10150 Meanley Drive, 1st Floor • San Diego • CA 92131 • (858) 530-4400 • Fax: (858) 530-1929

VIA ELECTRONIC SUBMISSION

July 20, 2015

Mr. Thomas E. Perez, Secretary

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Definition of the Term “Fiduciary”; Conflict of Interest Rule – Retirement 

Investment Advice (RIN 1210-AB32); Proposed Best Interest Contract Exemption (ZRIN 

1210-ZA25); Prohibited Transaction Exemption 84-24 (ZRIN 1210-ZA25) 

Dear Secretary Perez:

We are contacting you on behalf of Sorrento Pacific Financial, LLC (“SPF”). We are pleased to 

have the opportunity to provide comments with respect to the Department of Labor’s (the 

“DOL’s”) notice of proposed rulemaking concerning the Definition of the Term “Fiduciary”; 

Conflict of Interest Rule—Retirement Investment Advice (the “Proposed Regulation”) and the 

related proposed Best Interest Contract Exemption (“BICE”). 

SPF is a securities broker/dealer that is registered with the United States Securities and Exchange 

Commission (the “SEC”), the Financial Industry Regulatory Authority (“FINRA”), the 

Municipal Securities Rulemaking Board, all fifty (50) states, the District of Columbia, and 

Puerto Rico. SPF is also a Registered Investment Adviser with the SEC. Through financial 

networking arrangements, SPF provides non-deposit investment services to the clients of 

numerous banks located throughout the United States. 

As a provider of investment services, our goal is to act in the best interest of all clients 

irrespective of our status as a fiduciary. Currently, we provide fees and expense information to 

clients at the point of sale for their review and acknowledgment. SPF fully supports regulations 

that protect and support investors. However, we believe that the Proposed Regulation makes it 

harder to provide retirement advice to all investors since it contains overly broad definitions 

making compliance with its terms unmanageable, imposes burdensome disclosures, significantly 

increases costs, restricts investment choices and potentially jeopardizes the relationship between 

clients and their financial advisor. 

The Definition of “Fiduciary”
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The Proposed Regulation would institute a broad new definition of the term “fiduciary” for the 

purposes of ERISA. Under this new proposed definition, 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. 

SPF believes that the Proposed Regulation should cover only conduct that is reasonably 

characterized as fiduciary in nature, rather than extend to any investment-related activities in 

connection with which sales recommendations are made. Under the Proposed Regulation, 

fiduciary status results virtually any time there is a communication that might be viewed as 

merely suggesting an investment or investment management activity and is individualized, or 

specifically-directed, for consideration in making investment or management decisions. 

Financial services professionals engage in a variety of activities that we believe should not be 

considered “advice” under the rulemaking but that would be swept into the Proposed 

Regulation’s broad definition of “fiduciary.” 

We understand that the Department intends to include in the definition of “fiduciary” genuine 

advisory relationships where the advice provider is in a position of trust as to the advice 

recipient. In the context of a relationship where there is a reasonable expectation that the adviser 

has assumed a duty to act impartially and provide advice solely in the interest of the advice 

recipient without regard to its own, SPF supports ascribing fiduciary status and standards of 

conduct. However, not all activities with respect to investments should be held to such a high

standard when there is no reasonable expectation that a qualitative judgment has been given and 

received. We believe that the DOL’s concerns with the current regulation can be satisfied with a 

more tailored definition of “investment recommendation.” 

Additionally, the broadened definition of investment advice includes “sales” communications, 

certain educational materials and other situations where no intention to provide individualized 

fiduciary advice has been expected. Moreover, the proposal carves out large plan advisors from 

this definition. If a plan has 100 or more participants, or $100 million or more in plan assets, the 

advisor to that large plan does not have to be a fiduciary, while an advisor to a small plan does. 

Because an advisor to a small plan is not carved out of the rule, the advisor who is trying to 

market retirement saving options to a small plan is considered to be providing investment advice 

and must determine how to comply with the rule. 

The BIC Exemption Requirements

We support the DOL’s efforts to develop an exemption based on principles that will 

accommodate the business practices of a dynamic marketplace. We believe, however, the BIC 

Exemption (“BICE”) is unworkable as proposed, for the reasons stated below. 
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BICE requires that financial advisors obtain the client’s signature on a contract prior to entering 

into a relationship with a potential client. Understandably, clients may be confused by this 

requirement and refuse to sign a contract which means they cannot obtain the investment 

services or advice. SPF is concerned that the extensive data collection, recordkeeping and 

disclosures required by the BICE are overly burdensome and extremely challenging to obtain. 

The costs of adopting and enforcing policies and procedures and tracking and organizing annual 

disclosure data for each of the categories of proposed disclosures would entail complex 

administrative and operational issues. For example, prior to the execution of an asset purchase, 

an investor must be provided an individualized chart that projects the total costs (in dollars) of 

the investment for one-, five-, and ten-year periods. This would require firms to make 

performance projections for the investment in order to make a projection of the costs. In addition 

to this disclosure, BICE also requires that an annual disclosure be provided to the investor. The 

annual disclosure must list: (1) each asset purchased or sold during the previous year with the 

corresponding transaction price; (2) the total amount of fees and expenses with respect to each 

asset; and (3) the total amount of all direct and indirect compensation received by the advisor and 

the firm as a result of each asset. 

