Delivered via e-mail to e-ori@dol.gov

July 21, 2015

Office of Regulations and Interpretations

Employee Benefit Security Administration

Attn: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, D.C. 20210

RE: Definition of the Term “Fiduciary”; 29 CFR §2509 and 2510

To Whom It May Concern: 

fi360 1 appreciates the opportunity to comment on the definition of “fiduciary” (hereinafter the 

“Proposal”) under Section 3(21) of the Employee Retirement Income Security Act (“ERISA”), application 

of the Best Interest Contract Exemption (“BICE”) to rollover advice, and impact of the Proposal on small 

accounts. 

General Comments

fi360 generally supports the revised definition of fiduciary. We believe that an updated 

definition of a sec. 3(21) fiduciary is long overdue for reasons articulated by the Department of Labor 

(the “Department” or “DOL”) in both the 2010 and current Proposal. Unfortunately, conflicted advice to 

self-directed plans, participants and IRAs is a systemic problem that demands regulatory action. We also 

look for a positive marketplace response from leaders in financial services who embrace a high fiduciary 

standard for all who provide investment advice.

2 The argument for a higher standard should not be

 1 fi360 offers a full circle approach to investment fiduciary education, practice management, and support. Its

mission is to help its clients gather, grow, and protect assets through better investment and business decisionmaking. Its clients are fiduciaries under securities, pension and trust law, including investment advisers, managers, 

trustees and plan sponsors. With legally substantiated Practices as its foundation fi360 offers training, tools, and 

resources in support of that mission. fi360 manages the Accredited Investment Fiduciary® (AIF®), Accredited 

Investment Fiduciary Analyst® (AIFA®), and Professional Plan ConsultantTM (PPCTM) designation programs. At 

present, there are more than 7,900 active AIF, AIFA, and PPC designees. For more information, please visit 

http://www.fi360.com/. 

2 See, e.g., Braswell, Mason, “Merrill Lynch’s John Thiel urges colleagues to work with DOL on fiduciary 

rule,” Investment News, Apr. 8, 2015. (Available at 

http://www.investmentnews.com/article/20150408/FREE/150409924/merrill-lynchs-john-thiel-urges-colleagues-
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July 21, 2015

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driven merely by regulatory mandates but, more importantly, by recognition that society expects 

professionals to adhere to a standard of care that places clients’ interests first. 3 The General 

Accountability Office report on IRA rollover advice4 confirms a systemic problem. That conclusion, 

combined with peer-reviewed literature documenting the cost of conflicted advice, and our own 

conversations with numerous advisors, calls for a pro-active response from regulators and industry.

fi360 generally supports the Proposal for legal, regulatory, and experiential reasons. From a 

legal perspective, as noted in the Proposal, ERISA requires plan fiduciaries to comply with fundamental 

obligations rooted in the common law of trusts.

5

 Even before enactment of ERISA, over the centuries 

judicial precedent reposed a high fiduciary standard of responsibility on persons entrusted with 

managing or providing professional advice on third-party assets.

6

 

Despite strong legal precedent under securities and trust laws recognizing advice as a fiduciary 

function, the distinction between fiduciary and non-fiduciary roles played by financial intermediaries has 

become muddled. Three decades ago, non-fiduciary salespersons could be more clearly distinguished 

from fiduciary advice-providers. Today, the lines are blurred. Salespeople now routinely render advice 

without fiduciary accountability and often use fiduciary-sounding job titles, including “financial adviser.” 

Moreover, dual registrants (individuals who are affiliated with firms registered as investment advisers 

and broker-dealers) are now commonplace and represent the fastest growing segment of the adviser 

marketplace.7 Hat-switching between fiduciary advice and non-fiduciary sales roles is permitted, even 

within a single client relationship. As a result, investors are confused, leading them to place their trust 

in salespersons that, under the law of agency, have a fiduciary duty to act in the best interest of their 

employer, not the customer. It is not that salespeople are inherently untrustworthy, but rather that 

they have significant conflicts of interest that make fulfilment of a duty of loyalty to the client unreliable.

