Insured Retirement Institute

1101 New York Avenue, NW | Suite 825

Washington, DC 20005

t | 202.469.3000

f | 202.469.3030

www.IRIonline.org

www.myIRIonline.org

July 21, 2015

Office of Regulations and Interpretations Office of Exemption Determinations

Employee Benefits Security Administration Employee Benefits Security Administration

U.S. Department of Labor U.S. Department of Labor

200 Constitution Avenue, NW 200 Constitution Avenue, NW

Room N-5655 Suite 400

Washington, DC 20210 Washington, DC 20210

Attention: Conflicts of Interest Rule Attention: D-11712 and D-11850

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

Retirement Investment Advice

RIN 1210-AB32

Re: 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

ZRIN 1210-ZA25

Re: Proposed Best Interest Contract Exemption

ZRIN 1210-ZA25 

To Whom it May Concern:

The Insured Retirement Institute (“IRI”) is pleased to provide these comments with respect to

the Department of Labor’s notice of proposed rulemaking concerning the Definition of the term 

“fiduciary” of an employee benefit plan (the “Proposed Regulation”), the related proposed 

amendment to and proposed partial revocation of prohibited transaction exemption 84-24 (the 

“Proposed Amendment to PTE 84-24”), and the proposed Best Interest Contract Exemption (the 

“Proposed BIC Exemption”) (collectively, the “Proposal”).
2

About the Insured Retirement Institute

As the only national trade association that represents the entire supply chain for the insured 

retirement strategies industry, IRI is uniquely positioned to comment on the implications of the 

Proposal for manufacturers, distributors and consumers of annuity products that provide 

guaranteed lifetime income. IRI has more than 500 member companies, including major 

insurance companies, broker-dealers, banks, and asset management companies. Member 

companies account for more than 95% of annuity assets in the United States, include the top 10 

distributors of annuities ranked by assets under management, and are represented by more 

than 150,000 financial professionals serving over 22.5 million households in communities 

around the country. IRI members therefore represent not only their own views, but also those 

of their clients across Main Street America.

Executive Summary

The following is an overview of our comments regarding the Proposal. We respectfully offer 

these comments to assist the Department in determining how to formulate a final rule that will 

enhance consumer protection while preserving consumer choice and access to the products 

and services they need to attain a financially secure and dignified retirement.

Core Principles (See pages 7-10)

1. Financial professionals should be held to a best interest standard when recommending 

investments to retirement savers. (See page 8)

2. Consumers are entitled to freedom of access to retirement income guarantees. (See 

page 8)

3. In the post-defined benefit plan era, the availability of guaranteed retirement income 

through IRA rollovers meets a critical consumer need. (See page 8)

4. Rules for annuity products must be specifically crafted to account for their guaranteed 

lifetime income features. (See page 9)

5. Competitive annuity markets serve consumer interests. (See page 9)

6. Consumers have a right to choose their preferred source of retirement advice, including 

the option to work with advice providers who are experts on proprietary products, and 

how their advice provider is compensated. (See page 9)

7. The Administration’s public policy position in favor of access to and utilization of 

guaranteed lifetime income products should be advanced. (See page 10)
3

The Context for IRI’s Comments on the Proposal: America’s Retirement Income Challenge and 

the Need for Retirement Income Products (See pages 10-13)

1. Americans today are living longer than ever before, while access to traditional defined 

benefit pension plans continues to decline, creating a significant risk that many people 

will outlive their assets. It is critical that the regulatory environment allows consumers 

to access products that meet their need to protect against this increased longevity risk.

(See pages 10-11)

2. Annuities are the only products available in the private market that can provide retirees 

and pre-retirees with a guaranteed source of income to ensure they can enjoy a 

financially secure and dignified retirement. (See pages 11-12)

3. Consumers who receive assistance from financial professionals save more throughout 

their working years, make better use of available retirement planning products and 

strategies, and commonly experience better returns on their investments, and therefore 

are better prepared for retirement than those who do not have access to retirement 

planning advice. (See pages 12-13)

Comments Relating to the Proposed Definition of the Term “Fiduciary” (See pages 13-28)

1. The definition of an investment advice “fiduciary” in the Proposed Regulation needs to 

focus more precisely on conduct that is appropriately regarded as fiduciary in nature 

rather than all manner of sales activities. The proposed definition would deprive 

retirement investors of access to information and would inappropriately limit advice 

sources. (See pages 15-20)

a. The “specifically directed to” element of the Proposed Regulation will cause 

fiduciary status to arise as a result of ordinary advertising and marketing 

activities. This is unnecessary and harmful, and the phrase should therefore be 

removed from paragraph (a)(2)(ii) of the Proposed Regulation. (See pages 15-16)

b. To provide predictability and certainty, both for consumers and financial 

professionals, the “individualized to the advice recipient” element of paragraph 

(a)(2)(ii) of the Proposed Regulation should be modified to read “sufficiently 

individualized as to form a reasonable basis for reliance by the advice recipient 

as a source of unbiased and impartial advice.” (See pages 16-17)

c. The “for consideration” element of paragraph (a)(2)(ii) of the Proposed 

Regulation is overly broad and should be changed to require that 

recommendations be made “for the purpose of” making investment decisions.

(See pages 17-18)
4

d. The definition of “recommendation” as a suggestion to engage in or refrain from 

taking a particular course of action, as set forth in paragraph (f)(1) of the 

Proposed Regulation, is too broad and should be redefined as “a communication 

that, based on its content, context, and presentation, would reasonably be 

viewed as a call to take action or to refrain from taking action.” (See pages

18-19)

e. To avoid inappropriately giving rise to fiduciary status, the phrase “either directly 

or indirectly (e.g., through or together with any affiliate)” should be moved from 

paragraph (a)(2) of the Proposed Regulation to paragraph (a)(2)(i) immediately 

following the word “acknowledges.” (See pages 19-20)

2. To ensure consumers continue to have access to guaranteed lifetime income products 

and related advice, an additional, generalized carve-out is necessary to accommodate 

sellers of financial products and services, and modifications to the proposed carve-outs 

are needed to accommodate reasonable and necessary business practices. (See 

pages 20-25)

a. The Department should add a new carve-out from fiduciary status for a person 

who: “provides advice or recommendations . . . under facts and circumstances 

where there can be no reasonable expectation on the part of the advice 

recipient that the advice provider is undertaking to provide unbiased and 

impartial advice.” (See pages 20-21)

b. The proposed counterparty carve-out safe harbor should be broadened to apply 

to 401(k) plans of any size as well as participants, beneficiaries and IRA holders. 

(See pages 21-23)

c. The platform providers carve-out should be available to IRAs and should clarify 

that merely tailoring a sub-platform to a particular marketplace segment should 

not be regarded as individualization rendering the carve-out unavailable. (See 

pages 23-25)

3. The investment education carve-out should, consistent with the current language of I.B. 

96-1, permit the identification of specific investment alternatives in connection with 

asset allocation education and the identification of specific distribution products in 

connection with the provision of distribution information when accompanied by a 

statement that other investment products with similar risk and return characteristics 

and other distribution products may be available under the plan and indicating where to 

obtain information about those other products. (See pages 25-28)
5

Comments Relating to the Proposed Amendment to PTE 84-24 (See pages 28-34)

1. All fixed and variable annuities, whether registered as securities or not, are insurance 

products that provide guaranteed lifetime income, and therefore should be treated the 

same under PTE 84-24. Given the need for a level playing field for all annuities, 

exemptive relief should be available for all sales of both variable annuities and fixed 

annuities under both the Proposed Amendment to PTE 84-24 and the Proposed BIC 

Exemption. (See pages 28-30)

2. The definition of the term “Insurance Commission” in the Proposed Amendment to PTE 

84-24 is overly narrow and should be broadened to ensure that advisers are not 

inadvertently prohibited from receiving customary employee benefits, such as health 

insurance coverage and access to an employer-sponsored retirement plan. (See 

page 30)

3. The Definition of the term “Best Interest” in the Proposed Amendment to PTE 84-24 is 

overly prescriptive and should be revised to make clear that advisers and financial 

institutions must always put their clients’ interests first, but would not be required to 

completely disregard their own legitimate business interests. (See pages 31-32)

4. The Department should clarify that a recommendation to rollover a plan account 

balance or an existing IRA to an annuity is covered by PTE 84-24. (See pages 32-33)

5. The Department should clarify that the exemptive relief provided by PTE 84-24 is 

available for both the purchase of the annuity and the selection of investments under 

the annuity contract. (See page 33)

6. To level the playing field for annuities and mutual funds under PTE 84-24, the 

Department should extend to annuities the same independent fiduciary approval 

presumption provision that applies to mutual fund transactions. (See page 34)

Comments Relating to the Proposed Best Interest Contract (“BIC”) Exemption (See pages 35-51)

