; the fact that they are effected as a principal basis is simply reflective of the fixed income 

market structure. Moreover, riskless principal transactions ordinarily reflect better pricing than 

principal transactions from inventory, as the broker-dealer, in effecting the trade, needs only to 

account for costs associated with settlement risk and order filling, and does not have to account 

for inventory costs. To avoid any ambiguity, FSI urges the Department, if it proceeds with the 

Principal Transactions PTE, to confirm that the PTE does not cover riskless principal transactions, 

and that if effected by a fiduciary, these transactions would be subject to the BICE.

B. Separate contract requirements for principal transactions are problematic and 

costly.

The Principal Transactions PTE would require a financial institution and advisor to enter 

into a contract with a Retirement Investor pursuant to which they would acknowledge their 

fiduciary status, commit to adhere to “impartial conduct standards,” make warranties regarding 

compliance with law and material conflicts of interests, and provide specified disclosures 

regarding principal transactions and consent. This contract requirement is virtually identical to that 

for the BICE, except with regard to the required disclosures which are specific to principal 

transactions. As several of the asset classes covered by the BICE include debt securities, and 

transactions in debt securities are, as noted above, commonly effected on a principal basis, FSI 

members readily foresee situations in which they would need to enter into two very similar 

agreements with the same Retirement Investor covering the same transactions, creating ambiguity 

over which agreement – and which set of rules – governs. The Principal Transactions PTE suggests 

that the contract could “be part of a master agreement” with the Retirement Investor, but does not 

indicate that a Principal Transactions PTE contract could be combined with or integrated into a 

BICE contract. Thus, it appears that a broker-dealer effecting transactions in debt securities on a 

principal basis for a Retirement Investor account may very well need to enter into two agreements 

covering substantially the same subject matter with the Retirement Investor.

Moreover, the two agreements would pertain to the same transactions effected for the 

same customer account. Multiple agreements for one account will confuse Retirement Investors and 

will create the necessity for additional disclosures to assist Retirement Investors in understanding 

the paperwork and additional training of financial advisors to understand their obligations.

Additionally, FSI members believe that the operational and supervisory costs associated with 

maintaining separate forms of agreements, disclosures, and related policies and procedures will 

be excessively – and unnecessarily – costly. In light of these concerns, FSI urges the Department to 

eliminate the requirement for an agreement under the Principal Transactions PTE if the Retirement 

Investor has entered into a BICE contract with the financial institution and advisor.

C. Confirmation mark-up disclosure requirements will be operationally challenging.

The Principal Transactions PTE would require a financial institution to provide a written 

confirmation of the principal transaction in accordance with Rule 10b-10 under the Securities 

Exchange Act of 1934 that also includes disclosure of the mark-up, mark-down or other payment 

to the advisor, financial institution, or affiliate in connection with the principal transaction. FSI 

members note that confirmation rules currently applicable to broker-dealers, including Rule 10b10, do not require disclosure of mark-up information for transactions in debt securities. Adding the 

mark-up information to confirmations would be a substantial operational challenge for brokerdealers. Not only would they have to develop the systems and processes to add the mark-up 
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information to confirmations, but they would also deal with the complexity and challenges of 

maintaining two different types of confirmations, one with the markup information for Retirement 

Investors, and one without for customers who are not Retirement Investors.112

FSI members want to underscore that the mark-up information mandated by the Principal 

Transactions PTE will require substantial modifications and upgrades to current trading and backoffice systems, including those of third-party providers on which FSI members rely. Many FSI 

member firms are introducing brokers maintaining fully-disclosed clearing relationships, in which 

the clearing broker executes customer transactions on behalf of the introducing broker. 

Alternatively, FSI members may execute their customers’ transactions while relying on a clearing 

firm for clearing and custodial services, including sending confirmations. In either case, all of these 

firms will be required to work with their clearing firms and other third-party providers to modify 

their interfaces to ensure that not only the customer trade but also the appropriate mark-up 

information is captured and transmitted to the third party. Additionally, FSI member firms will be 

required to work with these providers to create oversight mechanisms to ensure that the correct 

information is included on the confirmations. In the event a mistake is printed and sent to a 

customer, FSI members will be required to work with these providers to amend and resend the 

confirmation.

These enhancements would necessitate the establishment of additional processes that will 

be both automated and manual in nature. Particularly for smaller firms without the requisite 

resources to build and maintain fully automated systems, the Principal Transactions PTE would 

require the creation of multiple additional manual processes. The manual nature of these additions 

presents a high level of operational risk such that these smaller firms may no longer be able to 

offer debt securities to their Retirement Investor customers. These additional processes create 

multiple opportunities for errors that will result in increased costs for firms to correct inaccurate 

information provided to customers and increased customer confusion following their receipt of 

multiple confirmations for a particular transaction. Firms will be required to hire additional 

personnel to track and log the additional mark-up information, input and transmit the markup 

information to the clearing firm for inclusion on the confirmation, and review customer 

confirmations to validate the accuracy of the information provided to the Retirement Investor. All 

of this will add to the cost of services provided to the Retirement Investor.