 

to-work-with-dol-on?NLID=daily&NL_issueDate=20150408&utm_source=Daily-20150408&utm_medium=innewsletter&utm_campaign=investmentnews&utm_term=text.) See also Leonhardt, Megan, “Casady: Better DOL 

Rule Needs Only ‘A Couple’ of Improvements,” WealthManagement.com, May 21, 2015. (Available at 

http://wealthmanagement.com/blog/casady-better-dol-rule-needs-only-couple-improvements.) .

3 Numerous studies confirm that investors believe financial intermediaries act in their best interest. 

However, broker-dealers and investment advisers are subject to different regulatory structures but trends in the 

financial services market since the early 1990s have blurred the boundaries between them. See, e.g., Hung, Angela 

A., Noreen Clancy, Jeff Dominitz, Eric Talley, Claude Berrebi and Farrukh Suvankulov. Investor and Industry 

Perspectives on Investment Advisers and Broker-Dealers. Santa Monica, CA: RAND Corporation, 2008. (Available at 

http://www.rand.org/pubs/technical_reports/TR556).

4 Jeszeck, Charles A., “Labor and IRS Could Improve the Rollover Process for Participants,” U.S. Government 

Accountability Office, Mar. 7, 2013. (Available at http://www.gao.gov/products/GAO-13-30.)

5 “Definition of the Term “Fiduciary,” Federal Register, Vol. 80, No. 75, Apr. 20, 2015, at 21932.

6 In addition to imposing a fiduciary duty for managing the property of others, federal and state securities 

laws also generally require persons paid compensation for offering or providing investment advice to register as 

investment advisers and act in a fiduciary capacity. Moreover, the ‘shingle theory’ under common law also 

generally holds securities brokers to a fiduciary standard when they hold discretion over customer assets or have 

established a relationship of trust and confidence with the customer.

7 The North American Securities Administrators Association, which jointly administers the Investment 

Adviser Registration Depository, in January 2014 estimated the number of dual registrants at 262,166.
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July 21, 2015

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As such, the DOL initiative rightfully asserts that those who operate in a position of trust by purporting 

to give objective professional advice must be accountable under the statutory definition of an ERISA 

fiduciary. 

 As a consequence, financial regulations must be updated to assure that those who render 

personalized advice are accountable under a strong fiduciary standard of care, and financial services 

firms that offer advice must be prepared to operate in a culture of professional responsibility firmly 

rooted in the fiduciary standard. The proposed DOL rule seeks to strengthen regulations regarding 

advice rendered to retirement investors. Separately, Securities and Exchange Commission Chair Mary Jo 

White has announced that the SEC will be moving forward with rulemaking authorized under Section 

913 of Dodd-Frank.8 In this regard, we believe that the Department has in good faith promulgated a 

Proposal that is in alignment with securities rules of the SEC and Financial Industry Regulatory Authority 

(“FINRA”) to the extent permitted by law.9

Finally, fi360 draws upon many years of experience in forming a conclusion that the regulation 

of pension and retail investment advisors needs to be updated. For more than 15 years fi360 has 

provided training to financial advisors on fiduciary best practices and tools to assist them in developing 

prudent processes. Our direct interaction with advisors and special expertise in standards of investment 

fiduciary conduct provide us unique insights regarding the prevalence and impacts of conflicts of 

interest. During training sessions, our educators routinely inquire as to whether advisors in attendance 

have clients, friends, or family members who have suffered financial losses due to tainted advice from a

previous experience. Invariably, the overwhelming majority of class participants provide confirmation 

that biased investment advice is not an isolated event. As a result, while we believe that the majority of

 8 de la Merced, Michael J., “S.E.C. Chief Voices Support for Higher Advice Standard for Brokers,” The New 

York Times, Mar. 17, 2015. (Available at http://www.nytimes.com/2015/03/18/business/dealbook/sec-chiefvoices-support-for-higher-advice-standard-for-brokers.html?ref=topics&_r=0.)