1. To avoid disruptions in the availability of annuity products and their guaranteed lifetime 

income features to millions of retirement savers, and advice about whether these 

products fit their needs, the requirements in the Proposed BIC Exemption must be 

revised in a workable manner. (See pages 35-43)

a. The terms of the BIC exemption should be clarified to indicate that a 

counter-signature on the part of the advice recipient is not needed to satisfy the 

condition. Advisers and financial institutions should be permitted to comply with 

this requirement through a unilateral agreement furnished to the advice 

recipient. (See page 35-38)
6

b. The contract timing requirement under the Proposed BIC Exemption should 

require the contract to be executed prior to the transaction, not prior to the 

recommendation. (See page 38)

c. The definition of the term “Best Interest” in the Proposed BIC Exemption is 

overly prescriptive and should be revised to make clear that advisers and 

financial institutions must always put their clients’ interests first, but would not 

be required to completely disregard their own legitimate business interests. (See 

pages 39-41)

d. Given that the duty to act in a client’s best interest is contained in the required 

contract under the Proposed BIC Exemption, the warranties required under the 

Exemption serve no useful consumer purpose, but expose Advisers and Financial 

Institutions to risks of frivolous and costly litigation, adding to the expense 

associated with serving retirement investors. (See page 41)

e. The “reasonable compensation” conditions of the Proposed BIC Exemption are 

focused on the value of services and fail to take into account the costs of annuity 

products’ guaranteed features. Moreover, the conditions unfairly disadvantage 

proprietary products. For purposes of annuity product recommendations, the 

definition of “reasonable compensation” contained in the Proposed BIC 

Exemption should be conformed to the corresponding provision in the Proposed 

Amendment to PTE 84-24. (See pages 41-42)

f. The Adviser’s and Financial Institution’s agreement to comply with the Impartial 

Conduct Standards by delivering a Best Interest Contract should be sufficient to 

satisfy the conditions of section II(c) of the Proposed BIC Exemption. Violations 

of the Impartial Conduct Standards should not result in loss of the exemption.

(See pages 42-43)

2. The Department should take steps to preserve proprietary annuity distribution models, 

which provide consumers with invaluable and irreplaceable sources of knowledge about 

annuity products and how annuities can be used to provide guaranteed lifetime income 

to retirees. To that end, the “Limited Range of Investment Options” requirements 

included in section IV of the Proposed BIC Exemption should not apply to Advisers and 

Financial Institutions that offer proprietary annuity products. (See pages 43-45)

3. The proposed point of sale, website, annual and ongoing information maintenance 

requirements impose exceedingly burdensome and expensive disclosure requirements 

on annuity product providers and distributors. In addition, many of these disclosure 

requirements are duplicative of, and in many cases conflict with, existing SEC prospectus 
7

disclosure rules. For these reasons, the disclosure provisions should be removed from 

the Proposed BIC Exemption. (See page 45)

a. The point of sale disclosures required under the Proposed BIC Exemption should 

be made through the provision of a prospectus for registered annuity products 

and should be replaced by a reference to the statutory prospectus disclosure 

requirement. (See pages 45-47)

b. The website disclosure requirements for annuity products should be eliminated 

in favor of the settled disclosure regimes under applicable federal securities laws 

and state insurance laws. (See pages 47-48)

c. The annual disclosure requirement under paragraph III(b) of the Proposed BIC 

Exemption is overly burdensome, would be exceedingly costly to develop and 

does not advance investor interests, and should therefore be removed. (See 

page 49)

d. The Proposed BIC Exemption’s provision authorizing public disclosure of Adviser 

return information will provide no meaningful benefit to consumers but will be 

extremely expensive to implement, and should therefore be deleted. (See 

pages 49-50)

4. The condition to the exemption for pre-existing transactions prohibiting additional 

advice following the applicability date of the regulation creates inappropriate incentives 

and would render the exemption worthless in practice, and should therefore be 

removed. (See pages 50-51)

Comment on Timing of Implementation for Proposal

1. The Department should extend the proposed implementation period to ensure the 

industry has adequate time to develop the necessary compliance processes. The 

proposed eight-month timeline would result in significant and harmful market 

disruptions. (See pages 51-52)

The Insured Retirement Institute’s Seven Core Principles

A set of rules that would deprive consumers of access to guaranteed lifetime income products 

and the professional assistance needed to knowledgeably acquire and use those products 

would clearly run counter to the best interests of American working men and women. To help 

the Department formulate a final set of rules that avoids this result, IRI has prepared detailed 

comments that advance the core principles listed below.
8

Core Principle No. 1 – Financial Professionals Should be Held to a Best Interest Standard 

When Recommending Investments to Retirement Savers. 

As noted above, IRI supports the application of a best interest standard when a financial 

professional provides investment advice or recommendations to plans, plan participants 

and beneficiaries, and IRA holders. IRI believes the vast majority of financial professionals 

already act in the best interest of their clients, and recent IRI research found that nearly all 

consumers agree.

1

The standard must be carefully crafted, however, to avoid any 

implication that acting in clients’ best interest requires that financial professionals must 

completely disregard their own interests in order to recommend the “best product” (which 

can only be determined with any degree of certainty with the benefit of hindsight years or 

decades after the recommendation is made) or the cheapest product (which would prevent 

recommendations of higher-cost products that provide guarantees or other features many 

consumers want and need). 

Core Principle No. 2 – Consumers are Entitled to Freedom of Access to Retirement Income 

Guarantees. 

IRI believes it is in the best interests of American working men and women to have the 

freedom to shop the financial marketplace for annuity products and to procure a source of 

secure retirement income. Unfortunately, the Proposal would severely constrain individual 

access to annuity products based on the assumption that, “as a rule,” individual workers are 

too uninformed to look out for their own interests.2IRI disagrees with the premise that all 

consumers should be pre-judged to be incapable of looking after their own affairs and that 

existing regulations do not appropriately require financial professionals to act in the best 

interest of their clients. 

Core Principle No. 3 – In the Post-Defined Benefit Plan Era, the Availability of Guaranteed 

Retirement Income through IRA Rollovers Meets a Critical Consumer Need. 

As a result of dramatic declines in defined benefit plan coverage, coupled with the fact that 

very few defined contribution plans provide lifetime income forms of distribution, IRI 

believes individual annuity purchases through IRAs are, on a de facto basis, the primary 

means, other than Social Security, through which retirees procure guaranteed retirement 

income.3IRI is concerned that the Proposal will effectively cut off access to guaranteed 

 

1

Insured Retirement Institute. January 2014 Survey of Americans aged 51-67.

2

80 Fed. Reg. 21942.

3

An independent study conducted for the Department of Labor in 2011 reported that only about 1% of defined 

contribution plans offer a deferred annuity. By contrast almost all defined contribution plans offer the option of a 

lump sum distribution upon job separation, which may be rolled over into an IRA and used to purchase an annuity. 

The same study noted that although only about 6.1% of workers who retire with a defined contribution plan 

convert their account balance into an annuity “substantial additional annuitization takes place after retirement 
9

income products for most Americans at the exact moment in history when ready access is 

most urgently needed.

Core Principle No. 4 – Rules for Annuity Products Must be Specifically Crafted to Account for 

their Guaranteed Lifetime Income Features. 

IRI believes annuity products, by virtue of the guaranteed lifetime income and other 

guarantees they provide, are uniquely suited to provide the financial safety and security 

sought by many retirees. The Proposal fails to account for the benefits and costs associated 

with these guarantees. In particular, the levelized distribution compensation structures that 

appear to be compelled by the Proposed BIC Exemption are incompatible with 

well-functioning individual annuity product distribution models and would curtail the 

availability of those products.

Core Principle No. 5 – Competitive Annuity Markets Serve Consumer Interests. 

IRI believes a competitive product marketplace is clearly in the best interests of retirement 

investors. Marketplace competition between and among manufacturers and other 

investment providers, and between and among affiliated and unaffiliated distributors,

fosters innovations and efficiencies that advance consumer interests. IRI is concerned that 

the Proposal would stifle product innovation and price competition by superimposing a

“value of services” compensation model that ignores the intrinsic value consumers derive 

from insurance guarantees of safety and security.

Core Principle No. 6 – Consumers Have a Right to Choose their Preferred Source of 

Retirement Advice, including the Option to Work With Advice Providers who are Experts on 

Proprietary Products, and How their Advice Provider is Compensated.

IRI believes in a best interest standard that gives consumers freedom of choice over who 

they receive advice from, whose product(s) their adviser may offer (i.e., affiliated or 

unaffiliated), how their adviser is compensated, and how their retirement savings are 

invested. In particular, consumers should not be denied access to advice providers who 

have acquired in-depth knowledge and expertise by concentrating or dedicating their 

practices to the products of a single company or a select group of companies. In the current 

regulatory framework, for example, 86% of Baby Boomers say they are better prepared for 

retirement as a result of their adviser’s help, validating existing distribution models.4The 

conditions of the Proposed BIC Exemption include a bias that favors unlimited product 

 

through conversions of IRAs, often in the form of a deferred annuity.” Annuities in the Context of Defined 

Contribution Plans, A Study for the U.S. Department of Labor, Employee Benefits Security Administration, Michael J. 