FSI members are also concerned that the proposed mark-up information requirement for 

confirmations places a disproportionate emphasis on the amount of the mark-up to the exclusion 

of other factors also important in evaluating the financial institution’s services in connection with 

effecting a principal transaction in debt securities. Mark-up information absent contextual 

information may be confusing, misleading, and inaccurate. FSI believes that Retirement Investors 

need contextual explanations to understand why they are charged for a transaction and why the 

services are necessary, rather than numerical information concerning the amount of the mark-up.

 

112 Working with the SEC, FINRA and the MSRB are both currently actively engaged in rulemaking that would 

require disclosure of mark-ups in certain principal transactions. See Pricing Disclosure in the Fixed Income 

Markets, FINRA Regulatory Notice 14-52 (Nov. 2014) (“FINRA Proposal”); Request for Comment on Draft Rule 

Amendments to Require Dealers to Provide Pricing Reference Information on Retail Customer Confirmations, 

MSRB Regulatory Notice 2014-20 (Nov. 2014) (“MSRB Proposal”). We urge the Department to allow FINRA 

and the MSRB to take the lead in rulemaking on this topic as their rules will apply across retirement and nonretirement accounts.
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FSI also believes that the information required to be provided to Retirement Investors 

before execution of a principal transaction in debt securities, specifically, that the transaction will 

be effected on a principal basis, along with available pricing information, will fully satisfy the 

Department’s concerns.

Accordingly, FSI urges the Department to eliminate the requirement in the Principal 

Transactions PTE to include mark-up information on confirmations for debt securities effected in 

reliance on the exemption. 

D. Multiple disclosures may be excessive and do not provide sufficient context and 

education regarding fixed income pricing considerations.

The Principal Transactions PTE would require a financial institution to provide multiple 

disclosures regarding principal transactions. First, the contract, which must be entered into before 

any advice is provided, must disclose that the financial advisor and financial institution may 

engage in principal transactions, and identify and disclose material conflicts of interest associated 

with those transactions. Second, prior to engaging in a principal transaction, the advisor or 

financial institution must disclose that the transaction will be effected on a principal basis, and 

provide available pricing information, including the mark-up, mark-down, or other payment, and 

contemporaneous price quotations from two third parties. It appears that this disclosure must be 

provided before each principal transaction. Third, as noted above, the financial institution must 

provide a confirmation for each transaction, including the mark-up, mark-down, or other payment. 

Fourth, the financial institution must provide an annual disclosure statement providing on a 

transaction-by-transaction basis the price and applicable mark-up, mark-down, or other payment. 

Taken together, these disclosure requirements call for multiple presentations of the same or similar 

information, and reflect a presumption that only the mark-up amount matters. The Principal 

Transactions PTE overlooks the importance of contextual explanation and education of Retirement 

Investors. FSI urges the Department to streamline the disclosures to eliminate repetition and to 

focus the disclosures on education of Retirement Investors regarding the markets for these types of 

transactions and the various factors impacting price and execution.

E. The pricing requirements of the Principal Transactions PTE are impracticable.

The Principal Transactions PTE would require a financial advisor and a financial 

institution to make two separate determinations regarding the price of a debt security at which a 

principal transaction is executed: (i) that the price is at least as favorable to the Retirement 

Investor as the price in a transaction in the same security that is not a principal transaction; and (ii) 

that the price is at least as favorable to the Retirement Investor as the contemporaneous price 

offered by two ready and willing counterparties that are not affiliates for the same debt security 

or a similar security if a price is not available for the same debt security.113

FSI members have serious concerns with the practicability of the pricing requirement. 

The first part of the requirement – that the price be at least as favorable to the Retirement 

Investor as the price in a transaction that is not effected on a principal transaction – presumes that 

the security in question is routinely purchased and sold on an agency basis for which pricing 

information would be available. However, in the experience of FSI members, there simply are no

transactions effected on an agency basis for a significant percentage of outstanding debt issues. 

 

113 80 Fed. Reg. 21989,22003.
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Rather, as explained above, the common practice is for a transaction in a debt security to be 

executed on a principal basis if the debt security is in the financial institution’s inventory or on a 

riskless principal basis if it is not. Given existing market operations, FSI members do not think that 

there will be information readily available about prices for transactions effected on a nonprincipal basis to support the determination required by the first part of the pricing requirement. 

Similarly, with regard to the second part of the pricing requirement – that the price be 

at least as favorable to the Retirement Investor as the contemporaneous price offered by two 

ready and willing counterparties for the same or similar security – FSI members believe that it will 

not be practicable to obtain the two-quote information to support the determination required. 

First, FSI members think it highly unlikely that counterparties would readily provide them with 

quotes for transactions that the counterparties would effect with their own customers, as that 

information is proprietary to the counterparties.114 Second, putting aside whether a counterparty 

would share proprietary quote information, FSI members do not know how to determine what 

security would be considered a “similar security” for purposes of the pricing requirement if quote 

information for the security that is the subject of the transaction were not readily available. FSI 

members acknowledge the Department’s reference to FINRA Rule 2121 for guidance in 

identifying a “similar security,” but point out that there simply may not be “similar securities” for 

which quotes are available.