9 Some critics of the Proposal have questioned whether the DOL worked substantively with the SEC on 

harmonizing their respective fiduciary standards. While Congress had different legislative purposes in enacting the 

federal securities laws and ERISA, it is our belief that the DOL has, in fact, adapted important features of securities 

regulation into the Proposal. These include: 1) a carve-out from the fiduciary definition for swap and securitybased swap transactions; 2) another carve-out for self-directed trades of the brokerage customer; 3) including 

treating referrals to investment professionals as fiduciary in nature (which is analogous to the SEC’s ‘solicitor’s 

rule’ under Rule 206(4)-3 of the Investment Advisers Act of 1940 [the “Advisers Act” that requires disclosure of 

conflicts], as well a corresponding requirement widely adopted by state securities administrators that solicitors 

paid to make referrals to federal or state-registered investment adviser firms register with the firm as an agent and 

hence become associated fiduciaries; 4) increased use of disclosure as a remedy for managing conflicts of interest 

(comparable to conflict-of-interest disclosure rules under the Advisers Act); 5) DOL’s suggestion that it rely in the 

Rule on client communication rules of the Financial Industry Regulatory Authority (“FINRA”) to determine whether 

investment advice has been offered; 6) the SEC’s temporary rule governing principal transactions with certain 

advisory clients; and 7) borrowing language from the Dodd-Frank requirement that, if the SEC promulgates a 

uniform fiduciary standard for brokers and advisers, they must act in the best interest of the client without regard 

to the financial or other interests of the firm. [Italics indicate duplicate language in Dodd-Frank and the Proposal.] 

See Dodd-Frank Act, Sec. 913(g) and Proposed Best Interest Contract Exemption, 29 CFR Part 2550, Federal 

Register, Vol. 80, No. 75, Apr. 20, 2015, at 21984.
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July 21, 2015

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both fiduciary and non-fiduciary financial advice-providers do seek to serve their clients’ best interest, 

good intentions are often thwarted in sales cultures where conflicts are systemic. Whether consciously 

or subconsciously, most people are influenced by financial incentives. At a time when most American 

workers face an uphill battle to prepare financially for retirement, the added costs associated with 

conflicts makes the challenge more daunting. Our experience gained through direct observation is 

backed by independent academic research such as by Dr. Daylian Cain of Yale University on the practical 

effects of conflicts of interest and disclosure,

10 and the Council of Economic Advisers11 on the high cost 

of conflicts to investors. 

Our comments on a limited number of issues that we believe require additional clarification 

follow.

Carve-Outs from the Definition of Fiduciary.

Platform Providers/Selection and Monitoring Assistance. 

One of the carve-outs from the definition of fiduciary in the Proposal is available to certain 

service providers such as recordkeepers and third-party administrators that provide a “platform” or 

selection of investment options for participant-directed plans. Under paragraph (b)(4) of this 

exemption, merely identifying investment alternatives meeting objective criteria or providing objective 

financial data regarding available alternatives to the plan fiduciary would not cause a platform provider 

to be a fiduciary investment adviser.

Although not clearly fitting in the categories cited in the Proposal, fi360 seeks clarification that 

analytical tools and objective data services provided to others fits within this carve-out or is otherwise 

excluded. For example, fi360 offers a paid subscription service that can be used by investment 

fiduciaries and others to apply an objective process to analyze, place on a watch list, or flag for 

replacement in a plan or IRA account investment alternatives such as mutual funds, ETFs, variable 

annuity subaccounts, and separately managed accounts based upon specific due diligence criteria. The 

fi360 tools also allow a subscriber to assess mutual funds and ETFs based upon an automated analysis of 

the investment products using nine due diligence criteria that results in the fi360 Fiduciary Score®.

12 

The criteria are used to benchmark the investment option to similar products within asset classes 

derived from Morningstar data. The factors used to calculate fi360’s Fiduciary Score are:

1. Regulatory oversight of the product

2. Length of investment or portfolio manager’s track record

3. Organization stability

4. Amount of assets under management

5. Style drift

6. Correlation of the investment product to its benchmark

 10 See, Moore, Don A., Cain, Daylian M., Loewenstein, George, and Bazerman, Max H.; Conflicts of Interest: 

Challenges and Solutions in Business, Law, Medicine, and Public Policy, (Cambridge University Press, 2010).