Brien, PhD and Constantijn W.A. Panis, PhD, November, 2011. 

4

Insured Retirement Institute. Boomer Expectations for Retirement 2015.
10

choice over expertise. This bias poses a threat to proprietary annuity distribution models. 

The proprietary distribution model emphasis on adviser training and expertise is vital to a 

healthy marketplace and needs to be preserved.

Core Principle No. 7 – The Administration’s Public Policy Position in Favor of Access to and 

Utilization of Guaranteed Lifetime Income Products Should beAdvanced.

IRI enthusiastically supports Department of the Treasury and Department of Labor efforts to 

facilitate retirement savers’ access to and use of guaranteed lifetime income products. 5In 

particular, the Department of Labor’s recent rulemaking initiative to require defined 

contribution account balances to be expressed not only as a lump sum amount, but also as 

a retirement income stream, would help transform the way Americans think about the 

adequacy of their accumulated retirement savings to replace pre-retirement monthly 

income flows.6If that public policy initiative is to be a success, it is essential for workers who 

have been newly sensitized to the importance of retirement income guarantees through 

their account statements to be able to meet their guaranteed income needs by purchasing 

annuities in the private marketplace. 

The Context for IRI’s Comments on the Proposal: America’s Retirement Income Challenge and 

the Need for Retirement Income Products

With unprecedented growth in the number of retired Americans, the nation’s retirement 

system is at a crossroads, and policymakers in Washington have clearly taken notice. Numerous 

retirement-focused bills have been introduced in Congress over the past several years, and, as 

noted above, the Obama Administration has been working to make guaranteed lifetime income 

products more widely available. The Proposal would, unfortunately, undermine these efforts. 

Longevity Risk - Americans today are living longer than ever before, while access to traditional 

defined benefit pension plans continues to decline, creating a significant risk that many people 

will outlive their assets. It is critical that the regulatory environment allows consumers to access 

products that meet their need to protect against this increased longevity risk.

Americans today are at risk of outliving their assets. This longevity risk has never been greater. 

The rapid and continuing shift away from defined benefit plan designs in favor of a defined 

contribution plan model, increasing life expectancies, and rising health care costs are combining 

to exert significant pressures on individual consumers, in particular middle-income Americans,

seeking a financially secure retirement. These challenges simply did not exist in earlier 

generations.

 

5

See Request for Information Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement 

Plans, 75 Fed. Reg. 5253 (Feb. 2, 2010).

6

Advance Notice of Proposed Rulemaking, Pension Benefit Statements, 78 Fed. Reg. 26727 (May 8, 2013).
11

At their peak in 1985, over 114,000 private-sector defined benefit plans were in place,

7

but by 

2012, less than 26,000 of these defined benefit plans remained.8 Only 19 percent of 

private-sector workers had access to a defined benefit plan in 2014.9

Individuals today are living longer than in past generations. The population of older Americans 

continues to increase at a faster rate than the overall population. For example, between 2000 

and 2010, the number of Americans aged 85 to 94 grew by 29.9 percent; by comparison the 

entire U.S. population increased by 9.7 percent during that timeframe.10 Moreover, according 

the Society of Actuaries, a married couple age 65 has more than a 65 percent chance of one or 

both spouses living to age 90 and a 35 percent chance of one spouse living to age 95.11

As a result of these trends, today more than 30 million Baby Boomers are “at risk” for

inadequate retirement income; that is, a lack of sufficient guaranteed lifetime income.12 Just as 

concerning, nearly half (45 percent) of Generation Xers (ages 36-45) are “at risk” for inadequate 

retirement income.13 Alarmingly, only 40 percent of Americans 30 to 49 years of age have tried 

to determine how much they need to save by the time they retire.14 Meanwhile, nearly 

one-third of Baby Boomers cite having adequate retirement assets as a top concern, while over 

three-quarters said they will work for income in retirement, meaning they actually will not be 

retired, a goal that might not be feasible.15 This reality underscores the critical importance of a 

regulatory environment that allows consumers to access products that meet their need to 

protect against longevity risk.

Guaranteeing Lifetime Income with Insured Retirement Products – Annuities are the only 

products available in the private market that can provide retirees and pre-retirees with a 

guaranteed source of income to ensure they can enjoy a financially secure and dignified 

retirement.

Outside of Social Security and private pensions, annuities are the sole source of guaranteed 

lifetime income during retirement. Only insurance companies and their distribution partners 

can provide these products. With proper planning and use, annuities can provide retirees with 

 

7

Pension Benefit Guaranty Corporation. Trendsin Defined Benefit Pension Plans.

8

Pension Benefit Guaranty Corporation. Pension Benefit Guaranty Corporation Annual Report 2012.

9

Bureau of Labor Statistics. National Compensation Survey: Employee Benefitsin the United States, March 2014.

10 United State Census Bureau. The Older Population 2010.

11 Society of Actuaries. SOA 2012 Individual Annuitant Mortality tables.

12 Employee Benefit Research Institute. EBRI Notes: Retirement Income Adequacy for Boomers and Gen-Xers:

Evidence from the 2012 EBRI Retirement Security Projection Model.

13 Ibid.

14 Insured Retirement Institute. Baby Boomers and Generations Xers: Are They on Track to Reach Their Retirement

Goals?

15 Insured Retirement Institute. Boomer Expectations for Retirement 2013.
12

guaranteed lifetime income and the security of knowing that they will not outlive their savings. 

Boomers who own insured retirement products, including all types of annuities, have a higher 

confidence in their overall retirement expectations, with nine out of 10 believing they are doing 

a good job preparing financially for retirement.16 Compared to non-annuity owners, Baby 

Boomers who own annuities are more likely – by more than a two-to-one ratio –to be among 

those who are most confident in living comfortably throughout all their retirement years.17

Baby Boomer annuity owners also are more likely to engage in positive retirement planning 

behaviors than Baby Boomer non-annuity owners, with 68 percent having calculated a 

retirement goal and 63 percent having consulted with a financial adviser.

18

Annuities appeal to Americans of all income levels and consumers who do not have access to 

other retirement savings vehicles. In fact, annuity owners are overwhelmingly middle-income. 

Seven in 10 annuity owners have annual household incomes of less than $100,000.

Unfortunately, as we will explain in greater detail below, the Proposal would unreasonably limit 

consumer access to annuity products through employer-sponsored retirement plans and IRAs 

at precisely the point in time when access to annuities is most vitally needed.

Benefits of Working With a Financial Professional – Consumers who receive assistance from 

financial professionals save more throughout their working years, make better use of available 

retirement planning products and strategies, and commonly experience better returns on their 

investments, and therefore are better prepared for retirement than those who do not have 

access to retirement planning advice.

Financial professionals play a critical role in helping consumers understand the wide variety of 

annuity products available in the market and how best to utilize them to prepare for 

retirement. Americans accumulate more savings when working with a financial professional, 

saving twice the amount over a seven- to 14-year period.

19 Working with a financial 

professional has a positive influence on retirement planning behaviors including: increased 

usage of tax-advantaged savings vehicles, improved asset allocation, greater portfolio 

diversification and less-speculative investing.

20 Financial professionals have also been shown to 

help consumers earn 1.59 percent in additional returns, which over time leads to 22.8 percent 

 

16 Insured Retirement Institute. Boomer Expectations for Retirement 2011.

17 Insured Retirement Institute. Survey of Americans Aged 51 to 67.

18 Insured Retirement Institute: Tax Policy and Boomer Retirement Saving Behaviors.

19 Claude Montmarquette, Nathalie Viennot-Briot. Centre for Interuniversity Research and Analysis on 

Organizations (CIRANO). Econometric Models on the Value of Advice of a Financial Advisor.

http://www.cirano.qc.ca/pdf/publication/2012RP-17.pdf.

20 Ibid.
13

more income in retirement.

21 Moreover, financial professionals help their clients overcome the 

emotional aspects of investing, which can add one percent to two percent in net return.22

It is also significant to note the particular benefits of retirement planning advice for women and 

minorities. Women are more than twice as likely to be confident in their outlook on retirement 

when they work with a financial professional.23 African Americans are nearly three times more 

likely to save in an IRA and four times more likely to have an annuity when working with a 

financial professional.24 Similarly, nearly 90 percent of Hispanic Americans contribute to a 

retirement plan when working with a professional, compared to only 54 percent working on 

their own.