More generally, FSI members believe that the pricing requirement conflicts with the 

fundamental objective of the Principal Transactions PTE because compliance with the requirement 

will not be in the best interest of Retirement Investors. The effort required to satisfy these 

requirements will impede efficiency in executing transactions in debt securities and will harm 

market liquidity. Further, the effort will have the effect of raising transaction costs for Retirement 

Investors, which would be completely at odds with the objective of the Department’s rulemaking. 

Finally, FSI members believe that compliance with these requirements will interfere with a brokerdealer’s policies and procedures to comply with the fair pricing rule that currently apply to their 

principal transaction activities.115 In light of these considerations, FSI urges the Department to 

remove the “pricing” requirement from the Principal Transactions PTE.

VIII. Proposed Amendments to Prohibited Transaction Class Exemption 84-24

In its current form, PTE 84-24 permits brokers who are fiduciaries to recommend the 

purchase of insurance or annuity contracts for a plan or IRA and to receive commissions on the 

sales. The broker-dealer industry has historically relied on PTE 84-24 heavily, particularly in the 

context of commissioned sales of annuity products to IRAs. Any contraction of or amendment to the 

relief offered under PTE 84-24 would appear to require the Department to offer a clear path 

toward compliance and sufficient flexibility to allow financial advisors and investors to adjust their 

arrangements accordingly. Unfortunately, PTE 84-24, in its proposed form, offers neither. 

The revised PTE would require brokers relying on this exemption to comply with the Best 

Interest standard, among other requirements. Premising PTE 84-24 on compliance with this 

standard will require many broker-dealers to discontinue relationships that have traditionally 

 

114 Counterparties may provide quotes for transactions to be effected between broker-dealers, but they would not 

readily share with a competitor quotes for transactions they might effect with their customers. 115 See FINRA Rule 2121. These rules already require broker-dealers to exercise diligence in assessing a market 

value.
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relied on the protections of PTE 84-24, and will reduce access to professional advice, particularly 

among IRA owners. 

The revised PTE 84-24 would also deny future exemptive relief for IRA transactions 

involving variable annuity contracts and other contracts that are securities under federal law.116

Financial advisors would be required to comply with the BICE in order to receive certain types of 

revenue that are commonly paid in conjunction with sales of these products. As discussed above, 

the impartial conduct standards under the BICE as well as its ambiguous “reasonable 

compensation” model – are incompatible with existing broker-dealer rules. To the extent that 

exemptive relief for the receipt of commissions for the sale of variable annuities flows exclusively 

through the BICE, these products will disappear from the landscape of investment options currently 

offered to retirement investors. Moreover, while it is fashionable to disparage variable annuities, 

in 2015 these products routinely are available with daily transferability to high-rate fixed 

accounts and/or guaranteed lifetime income features that can be very useful in retirement 

planning.

In addition, the new iteration of PTE 84-24 would require brokers to provide information 

regarding commissions, expressed as a percentage of gross annual premium payments in year 1 

and in succeeding years, as well as a description of any charges, fees, discounts, penalties or 

adjustments under the contract.117 As discussed in Section VI.H. regarding the BICE disclosure 

requirements, independent broker-dealers do not create, compile, or maintain this information. To 

the extent this information is available, it must be obtained from the annuity contract issuer. 

However, much of the required information is not currently required to be maintained by annuity 

issuers and each issuer presumably maintains its data in a different manner. In light of the large 

number of annuity contract issuers, this requirement will entail an extensive and expensive 

logistical effort by broker-dealers. We fear these costs will make servicing retirement investors 

cost-prohibitive for many firms. 

Finally, the proposed PTE 84-24 would provide new definitions for “insurance commission” 

and “mutual fund commission”, explicitly prohibiting revenue sharing, administrative fees and 

marketing payments, or payments from parties other than the insurance company product 

manufacturer.118 The definition of “insurance commission” lists only two forms of commission 

payments – renewal fees and trails - that would actually be permissible under the proposed 

exemption. In its current form, the amended definition forces financial advisors to speculate about 

the Department’s expectations regarding other types of permissible commission sales. In addition 

to the other characteristics that render the exemption untenable, this uncertainty clouds the 

compliance landscape for broker-dealers under an important exemption and exposes the industry 

to liability risks many advisors will be unwilling or unable to assume.

While PTE 84-24 offers little actual exemptive relief in its proposed form, certain changes 

would make the exemption more workable for the broker-dealer industry. In keeping with the 

Department’s stated commitment to preserve existing business models, PTE 84-24 should be 

expanded to allow compensation, in all forms, for both fixed and variable annuities and 

proprietary and non-proprietary mutual fund sales for plans, participants and IRAs. Furthermore, 

 

116 Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24 for 

Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies and 

Investment Company Principal Underwriters, 80 Fed. Reg. 22,010, 22,012 (Apr. 20, 2015). 117 Id. at 22,013. 118 Id. at 22,015.
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the exemption should provide for a more certain path to compliance with respect to commissioned 

sales (where compensation may vary by product type and, within a product type, by product 

manufacturer) and proprietary products. In the alternative, FSI again draws the Department’s 

attention to the alternative uniform standard in Section XI, which would eliminate the need for 

amendments to this exemption. That is, the fact that compensation may vary between annuities 

and mutual funds by product classes, or between specific annuities or specific mutual funds, or 

between proprietary and nonproprietary products, does not mean that any given investment 

recommendation is not in the best interest of the investor. And any lack of certainty on this point 

will artificially skew the recommendations investors receive. It is, therefore, incumbent upon the 

Department to address this point.