11 See, generally, “The Effects of Conflicted Investment Advice on Retirement Savings,” Council of Economic 

Advisers, February 2015. (Available at 

https://www.whitehouse.gov/sites/default/files/docs/cea_coi_report_final.pdf.) 12 Available at http://www.fi360.com/products-services/tools-overview/fi360-fiduciary-score.) 
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July 21, 2015

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7. Expense ratios and other fees

8. Risk-adjusted performance to its peer group

9. Relative performance over time to its peer group

The tools provided by fi360 are specifically intended to help investment fiduciaries apply 

prudent processes consistent with a high fiduciary standard of care. For example, entering the list of a 

plan’s designated investment alternatives (or funds, ETFs and variable annuities in a retail client’s 

portfolio, as the case may be) into the analytical scoring process allows investment fiduciaries to 

objectively assess whether the individual investments are appropriate. A disproportionate number of 

low fiduciary scores would indicate the investment selection is not performing up to its assigned 

benchmark. Neither Morningstar nor fi360 has predetermined the effect of the screening system on any

investment product, fi360 is not paid ‘placement fees’ or other financial incentives by third parties to 

favor certain investments over others, and fi360 encourages users not to rely solely on the product 

analysis in determining suitability. Other factors may include, but are not limited to, a comparison of 

objectives in the investment policy statement, demographic composition of plan participants, risk 

tolerance of an individual client, and so forth. 

Another analytical tool available to fi360 subscribers includes an asset allocation optimizer that 

assesses the plan investment options or retail portfolio in terms of risk and return. fi360 licenses the 

methodology through a patented process developed by an unaffiliated RIA.13 The optimizer displays the 

efficient frontier14 for investment allocations based on risk and return for 11 broad asset classes and 

displays a sample or real portfolio (after entry of data) for comparison to the efficient frontier. 

In both instances, fi360 believes that, based on the discussion of the platform provider carveout in the proposing release, data-servicing and analysis firms like fi360 or Morningstar would meet the 

general intent of the carve-out and should not be treated as a plan fiduciary. Similar to the 

Department’s use of examples in describing activities that would meet or not necessarily meet the 

requirements of the best interest contract exemption (“BICE”), fi360 also recommends that the 

Department provide examples of carve-outs in the adopting release that pertain to paragraph (b)(4) of 

the definition or create a separate carve-out for independent data-service providers. 

Best Interest Contract Exemption (“BICE” or “BIC Exemption”).

Overall, the BIC Exemption is a reasonable approach to addressing the challenge of 

accommodating variable compensation situations without compromising foundational fiduciary 

principles. The task of reconciling the inherent conflict of variable compensation with the fiduciary 

duties of loyalty and care will require considerable effort due to the specific requirements of BICE. We 

view the requirements to assume fiduciary status, warrant the determination that advice rendered 

 13 For more information on New Frontier, which developed the Optimizer, please go to 

http://www.newfrontieradvisors.com/index.html (last visited July 2015).

14 The efficient frontier is a term used in modern portfolio theory to describe a quantitative measure of 

expected return for a given level of risk. Or in other words, a method for establishing the appropriate mix of stocks 

and bonds and other asset classes to allow the portfolio the best chance to earn the highest return commensurate 

with the lowest level of risk, or portfolio volatility, based on the client’s long-term investment goals and risk 

tolerance.
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July 21, 2015

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serves the client’s best interest, and accept contractual accountability as especially necessary to help 

assure fulfillment of the fiduciary duties of loyalty and care.

We are aware that the DOL is considering certain clarifications and refinements to the BIC

Exemption based upon public comments by Department officials. We are confident that the technical 

comments we could make regarding such important conditions as the timing of execution of a BICE 

contract will be covered by others and addressed with more specificity by the Department. Therefore, 

we will restrict our comments about the BIC Exemption to a specific situation of special concern for 

advisors who routinely accept fiduciary accountability and adhere to fiduciary obligations.