25

Many of the problematic provisions in the Proposal appear to be designed to eliminate conflicts 

of interest. However, recent IRI research found that conflicts of interest are not a significant 

concern for most retirement savers. In fact, an overwhelming majority of people indicated they 

are aware of potential conflicts of interest but are nevertheless highly satisfied with their 

relationship with their adviser and would recommend their adviser to a friend or relative.

26

IRI’s Comments on the Proposal

While both the President and leaders in Congress have recognized that positive changes are 

needed to help Americans be financially prepared to enjoy longer lifespans, the Proposal runs 

contrary to this goal. By making the revisions IRI recommends in this comment letter, DOL can 

adopt a rule that imposes a best interest standard of care without the harmful consequences 

that would result from the current Proposal.

I. Comments Relating to the Proposed Definition of the Term “Fiduciary”

The Proposed Regulation would significantly expand the circumstances under which a person 

would acquire fiduciary status under the Employee Retirement Income Security Act of 1974, as 

amended (“ERISA”), and section 4975 of the Internal Revenue Code of 1986, as amended 

(“Code”), as a result of giving investment advice to a plan, its participants or beneficiaries, 

including an individual retirement account (“IRA”), for a fee or other compensation.

 

21 Morningstar. Alpha, Beta, and Now...Gamma. 

http://corporate.morningstar.com/ib/documents/PublishedResearch/AlphaBetaandNowGamma.pdf.

22 Vanguard Research. Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha. 

http://www.vanguard.com/pdf/ISGQVAA.pdf.

23 Prudential Financial, Inc. Financial Experience & Behaviors Among Women: 2014-2015 Prudential Research 

Study. http://www.prudential.com/media/managed/wm/media/Pru_Women_Study_2014.pdf.

24 Prudential Financial. The African American Financial Experience. 

http://www.prudential.com/media/managed/aa/AAStudy.pdf.

25 Prudential Financial. Hispanic Americans On the Road to Retirement. 

http://www.prudential.com/media/managed/Hispanic_Retirement_FINAL_3-19-08.pdf.

26 Insured Retirement Institute. January 2014 Survey of Americans aged 51-67.
14

IRI supports the Department’s efforts to assure that the term “fiduciary” clearly includes those 

relationships that are appropriately regarded as fiduciary in nature and clearly excludes those 

that are not. Moreover, IRI is supportive of applying a “best interest” standard of care to those 

relationships that involve recommendations of financial products.

However, following careful evaluation and discussion by our membership, we are extremely 

concerned that the Proposed Regulation inappropriately characterizes as fiduciary in nature a 

broad spectrum of financial marketing and sales activities where no reasonable expectation can 

exist that an advice provider has been engaged by an advice recipient to act as an unbiased and 

impartial source of recommendations under a legal obligation to disregard its own interests as a 

seller of investment products or asset management services. Simply put, IRI believes annuity 

distributors should be permitted to recommend products they believe are in an advice 

recipient’s best interest without necessarily triggering fiduciary status by virtue of having made 

such a recommendation. A fiduciary standard that requires advice providers to completely

disregard their own interest in earning compensation is inappropriate, overly burdensome, and 

frustrates the Administration’s stated policy goals of increasing access to and utilization of 

guaranteed lifetime income products.

Annuity providers and investment managers engage in a number of activities that simply should 

not be considered “advice” that would give rise to fiduciary status within the ambit of this 

rulemaking. According to a recent study conducted for IRI by Deloitte & Touche (a copy of 

which is attached as Appendix 1 to this letter), this significant expansion of the definition of 

“fiduciary” will create “creates operational risk considerations and obligations that may cause 

insurers to restrict or end certain types of communications, products and services that 

consumers rely on to plan for their financial security in retirement.”27 The following are just a 

few examples of activities engaged in by our members that do not reasonably give rise to a 

fiduciary relationship yet appear to be captured under the Proposed Regulation and would 

likely have to be discontinued if the Proposal is adopted without the modifications 

recommended in this letter:

 giving a mere factual description of the features of an annuity product, such as an 

immediate fixed annuity or a deferred variable annuity, and explaining how the product 

can meet certain needs;

 responding to a Request for Proposal by submitting a description of a product that may 

be a fit for the needs of a plan, including a sample fund line-up;

 answering questions from plan participants about the operation of an “in-plan” 

guaranteed lifetime income product and its available features;

 

27 Deloitte & Touche LLP. Anticipated Operational Impacts to the Insured Retirement Industry of the Department of 

Labor’s Proposed Rules for the Definition of Fiduciary Advice. 
15

 proprietary product “wholesaling” activities where representatives of an annuity 

product provider meet with financial professionals – either one-on-one or in group 

sessions – to explain the features of the product and to conduct training; 

 providing a brochure to a prospective purchaser describing the features of one or more 

annuity products available for sale through a registered broker-dealer;

 presenting to a prospective annuity purchaser a list of investments that are available 

under a variable annuity product;

 explaining basic asset allocation concepts and providing examples of how one or more 

particular annuity products could be used to implement an individual’s asset allocation 

plan;

 counseling a recent retiree about his or her likely income replacement needs and the 

features available under various annuity products that could help meet those income 

replacement needs;

 chatting with friends or family about what an advice provider does for a living and 

expressing his or her professional enthusiasm for and confidence in the products he or 

she makes available; and

 the referral of a client by one financial professional to another who specializes in 

annuity products and has specialized knowledge and training in annuity features. 

We offer the following suggestions on how the proposed definition of fiduciary should be 

changed in order to more properly distinguish conduct that is fiduciary in nature from ordinary 

sales and marketing activity which is not.

A. General Comment on the Definition of “Fiduciary”: The definition of an investment advice 

“fiduciary” in the Proposed Regulation needs to focus more precisely on conduct that is 

appropriately regarded as fiduciary in nature rather than all manner of sales activities. 

The proposed definition would deprive retirement investors of access to information and 

would inappropriately limit advice sources. 

Under the Proposed Regulation, fiduciary status arises virtually any time a communication is 

made that is in any way suggestive of a plan investment or investment management activity 

and is either individualized for or specifically directed to an advice recipient for consideration in 

making investment or management decisions. Moreover the Proposed Regulation would have 

fiduciary status attach at the time a recommendation is made, even in circumstances where no 

business relationship has been established.

1. Specific Comment: The “specifically directed to” element of the Proposed 

Regulation will cause fiduciary status to arise as a result of ordinary advertising 
16

and marketing activities. This is unnecessary and harmful and the phrase should 

therefore be removed from paragraph (a)(2)(ii) of the Proposed Regulation.

The mere fact that a suggestion is “specifically directed to” a plan, participant or IRA owner is 

simply not relevant to the question of whether a fiduciary relationship has been created.

Institutions that offer products and services in the retirement plan marketplace generate 

specifically directed communications every day in the course of advertising and marketing to 

existing and potential clients. Specifically directed communications are vital to the functioning

of the financial marketplace. Without these kinds of communications, plans, participants and 

IRA owners might never become aware of or learn about products and services that may be a 

fit for their needs. By the same token, providers and distributors of annuities and other 

financial services products require the freedom to utilize specifically directed marketing 

communications to identify consumers with a potential interest in purchasing those products.

In this regard, a provider or distributor of insured retirement products should be able to 

provide advertising and marketing materials describing the insurance products it makes 

available, including detailed information about the key features and pricing of these products, 

to retirement investors in the course of marketing its products. Such material would be 

delivered to a particular individual (e.g., by mail), thereby falling within the “specifically 

directed to” element of the Proposed Regulation. Yet it would be wholly inappropriate for 

generalized, albeit “specifically directed,” marketing communications activities to result in the 

establishment of a fiduciary relationship. The same materials would be sent to hundreds if not 

thousands of recipients and would not be customized or tailored to the unique retirement 

circumstances of any particular recipient.

The mere fact that materials are mailed directly to a recipient or handed to a recipient in 

person should not give rise to fiduciary status where there is no customization or 

individualization based on the recipient. For these reasons, we request that the Department

delete the “specifically directed to” element from the Proposed Regulation.

2. Specific Comment: To provide predictability and certainty, both for consumers and 

financial professionals, the “individualized to the advice recipient” element of 

paragraph (a)(2)(ii) of the Proposed Regulation should be modified to read 

“sufficiently individualized as to form a reasonable basis for reliance by the advice 

recipient as a source of unbiased and impartial advice.”

In our view, a fiduciary relationship should only arise when a communication with a retirement 

investor is sufficiently tailored, within the context of a particular relationship, to provide a basis 

for the investor’s reliance on that communication as an impartial and unbiased investment 

recommendation. Consistent with our general observation that the Proposed Regulation should 

clearly differentiate between relationships that are appropriately classified as fiduciary in 
17

nature from those that are not, IRI believes the Department should modify the “individualized 

to the advice recipient” element of paragraph (a)(2)(ii) to more precisely specify the degree of 

individualization needed to give rise to fiduciary status. It could be argued, for example, that 

any written communication addressed to an advice recipient is “individualized” since it bears 

the individual’s name. Moreover, it could be argued that the mere sending of a brochure 

describing one product versus another based on the recipient’s age or level of assets qualifies 

as an “individualized” communication.