IX. Proposed Amendments to Prohibited Transaction Class Exemption 86-128 

PTE 86-128 as currently constituted provides section 406(b) relief for securities trading 

commissions and certain agency cross-trade transactions. This relief is available where a securities 

firm either has discretion with the management of the assets being traded or just provides advice 

with respect to that investment activity.119 The safeguards for plans and participants provided in 

PTE 86-128 are appropriate in either circumstance and, since firms often offer a particular 

investment strategy or service on either an “advisory” or “discretionary” basis, it is highly efficient 

to construct ERISA compliance procedures for both around the same exemptive relief.

We infer from the reference to Advisory Opinion 2011-08A in the preamble that the 

Department intends that PTE 86-128 will continue to be generally available for fiduciaries as 

defined under either subsection (i) or (ii) of ERISA section 3(21)(a), and we would appreciate 

explicit confirmation of that point in connection with any final amendments to this exemption. The 

only distinction on that point under the amendment is in the case of IRAs, where investment advice 

fiduciaries would be covered under the BICE rather than PTE 86-128. With the revisions to the 

BICE urged in this letter and by other commentators, we see no reason why relief for IRAs should 

not be available under either the BICE or PTE 86-128, and we recommend that section I(c) of the 

proposed amendment be deleted in any final amendment.

X. Applicability Date 

The Department’s eight month delayed applicability date is inadequate, even assuming 

adoption of the substantial changes necessary to make the Proposal workable. By way of 

example, the time between the publication of the Department’s interim final guidance under ERISA 

section 408(b)(2) and the effective date of the final regulations was two years.120 The 

Department recognized the need for this extended implementation period despite the fact that 

the substance of the section 408(b)(2) rules changed very little between the interim final draft 

and the final rule.

The Proposal is more complex and larger in scope than the section 408(b)(2) guidance. 

The disclosure requirements alone represent a substantial change for the investment advice 

industry. Furthermore, unlike the section 408(b)(2) guidance, the current Proposal bears only a 

vague resemblance to the Department’s 2010 proposal. The attendant exemptions, some of which 

 

119 Department of Labor, Advisory Opinion 2011-08A (June 21, 2011). 120 See Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure, 75 Fed. Reg. 41600 (July 

16, 2010); Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure; Final Rule, 77 Fed. 

Reg. 5,632 (Feb. 3, 2012) (with final effective date of July 1, 2012). 
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the broker-dealer industry will need to rely on to continue customary sales practices, are entirely 

foreign in application. Furthermore, broker-dealers will need time to budget for the costs 

associated with an entirely new compliance regime, even before the implementation process 

begins. The new standards for fiduciaries, the training and follow-up supervision required to 

ensure compliance, and the administrative and systems processes that will need to be 

implemented will require, at minimum, 36 months to be put into place. Even this estimation assumes 

that the Proposal is streamlined and revamped to eliminate many of the BICE disclosures, that a

conventional grandfather rule is adopted, and that many of the existing exemptions are 

preserved largely in current form. If these recommendations are not adopted by the Department, 

firms will require a much longer transition period. 

XI. Alternatives Proposed by FSI

In an effort to work constructively with the Department to protect investor interests and 

preserve existing broker-dealer and investment adviser business models that have served 

retirement investors well for decades, we offer the following alternatives to the Proposal. We 

suggest the Department in conjunction with the SEC and FINRA work on adopting the following 

requirements for firms and financial advisors providing investment advice to retail investors. We 

believe these suggestions represent initiatives that will satisfy the intent behind the Proposal, while 

avoiding many of the challenges posed by the Proposal that we have outlined in this letter. 

Specifically, we suggest an alternative standard of care that would unequivocally require 

financial advisors to act in the best interest of their clients while preserving the investor protections 

provided by the existing broker-dealer and investment adviser regulatory framework. 

Additionally, we suggest text for required policies and procedures to manage material conflicts 

of interest. Lastly, we offer a suggested disclosure regime that includes full and fair disclosure of 

all fees and expenses as well as material conflicts of interest related to potential investments. 

A. Uniform Standard of Care.

1. The Department should coordinate with the SEC, FINRA, and state securities 

regulators to offer a simplified standard of care that can be adopted 

uniformly across all types of investment accounts, and can apply to all 

investment professionals.

FSI believes that a uniform fiduciary standard of care is critical to the protection of 

retirement plan assets and the stability of the financial markets. Such a definition should explicitly 

require Financial Institutions and financial advisors to:

• Act in the best interest of their clients;

• Provide advice with skill, care, and diligence based upon information that is 

known, about the customer’s investment objectives, risk tolerance, financial situation, 

and other needs;121 and

 