Moreover, BICE contains a requirement that firms maintain a publically- accessible website that 

is updated on at least a quarterly basis. This website must include: (1) the direct and indirect 

compensation payable to the firm, each individual advisor, and each individual affiliate of the 

firm for each asset available within the last year; and (2) the source of any and all compensation 

and its variations among assets. SPF is concerned about its ability to comply with these BICE 

disclosure requirements due to the impractical timing of the contract delivery, the cost, and 

complexity, as well as the ability to obtain and update the required disclosure information. 

The disclosures will require enormous effort and at a great expense. Conceivably, this could 

force all but the largest financial institutions to leave the retirement plan and IRA business, 

inhibiting the ability of average investors to obtain the advice they require. Moreover, key 

elements of the information required by BICE are already provided to plan participants through 

the participant-level fee disclosures currently required under section 404(a)(5) of ERISA, to plan 

sponsors through the ERISA section 408(b)(2) disclosure requirements, and to all retirement 

investors under other bodies of law. A feasible and comparably cost-effective alternative to the 

separate disclosures required by BICE would be to allow the disclosures required under section 

404(a)(5) and/or section 408(b)(2), together with any disclosures required by securities or 

insurance laws, to satisfy some or all of its conditions.

SPF is also concerned that certain conditions of BICE would conflict with established securities 

and insurance industry rules, particularly the disclosure standards. For the sake of consistency 

and to avoid confusion among investors, we recommend conforming these requirements to other 

Federal laws and applicable State insurance laws. For example, the Web page which must be 

maintained and be “freely accessible to the public” as a condition of exemptive relief could be 

interpreted as advertising material under state insurance laws and possibly a “prospectus” under 
10150 Meanley Drive, 1st Floor • San Diego • CA 92131 • (858) 530-4400 • Fax: (858) 530-1929

federal securities laws, and subject to additional regulation. In addition, for fixed annuity 

products, we are concerned that any material considered to be advertising would have to comply 

with state insurance regulations on advertising. Similarly, the transaction disclosures required 

under BICE prior to the execution of an annuity contract raise questions of whether approval 

from financial services regulators would be required. We urge the DOL to undertake a careful 

review of the well-developed body of federal and state laws governing securities and insurance 

before it promulgates a final rule and revise BICE to provide a viable method for ERISA 

fiduciaries to continue receiving variable compensation.

Another concern with BICE is the limits imposed on approved products. In order to qualify for 

the protections of BICE, the exemption contains a list of approved investment options available 

to plans and IRAs. The list of approved investments does not include managed accounts, 

commodities futures, or non-traded products such certain REITs and BDCs. The approved list 

may conflict with our requirement to offer a broad range of investment options to enable us to 

serve an investor’s best interest. 

Clear Standards for Reasonable Compensation

SPF is concerned about the multiple articulations of “reasonable compensation” among the 

conditions for exemptive relief under BICE and the amendments to existing exemptions. The 

absence of a uniform standard or set of criteria for evaluating reasonableness creates potential for 

confusion and encourages litigation. We believe that investors will be better protected by 

exemptions that include clear conditions designed to safeguard their interests, rather than 

subjective standards subject to multiple interpretations. 

Further, as it is structured, as a condition of exemptive relief, BICE places the service providers 

in the position of evaluating the reasonableness of their own compensation. As an example, the 

impartial conduct standard provides that the adviser and financial institution must affirmatively 

agree that unless the total compensation to be received is reasonable, an asset will not be 

recommended. This would, in effect, require the advice professional or institution to benchmark 

its own compensation. In addition, under BICE, a financial institution also now has the burden of 

determining the reasonableness of its compensation as a condition of being able to offer a limited 

range of investment options. While the “reasonableness” of compensation is a familiar condition 

under many ERISA statutory and class exemptions, assigning the service provider the 

responsibility for determining the reasonableness of its own compensation is not. We are 

concerned that providers will be unable or unwilling to make contractual warranties regarding 

reasonable compensation, particularly prior to making an investment recommendation, as it 

would require an accurate on-the-spot market value analysis. This would have a particularly 

negative effect on small plans and accounts, for which individualized level fee investment advice 

is often uneconomical or even unavailable. We strongly encourage the DOL to consider 

dropping the contractual reasonable compensation warranty from the conditions of BICE. 
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More complex regulations mean more hurdles and compliance costs, and a greater likelihood of

regulatory violations and/or lawsuits. Investment firms will have to review how they do business, 

and likely will decrease services, increase costs, or both. Under the Proposed Regulation, the 

smaller investor will become more expensive to serve, meaning that small investor may

ultimately lose access to their advisors and disproportionately bear the costs of excessive 

regulation. Consequently, the DOL’s Proposed Regulation risks hurting the small investor and 

retired persons they are intending to protect.

We urge the DOL to revise the Proposed Regulation, clarify its terms, rely on existing disclosure 

requirements and draft an exemption to provide a viable method for ERISA fiduciaries to 

continue receiving variable compensation. Saving for retirement is already difficult enough. 

Imposing a burdensome and complex regulation will not benefit investors. We propose that DOL 

work with the financial industry to make changes to the Proposed Regulation so that it will 

protect an investor’s right to choose how and from whom they receive critical retirement advice 

and services. 

On behalf of Sorrento Pacific Financial, LLC we thank you for considering these comments. 

Sincerely,

/s/ Maria J. Seedner /s/ Amelia Beattie

Maria J. Seedner Amelia Beattie

Corporate Counsel Chief Operating Officer