The preamble to the Proposed Regulation indicates that the Department is seeking to cover 

those relationships where the advice provider is in a position of trust with respect to the advice 

recipient.28 Yet the mere naming of an individual in a communication, or picking one brochure 

over another, would not ordinarily be viewed as placing an adviser in a “position of trust.”

Likewise, the delivery of information by customer service representatives of an annuity 

provider in response to an inquiry, while undoubtedly individualized, does not “implicate 

relationships of trust and expectations of impartiality.” This important concept should be 

clearly set forth in the language of the definition itself, and not tucked away in preamble 

references. 

IRI feels strongly that without this important modification, all sales activity in the retirement 

investment space will be chilled and consumers will lose access to guaranteed retirement 

income products and information, in contravention of IRI’s Core Principles and the 

Department’s articulated goal of protecting the interests of plan sponsors, participants and IRA 

customers.

3. Specific Comment: The “for consideration” element of paragraph (a)(2)(ii) of the 

Proposed Regulation is overly broad and should be changed to require that 

recommendations be made “for the purpose of” making investment decisions.

The Proposed Regulation describes the delivery of recommendations “for consideration in 

making investment or management decisions with respect to securities or other property of the 

plan.” The “for consideration” element of the definition sets an inappropriately low bar and 

should be changed.

Virtually every conversation regarding retirement investment products and services between 

plans, participants and IRA owners on the one hand, and professional investment providers 

including insurers, brokers, advisers, and managers, on the other hand, involves an exchange of 

information “for consideration in making investment decisions.” Information may be provided 

 

28 See, e.g., 80 Fed. Reg. 21938 (the proposal “avoids burdening activities that do not implicate relationships of 

trust and expectations of impartiality.”); 80 Fed. Reg. 21941 (“In each instance, the proposed carve-outs are for 

communications that the Department believes Congress did not intend to cover as fiduciary ‘investment advice’ 

and that parties would not ordinarily view as communications characterized by a relationship of trust or 

impartiality.”).
18

“for consideration” in the context of a conversation that is entirely objective and factual. On 

this basis, we are of the view that the “for consideration” phrase is vague and does little to help 

consumers or financial professionals ascertain whether fiduciary status has arisen.

We believe requiring an understanding between an advice provider and client that impartial, 

unbiased advice will be provided “for the purpose of” making investment decisions is consistent 

with the purposes of ERISA and the Department’s goal to broaden the range of providers 

subject to fiduciary duties.

4. Specific Comment: The definition of “recommendation” as a suggestion to engage 

in or refrain from taking a particular course of action, as set forth in paragraph 

(f)(1) of the Proposed Regulation, is too broad and should be redefined as “a 

communication that, based on its content, context, and presentation, would 

reasonably be viewed as a call to take action or to refrain from taking action.”

Under the Proposed Regulation, a “recommendation” means “a communication that, based on 

its content, context, and presentation, would reasonably be viewed as a suggestion that the 

advice recipient engage in or refrain from taking a particular course of action.” (Emphasis 

added.)

Again, IRI is very concerned that the range of communications that could be deemed to be 

“recommendations” is overbroad and that common activities related to marketing and selling 

will fall within the definition of recommendation even if the parties do not intend or expect a 

fiduciary relationship to arise.

Particularly troubling about this definition is that a communication that can be reasonably 

viewed as a suggestion to act or not act can be a “fiduciary” communication. Virtually all 

communications, including marketing materials, mailings, brochures, and comparative charts 

describing investment products, could potentially be viewed as suggestive in nature. Any 

advertisement might suggest that a prospective customer utilize one product or investment 

rather than another product or investment.

Guidance issued by the Department in other contexts recognizes the distinction between 

communications that are merely suggestive and those that may be viewed as an endorsement 

of a particular program. The Department’s safe-harbor exclusion from ERISA coverage for 

certain group-type insurance programs offered by an employer to employees requires that:

the sole function of the employer or employee organization with respect 

to the program are, without endorsing the program, to permit the insurer 

to publicize the program to employees or members, to collect premiums 
19

through payroll deductions or dues check offs and to remit them to the 

insurer;29

Under this regulation, an employer who “endorses” an insured benefit program would not be 

eligible for this ERISA-coverage exclusion, and would risk subjecting the program to ERISA’s 

requirements. Moreover, an employer who “endorses” such a program within the meaning of 

the regulation risks becoming an ERISA fiduciary with respect to the ERISA plan created by the 

program.30 Importantly, however, the Department’s regulation in this context recognizes that 

employers can make such programs available to employees without “endorsing” them.

Similarly, FINRA guidance concerning the distinction between recommendations and 

non-recommendations focuses not on the existence of a mere suggestion, but on whether 

there has been a communication that could be viewed as a “call to action” that might 

reasonably influence an investor to trade a particular security or group of securities.31 IRI 

believes such FINRA guidance may usefully be applied to distinguish an objective description of

the features of an investment product or service (including performance and benchmarking 

information) from communications that constitute a “recommendation.” The definition of 

“recommendation” should not require a provider to cease marketing its products and 

communicating with potential purchasers about the provider’s products in order to avoid 

becoming a fiduciary.

5. Specific Comment: To avoid inappropriately giving rise to fiduciary status, the 

phrase “either directly or indirectly (e.g., through or together with any affiliate)” 

should be moved from paragraph (a)(2) of the Proposed Regulation to paragraph 

(a)(2)(i) immediately following the word “acknowledges.”

Consistent with the approach taken in paragraph (a)(1) of the Proposed Regulation, which 

requires the direct provision of a recommendation to a plan, plan fiduciary, plan participant or 

beneficiary, IRA or IRA owner as one of the necessary elements that would give rise to fiduciary 

status, IRI believes that written or verbal agreement, arrangement or understanding element of 

paragraph (a)(2)(ii) should also be provided directly by the same advice provider providing the 

recommendation and by the same advice recipient receiving the recommendation described in 

paragraph (a)(1). IRI is concerned that the modifying language “either directly or indirectly 

(e.g., through or together with any affiliate)” as set forth in paragraph (a)(2) of the Proposed 

 

29 29 C.F.R. § 2510.3-1(j)(3); see also 29 C.F.R. § 2510.3-2(d) (identical condition with respect to IRA safe harbor).

30 The Department has issued similar guidance in the context of IRAs. 29 C.F.R. 2510.3-2(d). And, in Interpretive 

Bulletin 99-1 with respect to payroll IRAs, the Department made clear the circumstances under which an employer 

that offers employees access to a payroll deduction IRA may avoid creating an ERISA-covered pension plan. In that 

Bulletin, the Department clarified the circumstances under which an employer will not be deemed to “endorse” 

the IRA, and therefore avoid ERISA coverage. DOL Interpretive Bulletin 99-1, 29 C.F.R. 2509.99-1(c).

31 See NASD Notice to Members 01-23.
20

Regulation could be misapplied in a manner that could give rise to fiduciary status by a direct 

party to a recommendation but not to the necessary written or verbal agreement, arrangement 

or understanding described by paragraph (a)(2)(ii).

B. General Comment on the Carve-Out Provisions: To ensure consumers continue to have 

access to guaranteed lifetime income products and related advice, an additional, 

generalized carve-out is necessary to accommodate sellers of financial products and 

services, and modifications to the proposed carve-outs are needed to accommodate 

reasonable and necessary business practices.

1. Specific Comment: The Department should add a new carve-out from fiduciary 

status for a person who: “provides advice or recommendations . . . under facts and 

circumstances where there can be no reasonable expectation on the part of the 

advice recipient that the advice provider is undertaking to provide unbiased and 

impartial advice.” 

The Department states throughout the preamble that it views as “fiduciary” in nature those 

investment recommendations where there is an expectation that the advice provider will 

provide unbiased and impartial advice. IRI agrees that providers who are engaged by a plan or a 

retirement investor (including an IRA owner) to provide advice that is loyal to the recipient and 

untainted by conflicts of interest, and are paid a direct or indirect fee for his or her loyalty to 

the interests of the consumer, should be held to ERISA’s fiduciary standards.

IRI believes the Department should recognize that financial professionals who interact with 

plans, plan participants and beneficiaries, and IRA owners may undertake to provide advice that 

does not purport to be unbiased or impartial. For example, an advice provider that engages in 

the distribution of proprietary annuity products may work with a prospective client to identify a 

particular product that fits the customer’s needs. The customer, who has been informed that 

the advice provider offers proprietary annuity products, is under no illusion that the advice 

provider is unbiased or impartial.