121 FSI believes that a financial advisor should use reasonable diligence to obtain the necessary information to 

provide advice.
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• Disclose and manage material conflicts of interest, avoid them when possible, and 

obtain informed customer consent to act when such conflicts cannot be reasonably 

avoided.122

FSI believes that imposing this standard of care on financial advisors in conjunction with the 

robust existing broker-dealer and investment advisor regulatory regime will ensure that customers 

are protected to the degree desired by the Department. Aside from the suitability obligations 

imposed by FINRA rules, broker-dealers are also subject to licensing and registration 

requirements; “know your customer” standards; just and equitable principles of trade; strict 

guidelines regarding communications with the public; best execution standards; an active 

supervisory system; demanding examination requirements; and binding customer arbitration rules 

for the settlement of disputes. Investment advisers are likewise subject to a comprehensive 

regulatory regime, while dual registrants are obligated to comply with these combined regulatory 

requirements. The sum total of this regulatory framework creates an incredibly robust investor 

protection structure that would be jeopardized, not strengthened, by the Proposal. Our suggested 

standard of care is therefore an appropriate and balanced approach for maintaining current 

investor protections while still achieving the Department’s goals. Specifically, this standard builds 

on existing requirements and preserves their ability to protect investors while also mandating the 

necessary disclosure and conflict management requirements.

While this suggested standard of care would require a financial advisor to provide 

advice that is in the best interest of the customer, it would not necessarily require recommending 

the lowest cost investment option. We recognize that cost is an important factor in assessing the 

appropriateness of an investment recommendation. Nevertheless, research has shown that a 

consideration of cost alone does not necessarily result in better returns for investors.123 Assessing 

the appropriateness of an investment has been accurately described as a “subtle exercise that 

does not lend itself to gross generalizations.”124 Our suggested standard of care allows financial 

advisors to consider the full spectrum of material information in recommending an investment that 

is in the best interest of the investor. Factors such as risk tolerance, investment time horizon, past 

performance, diversification, age, other investments, and liquidity needs make up essential 

components of investment advice. A recommendation that considers the totality of these factors 

may in fact be the lowest cost option, however, that may not always be the case. While a 

financial advisor must determine that all related fees and costs are within the customer’s best 

interest, we believe that best interest should not be contingent on recommending the least costly 

option. 

2. Reasonable Policies and Procedures Designed to Manage Material 

Conflicts of Interest.

FSI supports the notion that Financial Institutions and financial advisors have an obligation 

to mitigate the impact of material conflicts of interest on the provision of investment advice to 

retail customers. We believe that in accordance with a requirement to act in the best interest of 

their customers, financial advisors must be subject to policies and procedures reasonably designed 

to mitigate conflicts concerning the provision of investment advice to retail investors. Financial 

 

122 Should customer consent be necessary it may be provided at account opening. 123 Morningstar Inc., Mutual Fund Share Class Limits and Share Class Suitability (May 15, 2006), available at

http://corporate.morningstar.com/us/documents/MethodologyDocuments/MethodologyPapers/ShareClassLimits

andSuitability.pdf. 124 Id. at 18.
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advisors have long noted that conflict mitigation is essential to maintaining the trust and 

confidence between advisors and investors. The open product architecture, in which Financial 

Institutions offer investment products from a wide variety of issuers, has long been the hallmark of 

the independent financial services industry, and was designed specifically to enable financial 

advisors to exercise their independent judgment in determining which products to recommend to 

investors. The independent channel has flourished, in part, based upon the reduced conflicts 

associated with the model.

The Department proposes to require the adoption of written policies and procedures 

reasonably designed to mitigate the impact of material conflicts of interest. The text of the BICE 

does not expand on this requirement and does not include any guidance or safe harbors. The 

Department stated that it did not mandate specific policies and procedures in order to provide 

flexibility for a firm to adopt policies and procedures that are tailored to the firm’s particular 

business model. While we appreciate the Department endeavoring to provide flexibility to 

Financial Institutions, an absence of specificity yields great uncertainty which results in higher 

compliance costs that are passed on to investors. 

The Department also states that it does not intend to mandate level-fees, although it notes 

that level-fees would be a satisfactory way for firms to comply with the BICE requirement. The 

endorsement of a level-fee structure, without any binding statement about potential variable 

compensation models bearing some similarity to those currently employed by broker-dealers and 

investment advisers has led to increased support for the belief that BICE will inevitably lead to 

level-fees. We do not believe that a level-fee system is in the best interest of investors as it will 

likely result in retirement advice becoming cost prohibitive for many savers of modest means. 

Additionally, we are further concerned that an endorsement of level-fees suggests a predilection 

for fee-based accounts. In addition to recommendations for investment products, financial advisors 

also assess the suitability of particular account types. The SEC and FINRA have expressed their 

view that in many circumstances commission-based accounts are in fact in the best interest of 

investors.125 As such, it is all the more important to ensure that the BICE reflects a workable 

framework that will protect retirement investors while ensuring that broker-dealers do not run 

afoul of the federal securities laws.

Therefore, FSI believes that any class-exemption designed to preserve commission-based 

brokerage business should include more specific requirements regarding the adoption of policies 

and procedures to mitigate conflicts of interest. In its discussion regarding the adoption of such 

written policies and procedures the Department lists six suggested “components” that were 

featured in FINRA’s Report on Conflicts of Interest.126 The Department merely states that a 

broker-dealer could consider these policies and procedures in seeking to meet BICE requirements. 