It is our understanding that a fiduciary advisor to a retirement plan will need to rely upon the 

BIC Exemption to recommend a rollover of assets to an IRA for a plan participant if the advisor will 

receive higher compensation on the assets held in the IRA than when the assets were in the ERISA plan. 

This, we understand, would be true even if the advisor is a fiduciary at all times and provides services on 

a level compensation basis with no compensation from any third parties. In our view, a separate 

exemption for rollover advice may be appropriate for situations such as this.

The rollover decision is a one-time event15 and we suggest the DOL consider creating an 

exemption designed to handle the point-in-time situation when a fiduciary retirement advisor to a plan 

is called upon to assist a plan participant with a rollover decision. Specifically, the exemption should 

address the circumstance where the fiduciary retirement plan advisor provides participant-level rollover 

advice and also offers to provide ongoing, level-fee advice to any participant who decides to roll their 

plan assets to an IRA, albeit at a compensation level that is higher than the advisor would earn if the 

assets were retained in the plan, distributed, or moved to another plan.

Conceptually, this limited rollover advice exemption would be BICE-like in that it would require 

written confirmation of fiduciary accountability, policies and procedures to assure impartial assessment 

of all of the options available to the participant, and thorough disclosure of the costs and conflict 

involved if the advisor is chosen to provide advice on the IRA assets (i.e., additional compensation for 

the advisor once the assets are in the IRA). However, this situation is much more straight-forward than 

examples provided in the Proposal involving third-party payments and variable compensation. 

Moreover, in this circumstance, the assets will still be in the plan at the point in time when the rollover 

advice is rendered, not when the participant’s account is rolled over into an IRA or a new plan. The DOL 

maintains direct regulatory oversight authority over plan assets; therefore, no special contract would 

seem to be required to ensure recourse for a fiduciary breach related to the rollover advice. 

BICE – Definition of an ‘Asset.’

Under the Section VIII Definition of ‘Asset,’ for purposes of relying on the Best Interest Contract 

Exemption the range of investment products would be restricted ’ to traditional, highly liquid and easyto-price investment products. The products meeting this category include bank deposits, CDs, mutual 

funds, ETFs (including exchange-traded REITS), U.S. Treasury securities and corporate bonds. Excluded 

from the definition are security futures, puts, calls, and options. 

 15 By ‘one-time event’ we are referring to the point in time that the rollover decision for that account is 

made by the participant. Obviously, over a lifetime workers changing employers may face a rollover decision more 

than once.
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July 21, 2015

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We strongly support the proposed restriction on the range of investment products permitted 

under the BIC Exemption to those products for which there is an active market and reliable pricing. We 

can envision product innovations and changes that may prompt product providers to urge approval from 

the DOL for expansion of the list of permitted products. For example, so-called alternative funds are 

ETFs registered with the Commission. However, both the SEC and FINRA are concerned about the 

marketing of these and other complex products that may pose risk to investors. FINRA has in recent 

years issued warnings in connection with the sale of complex products16 and the SEC recently solicited 

public comment on the risk of complex ETFs, in particular highly leveraged or inverse products designed 

to amplify short-term returns by using debt and derivatives.17

Whether these or other products prove to be prudent additions to a retirement portfolio of the 

future remain to be seen. As such, we recommend that the Department outline the process that will be 

used to decide what products in the future may be deemed permissible under BICE. We also seek 

specific clarification as to whether it is the Department’s position that any and all pooled funds 

registered under the Investment Company Act of 1940 would meet the definition of ‘Asset’ under BICE, 

or whether it would prohibit certain products, such as “alternative” ETFs?

Consideration of a High-Quality, Low-Cost Exemption

The Department requested comments on the practicality of introducing a prohibited transaction 

exemption for variable compensation earned for advice pertaining to certain high-quality, low-cost 

investments. This exemption presumably could take the form of a simplified, less demanding version of 

the BIC Exemption. We do not support the introduction of such an exemption. Cost is just one due 

diligence factor to be considered, and defining “high-quality” would be very difficult in an exemption. 