Based on the customer’s lack of any expectation of receiving unbiased or impartial advice, it 

would be inappropriate to impose fiduciary status on such a relationship. Therefore, IRI 

proposes to add a new carve-out from fiduciary status that would apply where there can be no 

reasonable expectation that impartial advice in the client’s best interest will be provided. The 

new carve-out would read as follows:

The person provides advice or recommendations to a plan fiduciary who 

exercises authority or control with respect to the management or disposition of 

plan assets, or to a plan participant or beneficiary or IRA owner, under facts and 

circumstances where there can be no reasonable expectation on the part of the 
21

advice recipient that the advice provider is undertaking to provide unbiased and 

impartial advice.

We believe structuring this as a carve-out from fiduciary status is appropriate because it would 

place the burden on the advice provider (rather than the recipient) to demonstrate that any 

expectation of unbiased advice on the part of the recipient was not reasonable in light of the 

surrounding facts and circumstances.

2. Specific Comment: The proposed counterparty carve-out safe harbor should be 

broadened to apply to 401(k) plans of any size as well as participants, beneficiaries 

and IRA holders.

The Department has expressed the view that the counterparty carve-out cannot and should not 

be applied to transactions involving retail investors, including small plans, IRA owners and plan 

participants and beneficiaries, because, “as a rule,” investment recommendations to such retail 

customers do not fit the arm’s length characteristics that the seller’s carve-out was designed to 

preserve.32

IRI does not agree with the Department’s determination that, “as a rule,” retail customers are 

incapable of looking out for their own best interests by engaging in arm’s length bargaining 

with financial service providers for favorable terms. We also note that this determination is 

inconsistent with the position taken by Congress in enacting ERISA § 404(c). The conclusion that 

all individuals and small 401(k) plan fiduciaries are so lacking in financial sophistication as to be 

incapable of independent thought and choice has not been adequately supported by the 

Department, and will deprive plans and individuals of the opportunity to shop the financial 

services marketplace for the investment arrangements that best fit their needs.

a. Given that ERISA imposes the same fiduciary duties on all plan sponsors, 

regardless of the size of their plans, limiting the counterparty carve-out to 

plans with 100 or more participants is arbitrary, unsupportable and should be 

removed.

The Department states that the “overall purpose” of the seller’s 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.”33 The 

Department makes available a counterparty exception for transactions with all plans willing to 

provide a written representation from an independent plan fiduciary that it will not rely on the 

 

32 80 FR 21941

33 80 FR 21941.
22

seller to act in the best interests of the plan, to provide impartial investment advice, or to give 

advice in a fiduciary capacity, unless the plan has fewer than 100 participants.

For purposes of assessing fiduciary responsibility, the ERISA statute draws no distinction 

between small and other plans. ERISA commands all plan fiduciaries, regardless of plan size, to 

have sufficient knowledge and skill to make prudent decisions on behalf of the plan. ERISA 

section 404(a)(1)(B) requires a fiduciary to “discharge his duties . . . with the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent man acting in 

like a capacity and familiar with such matters would use in the conduct of an enterprise of a like 

character and with like aims.”34

Courts agree that ERISA requires plan fiduciaries to recognize when they lack the knowledge to 

satisfy the prudence standard of section 404(a)(1)(B), and to hire independent experts to supply 

the necessary expertise.35

By making the seller’s carve-out unavailable for transactions with small plans, the Department 

has in essence decided to force the fiduciaries of all such plans to do business with a fiduciary 

adviser whether or not a fiduciary adviser is wanted or needed. Financially sophisticated 

fiduciaries of small plans might wish to shop the marketplace of competing products and 

services to find the best fit for their plan’s needs, and would benefit from the price competition 

that such shopping activity tends to induce. IRI believes that small plans should not be 

constrained from arm’s length bargaining with sellers where they knowingly represent their 

non-reliance on a counterparty for impartial investment advice. 

b. The counterparty carve-out safe harbor should be available to cover sales 

activities with plan participants, beneficiaries and IRA owners.

The Department’s bright line assumption that “[a]s a rule, investment recommendations to 

[plan participants, beneficiaries, and IRA owners] do not fit the ‘arm’s length’ characteristics 

that the seller’s carve-out is designed to preserve”36 is simply not true in many cases.

The Proposed Regulation’s blanket exclusion of individual retirement investors from the scope 

of the seller’s carve-out is inappropriate and unnecessary in regards to individuals who would 

represent to the advice provider, in writing, that they have sufficient expertise to evaluate the 

 

34 29 U.S.C. § 1104(a)(1)(B) (emphasis added).

35 See, e.g., Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir. 1984) (“The trustees, being ill-equipped to evaluate the 

soundness of the proposed loan, failed to observe their duty to seek outside assistance.”); Harley v. Minn. Mining 

& Mfg. Co., 42 F. Supp. 2d 898, 907 (D. Minn. 1999) (“[I]f a fiduciary lacks the education, experience, or skills to be 

able to conduct a reasonable, independent investigation and evaluation of the risks and other characteristics of the 

proposed investment, it must seek independent advice.”); Liss v. Smith, 991 F. Supp. 278, 297 (S.D.N.Y. 1998) (“In 

such circumstances, where the trustees lack the requisite knowledge, experience and expertise to make the 

necessary decisions with respect to investments, their fiduciary obligations require them to hire independent 

professional advisors.”)

36 80 FR 21942
23

transaction being recommended and are not relying on the advice provider as a source of 

unbiased or impartial advice. 

This approach would allow individuals interested in shopping the market for guaranteed 

lifetime income products to engage in discussions with advice providers on an arm’s length 

basis, and is more consistent with the Department’s stated purpose for the seller’s carve-out 

than a blanket exclusion, which takes no account of the expectations of the individual 

retirement investor.

3. Specific Comment: The platform providers carve-out should be available to IRAs 

and should clarify that merely tailoring a sub-platform to a particular marketplace 

segment should not be regarded as individualization rendering the carve-out 

unavailable.

The platform providers carve-out under paragraph (b)(3) of the Proposed Regulation is available 

to any person who “merely markets and makes available .... without regard to the 

individualized needs of the plan, its participants, or beneficiaries, securities or other property 

through a platform or similar mechanism” subject to the condition that such person “discloses 

in writing to the plan fiduciary that the person is not undertaking to provide impartial 

investment advice or to give advice in a fiduciary capacity.”

As a preface to the comments that follow, IRI observes that the need for such a carve-out lends 

further support for our initial comment that the Proposed Regulation is over-inclusive and 

would capture a broad spectrum of marketing and sales activities where no reasonable

expectation could exist that an advice provider has been engaged by an advice recipient to act 

solely in the recipient’s best interest and to disregard its own interests as a seller. In this case 

the Department appears to have acknowledged that, in its view, the non-individualized 

marketing of an investment platform to plans would be included within the definition of 

fiduciary investment advice but for the carve-out provision.

If the provisions of paragraph (a)(1) of the Proposed Regulation retain their sweeping breadth, 

IRI believes it is essential for the platform providers carve-out to be modified in several 

important respects, as described below, to make the carve-out workable.

a. The platform providers carve-out should be clarified and broadened to cover 

the mere marketing and making available of securities and other property to 

IRAs and similar arrangements through a platform. In this regard, the phrase 

“or to any plan described in section 4975(e)(1) of the Code, including an IRA” 

should be added immediately after the phrase “to an employee benefit plan 

(as described in section 3(3) of the Act),” the phrase “or to an IRA or IRA 

owner” should be added immediately after the phrase “the plan, its 
24

participants, or beneficiaries,” and the phrase “or IRA owner” should be added 

immediately after the phrase “the plan fiduciary.”

As previously noted, the mere marketing of a non-individualized platform or similar menu of 

investment products and choices as being available for selection by an IRA owner cannot 

reasonably be regarded as a basis for giving rise to a fiduciary relationship between the 

platform provider and the individual who is considering making use of the platform and its 

offerings. Yet the very presence of the platform providers carve-out implies that such a result 

could arise, given the sweeping nature of the Proposed Regulation’s definitions. In light of that 

inherent difficulty, the platform providers carve-out should be broadened to cover 

non-individualized mere marketing efforts to all plans that fall within the definition assigned to 

that word under the Proposed Regulation, including plans described in section 4975(e)(1) of the 

Code. 

b. The platform providers carve-out should clarify the meaning of the term

“individualized needs” for purposes of that provision. Specifically, the 

following sentence should be added as the final sentence of paragraph (b)(3) –

“For purposes of this paragraph (b)(3), the subdivision of a provider’s overall 

investment platform into separate platform offerings for different market

segments, but not for a particular plan, shall not be treated as taking into 

account the individualized needs of the plan, its participants or beneficiaries.”