We believe that these represent sound policies and procedures that would in fact enable a firm 

to adequately mitigate conflicts of interest. As such, we suggest that in addition to the adoption of 

our proposed standard of care, the Department adopt the following text describing the 

requirement to manage material conflicts of interest:

 

125 Wall Street Journal, “SEC Targets ‘Reverse Churning’ by Advisors”, Feb. 24, 2014, available at 

http://www.wsj.com/articles/SB10001424052702304610404579403251590760602. 126 See Proposed Best Interest Contract Exemption, 80 Fed. Reg. 21960, 21,971-21,972 (April 20, 2015); Financial 

Industry Regulatory Authority, Report on Conflicts of Interest 26-27 (Oct. 2013), available at

https://www.finra.org/sites/default/files/Industry/p359971.pdf.
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A Financial Institution must adopt written policies and procedures reasonably designed to 

mitigate the impact of material conflicts of interest on the provision of investment advice to 

retirement investors. Such written policies and procedures must ensure that a Financial 

Institution:

(i) Avoids creating compensation thresholds that enable an Advisor to increase his or 

her compensation disproportionately through an incremental increase in sales;

(ii) Maintains a supervisory program that employs specialized surveillance of an 

Advisor that is approaching a threshold that would:

a. Result in a higher payout percentage in a Financial Institution’s compensation 

grid,

b. Qualify an Advisor to receive a back-end bonus, or

c. Qualify an Advisor to participate in a recognition club;

(iii) Maintains a neutral compensation grid that does not include higher payout 

percentages for particular products;

(iv) Refrains from providing higher compensation to an Advisor for the sale of 

proprietary products or products for which the firm has entered into revenue 

sharing arrangements;

(v) Monitors recommendations around key liquidity events in an investor’s lifecycle; 

and

(vi) Develops red flag processes that include compensation adjustments for employees 

who do not properly manage conflicts of interest.

FSI believes that written policies and procedures that address each of these six items will 

ensure that Financial Institutions mitigate the impact of conflicts of interest on the provision of 

investment advice by financial advisors. However, we also understand that the Department is 

concerned about apparent conflicts regarding revenue sharing arrangements or the conferring of 

other economic benefits on a Financial Institution by a product manufacturer, even in instances 

where the financial advisor will not receive a benefit for selling the product. While the 

independent financial services industry does partake in such arrangements, the very nature of our 

business model goes a long way to mitigate many of these conflicts. It is incredibly difficult for a 

firm to impute its interests through financial or other incentives on an independent contractor 

without jeopardizing that classification. 

Revenue sharing arrangements enable our member firms to provide affordable financial 

advice and services to investors of all means. We strongly support maintaining these revenue 

sources. Nevertheless, we also understand the Department’s legitimate concern regarding the 

impact of these potential material conflicts of interest. Therefore, we propose that under our best 

interest standard all types of revenue sharing or similar arrangements would be permitted, 

provided the Financial Institution satisfies two additional requirements. First the firm must disclose 

the arrangements in accordance with our proposed disclosure regime outlined below. Second, 

Financial Institutions would be required to maintain written policies and procedures reasonably 

designed to mitigate the impact of potential material conflicts of interest from revenue sharing 

arrangements.

FSI believes that our suggested compensation governance framework represents a 

balanced approach that meets the Department’s goals while preserving access to traditional 

commission-based brokerage arrangements. Requiring Financial Institutions to maintain such 

policies and procedures will offer significant incentive to firms to maintain robust oversight 
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programs of their revenue sharing arrangements. Moreover, this will be an additional mechanism 

that can be used to further ensure that investors receive advice that is in their best interests. 

B. Disclosure Alternative.

FSI believes investors can make better choices when they are properly informed of all the 

material facts concerning the investing process. In order to provide investors with the information 

they need, they should receive concise, consolidated disclosure documents written in plain English. 

Disclosures should be presented in the most effective manner to ensure they inform rather than 

intimidate investors. Unfortunately, the Department’s Proposal creates a complex set of new 

disclosure requirements and makes compliance with all those requirements a condition of the BICE. 

As Financial Institutions would need to rely on third parties to provide certain aspects of the 

information required in the BICE disclosure (such as projected anticipated cost), the disclosure 

requirement would render the BICE impractical. Moreover, and perhaps more significantly, FSI is 

concerned that the disclosure requirements are more likely to be confusing rather than helpful to 

investors. 

Nevertheless, we believe that the Department is correct to assert that investors should 

receive relevant disclosures from their financial advisors. As such, we have developed an 

alternate disclosure regime for the Department to consider in lieu of the BICE contract and 

disclosure requirements. FSI believes that the two-tiered disclosure regime outlined below will 

serve to inform investors of the information that is most critical to their decision-making, at the 

point in time when that information is most useful and in a method that is operationally efficient. 

We support the Department’s goal of ensuring investors understand the various ways financial 

advisors and firms are compensated for securities transactions. In fact, many Financial Institutions 

currently provide this important information on their publicly-available websites. These disclosures 

would be supplemented by required point-of-sale disclosures that will inform customers about 

important information concerning the particular asset and the nature of the compensation to be

paid to the advisor and the firm. Additionally, Financial Institutions will be required to provide an 

annual disclosure to investors of all fees paid by the investor to the firm in the previous year. 