One of the great strengths of the fiduciary standard is that it is principles-based and currently relies on a 

prudence standard for determining suitability. Prescriptive rules do not adapt well to a changing 

marketplace and are susceptible to circumvention by innovative product design. The current five-part 

definition of fiduciary serves as a case in point.

It is important to note that the BIC Exemption is prescriptive and is, in our view, susceptible to 

both becoming outdated and dysfunctional over time. In our view, BICE (with vigilant oversight) is an 

acceptable way to deal with current marketplace realities without compromising fundamental fiduciary 

principles. We expect BICE will ultimately become unnecessary as marketplace participants find that a 

collaborative relationship that avoids conflicts, rather than preserves and manages them, is far more 

beneficial to all parties. 

Impact of the Proposal on Small Accounts.

The Department’s economic analysis must rely on objective metrics and datasets. Several years 

ago fi360 and other organizations sponsored an academic review of the impact of a fiduciary standard 

on the brokerage industry which was submitted to the Department for consideration. The paper found 

that, using variations in the common law standard for brokers among the 50 states, the number of 

registered representatives (stock brokers) doing business within a state as a percentage of total 

 16 See NASD Notice to Members 01-23 and FINRA Regulatory Notices 11-02, 12-25 and 12-55.

17 See “SEC Publishes Request for Public Comment on Exchange-Traded Products,” News Release, Securities 

and Exchange Commission, Jun 12, 2015. (Available at http://www.sec.gov/news/pressrelease/2015-118.html.) 
Office of Regulations and Interpretations

July 21, 2015

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households did not vary significantly between states with a strict common-law fiduciary standard and 

those with none. Nor were brokers constrained in their ability to serve lower-wealth clients, according 

to the study’s findings, or limited in their ability to offer a broad range of products providing commission 

compensation.18

This is not to suggest that every segment of the financial services industry will find it easy and 

inexpensive to transition to the professionalization of investment advice under a uniformly high 

standard of fiduciary conduct. For those firms in which a sales culture is firmly entrenched, the 

transition will be especially difficult.

The transition is certainly feasible. Fiduciary advisors are succeeding in the marketplace today, 

serving clients across the full spectrum of investable assets. Technological innovations are making 

financial tools and advice more accessible than ever before. Financial product changes are underway 

that remove compensation conflicts and improve quality. Most importantly, advisors are becoming 

increasingly aware that conflicts of interest can impair judgment and damage client relationships. We 

have a high degree of confidence in the ability of financial services professionals and companies to be 

innovative and adaptive to changing circumstances in ways that strengthen the fiduciary standard. 

Conclusion

The essence of every professional advisor’s job is to do what is right for clients and to do it well. 

This translates to fulfilment of the foundational fiduciary duties of loyalty and care and correspondingly, 

a profitable business based on trust. This is true regardless of whether we are talking about medical, 

legal, or financial advice. It is simply unacceptable that financial advice is the one exception from among 

these professions that involve some of the most important decisions consumers will ever make in their 

lives – and a regulatory void allows some practitioners to avoid fiduciary accountability.

The DOL has rightfully proposed a principles-based approach to this question. Principles are core 

values that can be flexibly applied to accommodate specific situations but these standards must not be 

compromised. We appreciate the effort the Department is devoting to be flexible and responsive to the 

needs of the marketplace participants without compromising core fiduciary principles that are essential 

to serving investors’ best interests.

We truly appreciate the opportunity to provide our views on this critical policy initiative. Please 

do not hesitate to contact us at (412) 221-0292 if you have any questions or would like additional 

information. 

Sincerely, 

 18 Finke, Michael S. and Langdon, Thomas Patrick, The Impact of the Broker-Dealer Fiduciary Standard on 

Financial Advice (March 9, 2012). (Available at SSRN: http://ssrn.com/abstract=2019090 or 

http://dx.doi.org/10.2139/ssrn.2019090.)
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Blaine F. Aikin, AIFA®, CFA, CFP®

CEO

Rich Lynch, AIFA®

President

Duane Thompson, AIFA®

Senior Policy Analyst