Most if not all providers of investment platforms in the marketplace offer not the sum total of 

all the investment products and securities that they have available, but rather various subsets 

of that overall investment universe; each subset is organized so as to consist of investment 

products that tend to appeal to a particular marketplace segment (e.g., individual IRA investors, 

small 401(k) plans, medium sized 401(k) plans, etc.). IRI is concerned that if not clarified, the 

language as proposed could be construed as requiring a provider to offer its full array of 

investment products to each and every investor, even though certain of those products would 

have little appeal to certain segments of the marketplace or be inapplicable (e.g., commingled 

pools in IRA context). IRI urges the Department to make the language modification as suggested 

above as a means of assuring the availability of the carve-out to these sorts of common

platform subdivisions.

c. An annuity product that makes available a selection of securities and other 

investment options is functionally identical to a retirement plan platform, and 

therefore should itself be deemed a “platform” for purposes of the platform 

providers carve-out.

The Department should clarify that a variable annuity contract (whether group or individual) 

constitutes a “platform” for purposes of the carve-out. Variable annuity contracts (“VAs”) are 
25

offered both in the group and individual markets. Group VAs offer employees access to a 

number of mutual fund or separate account investment options and fixed investment options 

among which participants can direct their account balances during their working years as they 

accumulate retirement assets. The key advantage offered by VAs is that they give participants 

and beneficiaries the ability to convert their accumulated plan balances to lifetime income 

streams at retirement. A VA contract can include anywhere from tens to hundreds of different 

investment options. In the context of an ERISA-covered plan, the plan fiduciary selects which of 

the available investment options will be made available under the plan. As such, a group 

variable annuity contract is functionally identical to a platform of investments made available 

by a recordkeeper or other platform provider, but offers the added benefit of lifetime income 

protection through the annuitization guarantee.

Individual VAs operate identically to group VAs but are offered to individuals. These products 

are often offered to participants who may be considering rolling their account balances out of 

an ERISA plan to an IRA. Like group VAs, an individual VA contract will offer the individual 

access to numerous investment alternatives, including mutual funds, separate accounts and 

fixed options. 

Under the current language of the platform providers carve-out, it is not clear that the 

Department intended to cover group VAs and individual VAs. With respect to group VAs, the 

Department should make clear that a group VA contract qualifies as a “platform” for purposes 

of the carve-out. Given that individual VAs function identically to group VAs, IRI believes there 

is no rational basis for treating group VAs offered to plan investors differently under the 

platform providers carve-out than individual VAs offered to participants and IRA holders. To be 

very clear, IRI is not suggesting that the recommendation to a participant or IRA holder of 

specific mutual funds or other investment options available through an individual VA contract

should necessarily always be exempt from the definition of fiduciary investment advice. Rather, 

IRI strongly believes that making available and presenting an individual annuity contract to a 

participant or IRA holder, without any specific recommendations respecting the investments 

that are available through the individual VA contract, should fall within the platform providers 

carve-out. Accordingly, we ask the Department to provide this clarification by adding to the end 

of paragraph (b)(3) (following the additional language that IRI has proposed in section 4.b. of 

this comment) the following language: “the term ‘platform’ shall include a variable annuity 

contract that offers the investor access to a number of investment alternatives.”

4. Specific Comment: The investment education carve-out should, consistent with the 

current language of I.B. 96-1, permit the identification of specific investment 

alternatives in connection with asset allocation education and specific distribution 

products in connection with distribution information when accompanied by a 

statement that other investment products with similar risk and return 
26

characteristics and other distribution products may be available under the plan 

and indicating where to obtain information about those other products. 

IRI supports the Department’s proposal to include a carve-out for the provision of investment 

education largely modeled after the existing carve-out found in Interpretive Bulletin 96-1, 29 

C.F.R. § 25.09.96-1 (“IB 96-1”). We believe that the framework reflected in IB 96-1 has led to 

greater access to educational information for countless individuals over the past two decades, 

thereby improving their chances at a financially secure retirement.

The Department proposes to modify IB 96-1 in two significant ways. One proposed modification 

would expand the scope of the education carve-out to cover education relating to 

post-retirement planning. IRI supports this proposed modification, as we strongly believe that 

individuals are far less likely to achieve retirement security without an adequate understanding 

of post-retirement needs, including longevity risk and inflation risk.

However, IRI is deeply concerned about the Department’s proposal to modify IB 96-1 by 

including new requirements that any materials used to educate retirement investors refrain 

from identifying any specific investment products available under the plan or IRA. We 

appreciate the Department’s acknowledgement that this “represents a significant change” and 

its invitation to comment on whether the change is appropriate.37 In our view, the change 

would have the effect of dramatically reducing the value of participant education initiatives by 

making it exceedingly difficult, if not impossible, to impart the information needed by 

participants to implement their investment and distribution decisions.

A rule designed to protect retirement investors by prohibiting references to specific investment 

and distribution products available under a retirement investor’s plan or IRA ignores the critical 

fact that many retirement investors specifically request such information. They do so because 

they find it to be helpful information to be taken into account when making decisions about 

how to plan for retirement. For many retirement investors – especially those retirement 

investors who lack financial expertise, and whose interests the Department seeks to protect in 

this rulemaking – the most important question that educational information can answer is, 

“how does this information impact my retirement?” This is particularly the case with 

distribution-related education. It is difficult, if not impossible, to educate participants and IRA 

owners about the features of one or more annuity products without making some reference to 

the provider of the annuity because the details of annuity distribution features may differ 

considerably from one provider to another. 

The following example shows that this proposed requirement, whatever its merits in theory, 

would be counterproductive in practice. Consider an adviser who is speaking to a group of 

employees enrolled in a 401(k) plan. The presentation includes a discussion of proper asset 

 

37 80 FR 21945.
27

allocation based on each individual participant’s risk profile and time horizon. Afterwards, an 

employee approaches the adviser and says, “I really enjoyed your presentation. I’m just starting 

my career, so my time horizon is long, and I’m comfortable with some level of risk. I would like 

to invest my portfolio primarily in growth and income funds – say, 70% to 80% – with the rest 

divided between fixed income and cash. Could you please identify for me which of the 

investment options available in my plan fall within the growth and income class? I would like to 

make sure I am selecting funds that fall within that asset class.” 

Under IB 96-1, the adviser can answer this question by identifying one or more of the particular 

funds available under the plan that the participant could use to implement his asset allocation 

plan. As long as the adviser furnishes a statement that other investment alternatives with 

similar risk and return characteristics may also be available, and informs the participant where 

information about those alternatives can be found, the provision of this information in 

response to the employee’s request would not render the adviser a fiduciary.

But under the Proposed Regulation, the adviser has a dilemma. The answer described above 

would cause the adviser to be an investment advice fiduciary, even though the “advice” 

consisted of factual information provided in response to a specific request from a participant.

To avoid fiduciary status, the adviser would have two choices in deciding how to respond. First, 

the adviser could decline to provide an answer in order to stay within the education carve-out.

This outcome frustrates, rather than furthers, the Department’s goal of increasing retirement 

investors’ access to educational information. The second option is for the adviser to express a 

willingness to answer the participant’s question, but only after the participant reviews and signs 

a lengthy written contract that complies with the requirements of the Best Interest Contract 

exemption. Based on the experience of our members, we doubt seriously whether many 

retirement investors would proceed in the face of such a request.

In support of the proposed departure from IB 96-1, the Department states that it “now believes 

that, even when accompanied by a statement as to the availability of other investment 

alternatives, these types of specific asset allocations that identify specific investment 

alternatives function as tailored, individualized investment recommendations, and can 

effectively steer recipients to particular investments, but without adequate protections against 

potential abuse.”38 But less drastic solutions are readily available to address this “steering” 

concern.

For example, before issuing IB 96-1, the Department released an exposure draft of the rule for 

public comment which included a requirement that if “a model asset allocation identifies or 

matches any specific investment alternative available under the plan with a generic asset class, 

then all investment alternatives under the plan with similar risk and return characteristics must 

 

38 80 FR 21945.
28

be similarly identified or matched.”39 Noting the difficulty that would arise if investment 

alternatives with multiple service providers are offered under a single plan, the Department did 

not include this requirement in the final version of IB 96-1. Instead, in the preamble to IB 96-1, 

the Department “encouraged” service providers to identify other available investment 

alternatives where possible.40

In our view, the Final Rule should be conformed to IB 96-1 by permitting educational materials 

to identify specific investments or products, but only if accompanied by a statement indicating 

other investments or products with similar characteristics may be available under the plan and 

identifying where information on those products and investments may be obtained.

In this respect, it is significant that “the Department believes that FINRA’s guidance in this area 

may provide useful standards and guideposts for distinguishing investment education from 

investment advice under ERISA.”41 The Department has asked for comments on the discussion 

in FINRA’s “Frequently Asked Questions, FINRA Rule 2111 (Suitability)” of the term 

“recommendation” in the context of asset allocation models and general investment 

strategies.42 IRI has reviewed FINRA’s guidance in this area, and it clearly supports the position 

that an otherwise educational asset allocation model does not become fiduciary investment 

advice merely because it identifies a specific investment alternative.