Moreover, the first tier disclosure will serve the additional purpose of binding the financial 

advisor and Financial Institution to act in accordance with the applicable standard of care owed 

to the customer. Therefore, the purpose of these disclosures is not simply to inform, but also to 

ensure that customers receive an up-front, enforceable commitment on the part of both the firm 

and the financial advisor to act in a customer’s best interest consistent with the Department’s intent.

The two-tiered disclosures would include: 

• First Tier: A short-form disclosure document, provided as part of the account 

opening process127 that would focus on the issues that are of greatest

importance to investors. The short-form disclosure would also represent an upfront, enforceable commitment on the part of the financial advisor and the 

Financial Institution to act in the best interest of the client.128 The information 

detailed on the short-form disclosure would include:

 

127 The disclosure could be provided in paper or electronic format. 128 The client would be able to enforce the best interest standard of care pursuant to existing venues and processes 

for filing securities law claims against financial advisors and Financial Institutions.
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 A statement of the best interest standard of care owed by the Financial 

Institution to the client;

 The nature and scope of the business relationship between the parties, 

the services to be provided, and the duration of the engagement;

 A general description of the nature and scope of compensation to be 

received by the Financial Institution and financial advisor;

 A general description of any material conflicts of interest that may 

exist between the Financial Institution, financial advisor and

investor;

 An explanation of the investor's obligation to provide the Financial 

Institution with information regarding the investor's age, other

investments, financial situation and needs, tax status, investment

objectives, investment experience, investment time horizon, liquidity

needs, risk tolerance, and any other relevant information the customer

may choose to disclose, as well as an explanation of the investor’s 

obligation to inform the Financial Institution of any material changes in 

this information;

 A statement explaining that customers may research the Financial 

Institution and its financial advisors through FINRA’s BrokerCheck 

database or the IARD;

 A phone number and/or e-mail address the investor can use to contact 

the Financial Institution regarding any concerns about the advice or 

service they have received; and

 A description of the means by which a customer can obtain more 

detailed information regarding these issues, free of charge, 

including a link to the section of the Financial Institution’s website 

featuring the second tier disclosures.

Financial Institutions would be able to include additional information on the short-form 

disclosure should they choose to do so. However, any additional information must ensure that it 

does not detrimentally impact the ability of the investor to understand the material, nor does it 

oversaturate the investor with information. Lastly, Financial Institutions and financial advisors 

would be prohibited from including any language on the short-form disclosure that disclaims or 

otherwise limits the liability of the financial advisor or Financial Institution to act in accordance 

with the stated fiduciary standard of care.

• Second Tier -The second tier disclosure would provide investors with access to 

detailed compensation and material conflicts information via the Financial 

Institution's website or brochures to be provided free of cost. These disclosures 

would be in lieu of the website disclosure requirements of BICE Section III(c). 

Utilizing hyperlinks and other internet functionality, investors will be able to

receive detailed information concerning available investments, considerations 

for making investment decisions, and information explaining how a financial 

advisor and a Financial Institution receive compensation for a particular type 

of product. The disclosures are designed to allow investors to better understand 

both the existence of payments to be made to the Financial Institution and the 

purposes of such payments. The expanded disclosures featured on Financial 

Institution’s website would include:
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 A detailed schedule of typical account fees and service charges;

 A page containing information for each type of packaged product 

(e.g., mutual funds, variable annuities, unit investment trusts, etc.) that 

includes:

• Educational information describing the product,

• Considerations for selecting a particular share class or ways to 

reduce sales charges (if applicable), and

• Narrative descriptions of the types of arrangements in which the 

Financial Institution receives an economic benefit from a product 

manufacturer,

o The narrative descriptions should include a statement on 

whether these arrangements impact financial advisor 

compensation; and,

 A list of all product manufacturers with whom the Financial Institution 

maintains arrangements that provide economic benefits to either the 

financial advisor or the Financial Institution.

• To the extent the Financial Institution maintains tiers 

representing different levels of arrangements with product 

manufacturers, the Financial Institution must group the 

product manufacturers by tier and provide a narrative 

description of the benefits that different tiers offer product 

manufacturers.

i. Point of Sale Disclosures.

In addition to the above disclosures, we also propose that financial advisors be required 

to provide point of sale disclosures to customers, prior to the execution of any purchase 

transaction. We appreciate the Department’s concern that investors understand the costs 

associated with a particular investment. However, we believe it is important to note that this 

information is already available to investors in digestible formats through various other required 

disclosures. As such, we believe that financial advisors be able to utilize these already existing 

documents and educate investors on how to use these materials. Therefore, we propose that 

financial advisors be required to deliver no more than either a prospectus or a summary 

prospectus to investors at the point of sale. All the relevant cost information that would be useful 

to an investor is currently disclosed in a prospectus. Allowing financial advisors to rely on already 

existing disclosures will contribute to significantly lower implementation and operational costs, 

without detrimentally impacting investor protection.

Moreover, should a product feature a summary prospectus or similar summary document, 

delivery of the summary prospectus would satisfy the point of sale disclosure requirement. The 

Department previously stated that the provision of a summary prospectus would satisfy the 

prospectus delivery requirements under ERISA Section 404(c).129 We believe the same reasoning 

supported by the Department in Field Assistance Bulletin 2009-03 should apply in this context.

 

129 In authorizing the delivery of a summary prospectus the Department noted that “[t]he Summary Prospectus is a 

short-form document, written in plain English in a clear and concise format, and its required contents provide a 

summary of key information about a mutual fund that is useful to participants and beneficiaries in evaluating and 

comparing their plan investment options. Moreover, if a participant or beneficiary wishes additional information, 
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ii. Annual Disclosures.

In the BICE Section III(b), the Department proposes that an annual written disclosure be 

provided to customers by either a financial advisor or a Financial Institution. The Department 

specifically requested comment on whether this annual written disclosure would be helpful to 

investors in light of other disclosures mandated by the BICE. We believe that an annual disclosure 

of all direct fees imposed by the Financial Institution on the investor would be helpful to allow 

investors to have an understanding of the cost of their investing activity over a twelve-month 

period. We suggest that Financial Institutions be able to add a section to the customer account 

statement that states the total amount of fees charged to the investor by the Financial Institution 

over the previous twelve months.

We believe that between the suggested website and point-of-sale disclosures and 

requirements for customer confirmations of SEC Rule 10b-10 there is not a need to develop any 

additional disclosure that details the total compensation received by the financial advisor and the 

Financial Institution. Requiring an annual disclosure with this information will only serve to further 

confuse investors. Additionally, we do not believe the annual disclosure should require a list of all 

assets purchased or sold as this transaction information is already available for customers to view 

at all times through online account access which has become ubiquitous or is otherwise easily 

obtained.

iii. Grandfathering of Existing Accounts.

FSI suggests that for existing account holders, the first tier disclosures should be provided 

at the first time that a transaction is effected subsequent to the implementation date. However, 

Financial Institutions would not be prohibited from including first tier disclosures in an already 

scheduled mailing that occurs prior to the first provision of advice should the Financial Institution 

choose to do so. Delivery of the first-tier disclosure document to an existing customer will 

represent an up-front, enforceable commitment on the part of the financial advisor and the 

Financial Institution to act in accordance with our suggested best interest standard of care.

C. Coordination between the Department, the SEC, FINRA, and state securities 

regulators is critical to the success of the Proposal.

Any undertaking to implement our proposed alternative should be a coordinated and joint 

effort between the Department, the SEC, FINRA and state securities regulators. In the absence of 

proper coordination, the true meaning of terms such as “best interest” will be determined by the 

judicial system, not the appropriate regulatory agencies. This is a risk that independent financial 

services firms – and, by extension, their clients – cannot afford to take. The Department must work 

with the SEC to ensure that the Best Interest Standard reflected in the Proposal is consistent with 

the parameters for fiduciary rulemaking granted to the SEC under Section 913 of Dodd-Frank. 

The Department should also ensure that the Best Interest Standard is consistent with FINRA’s knowyour-customer rules and related guidance. The Department must also ensure that the Best Interest 

 the Summary Prospectus provides an Internet address that leads directly to the statutory prospectus as well as a 

toll free (or collect) telephone number and e-mail address for obtaining free of charge in paper or by email the 

statutory prospectus and other information.” See Department of Labor, Field Assistance Bulletin No. 2009-03 

(Sept. 8, 2009), available at http://www.dol.gov/ebsa/regs/fab2009-3.html.
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Standard is consistent with state investment adviser requirements. If not, we again recommend that 

the Department delay its rulemaking efforts in this regard in order to avoid multiple, and 

potentially conflicting, duty of care standards for the retirement plan investment industry.

To ensure consistency and effectiveness, the SEC and DOL should issue proposals 

requesting comment from the public on a uniform best interest standard that reflects the 

framework articulated in Dodd-Frank Act Section 913. The proposals must make specific 

reference to, analyze, and consider the recommendations of the SEC staff in its Section 913 study 

relating to a uniform standard of care for broker-dealers and investment advisers. Under this 

approach the proposed rules, while recognizing the different governing statutes of the issuing 

agencies, will more effectively address the broader regulatory environment for financial services 

firms and professionals. The proposals should also seek to harmonize the regulatory requirements 

and enforcement authority with respect to violations of the standard of conduct for brokerdealers and investment advisers. Finally, the agencies must also coordinate with FINRA staff to 

ensure that proper guidance is issued alongside a final rule. Feedback from FINRA’s Small Firm 

Advisory Board and various additional industry advisory committees should be solicited 

throughout the process. These steps will ensure that industry, government, and investor 

stakeholders can thoroughly engage in the rulemaking process and achieve the best result.

Conclusion

After giving the Proposal careful thought, our members remain concerned that, if the 

Proposal is implemented in its current form, the result will be less available and more expensive 

advice, and a decline in participation in the retirement system – both of which are 

counterproductive to addressing the challenges of decumulation support and participation levels 

among middle and lower-income Americans. However, we believe that important revisions can be 

made to the proposal to address these concerns and any unintended consequences.

We look forward to working collaboratively with the Department during this regulatory 

process to refine the Proposal’s conditions and requirements and ensure access to retirement 

advice, products and services for all investors. Now more than ever, individual investors need to 

have confidence in the reliability of the investment advice they receive.

Thank you for considering FSI’s comments. Should you have any questions, please contact 

me at (202) 803-6061.

Respectfully submitted,

David T. Bellaire, Esq.

Executive Vice President & General Counsel