The identification of a specific investment alternative is not seen by FINRA as a determinative 

factor as to whether educational information about investment strategies is subject to the 

Suitability Rule. More broadly, FINRA’s approach in this context recognizes that 

“recommending” a particular security is a distinct action from the mere identification of a 

particular security in an asset allocation model. In its answers to the questions posed in 

Regulatory Notice 12-25, FINRA repeatedly refers to recommendations based on asset 

allocation models.43 Put another way, FINRA’s focus is on whether a recommendation has been 

made which identifies particular securities, not on simply whether such securities have been 

identified.

II. Comments Relating to the Proposed Amendment to PTE 84-24

A. General Comment on the Proposed Removal of Variable Annuities Sold to IRAs from the 

Scope of PTE 84-24: All fixed and variable annuities, whether registered as securities or 

not, are insurance products that provide guaranteed lifetime income, and therefore 

should be treated the same under PTE 84-24. Given the need for a level playing field for 

 

39 61 FR 29586, 29587.

40 Id.

41 80 FR 21945, FN 24.

42 Id.

43 See, e.g., FINRA Regulatory Notice 12-25, at Q&A-8 (Suitability Rule would not apply to a recommendation “if the 

recommendation is based on an asset allocation model that meets the above criteria . . . .”)
29

all annuities, exemptive relief should be available for sales of both variable annuities and 

fixed annuities to IRAs under both the Proposed Amendment to PTE 84-24 and the 

Proposed BIC Exemption.

IRI estimates that approximately 30 million Americans own variable and fixed annuities. PTE 

84-24 has for decades been the primary pathway for exempting the sale of annuity and 

insurance products to plans, including IRAs, and IRI believes it should continue to be available 

to exempt the sale of all such products. Under the Proposed Amendment to PTE 84-24, variable 

annuities sold to IRAs would no longer be eligible for this exemption. The Department has not 

provided any evidence to support the need for this disparate treatment and IRI therefore 

strongly urges the Department to remove the exclusion for variable annuity IRA sales from the 

Proposed Amendment to PTE 84-24.

The Proposed BIC Exemption is available to cover the sale of both fixed and variable annuity 

products to IRAs. That same even-handed treatment, which facilitates the application of 

uniform sets of exemptive relief conditions to sales of annuity contracts of all types, whether 

fixed or variable, should prevail under PTE 84-24. Given that the Proposed Amendment to PTE 

84-24 includes the same “best interest” and “reasonable compensation” requirements as the 

Proposed BIC Exemption, IRI does not believe excluding IRA sales of variable annuities from PTE 

84-24 would provide a greater level of protection for consumers. Moreover, IRI believes it is 

critical that exemptive relief for transactions involving the purchase of both variable and fixed 

annuity products by IRAs be available under both the Proposed BIC Exemption and PTE 84-24. 

The Department’s decision to propose this change to PTE 84-24 appears to be based on an 

inaccurate perception that variable annuities are nothing more than a “package” or “bundle” of 

mutual funds. IRI strenuously rejects this notion. Like fixed annuities, variable annuity products 

contain lifetime income guarantees. Those guaranteed lifetime income features, and not 

merely the product’s investment features, are the primary attribute of the variable annuity 

contract. In that vein, IRI observes that variable annuity contracts have more in common with 

fixed annuity contracts than with mutual funds. The same concerns cited by the Department in 

not restricting the availability of exemptive relief for the purchase of fixed annuities by IRAs 

pertain equally to variable annuity products – namely, the BIC exemption’s focus on expense 

comparisons, when applied to variable annuity products, tends to foster the false conclusion 

that all variable annuity contract expenses are investment related and are too expensive 

relative to non-insurance products. In fact, variable annuity contract expenses include both 

investment-related expenses and expenses associated with guaranteed lifetime income product 

features.

For these reasons, many financial institutions may wish to utilize PTE 84-24 as the exclusive 

pathway for exempting the sale of all annuity products, fixed as well as variable, to IRAs. In light 
30

of the lifetime income guarantees available under both types of products, PTE 84-24 should be 

revised to allow the same exemptive relief for all fixed and variable annuity product sales.

By contrast, some financial institutions engaged in the sale of annuity and other products to 

IRAs may decide to develop systems and compliance support designed to support sales of 

products under the Proposed BIC Exemption exclusively. Since the Proposed BIC Exemption is 

available to cover sales of both variable and fixed annuity products to IRAs, financial institutions 

would have the ability to make this decision if they so choose. Our recommendation to restore 

variable annuities to PTE 84-24 is not intended and should not be interpreted to infer any 

suggestion about changing the availability of the Proposed BIC Exemption for all annuities.

B. General Comment on Definition of Term “Insurance Commission”: The definition of the 

term “Insurance Commission” in the Proposed Amendment to PTE 84-24 is overly narrow 

and should be broadened to ensure that advisers are not inadvertently prohibited from 

receiving customary employee benefits, such as health insurance coverage and access to 

an employer-sponsored retirement plan.

For purposes of maintaining a highly trained and professional sales force, a number of annuity 

providers maintain “career” or “captive” agent sales forces. Individual members of these 

distribution arms agree to devote all or substantially all of their sales efforts to the products of 

single insurance carrier. In exchange for that commitment, the insurance carrier provides 

member of its selling force with various benefits, all of which are subject to continuing 

production and service requirements, such as health and retirement plan coverage and 

contributions, office allowances, travel expense reimbursements and other benefits customary 

in the industry. The re-proposed definition of “Insurance Commission” describes only “sales 

commissions” including “renewal fees and trailers.” The Department needs to clarify to annuity 

providers and their career agents that the other forms of compensation described above are 

also covered under the definition so these vital and longstanding insurance product distribution 

channels are assured of coverage under the exemption. 

As such, we recommend that the Deparment revise the definition of “Insurance Commission”

the Proposed Amendment to PTE 84-24 to conform to the definition used in the instructions to 

Schedule A of the Form 5500 Annual Report:

...commissions and fees includ[ing] sales and base commissions and all other 

monetary and non-monetary forms of compensation where the [insurance agent 

or broker or pension consultant’s] eligibility for the payment or the amount of 

the payment is based, in whole or in part, on the value (e.g., policy amounts, 

premiums) of contracts or policies (or classes thereof) placed with or retained by 

an ERISA plan [or IRA], including, for example, persistency and profitability 

bonuses.
31

C. General Comment on Definition of “Best Interest” Standard: The definition of the term 

“Best Interest” in the Proposed Amendment to PTE 84-24 is overly prescriptive and should 

be revised to make clear that advisers and financial institutions must always put their 

clients’ interests first, but would not be required to completely disregard their own 

legitimate business interests.

IRI fully and unequivocally supports the fundamental notion that a “best interest” standard of 

care should govern the conduct of a fiduciary to a plan or an IRA as a condition to obtaining 

exemptive relief under the Proposed BIC Exemption. However, IRI is gravely concerned that the 

best interest standard articulated by the Department appears to require a complete disregard 

of any financial interest of the fiduciary and its affiliates. In particular, the phrase “without 

regard to the financial or other interests of the fiduciary, any affiliate or any other party” is 

problematic because it appears to require that any advice provided wholly ignore the business 

and economic reality that advisers and annuity providers have to generate enough revenue to 

cover their costs and earn a reasonable profit in order to stay in business.

We do not believe the Department intended to require annuity advisers and providers to 

completely disregard their own business interests. Rather, IRI believes that the Department 

intended to require compliance with ERISA’s prudence rule and ensure that the investor’s 

interests are always considered first and foremost. Accordingly, we respectfully urge the 

Department to modify the text of the best interest standard to more clearly reflect this intent. 

Without this clarity, it will be impossible for any adviser or financial institution to rely on PTE 

84-24, meaning millions of Americans would lose access to advice.

Our belief regarding the intent of the standard derives from the Department’s statement that it 

“expect[s] the standard to be interpreted in light of forty years of judicial experience with 

ERISA’s fiduciary standards and hundreds more with the duties imposed on trustees under the 

common law of trusts.” Judicial authorities interpreting ERISA’s general fiduciary standards 

have agreed that an ERISA fiduciary’s receipt of an incidental benefit from a transaction that 

otherwise is primarily for the benefit of a plan, will not itself cause a violation of ERISA’s 

fiduciary standards. In other words, many courts have held that where taking the best course of 

action for a participant or beneficiary would lead to an "incidental benefit" to a plan fiduciary, 

such incidental benefit is permitted by ERISA.

In addition, the Department’s Fact Sheet about the Proposal described the best interest 

standard as follows: 

The “best interest contract exemption” will allow firms to continue to set their 

own compensation practices so long as they, among other things, commit to 

putting their client’s best interest first and disclose any conflicts that may 

prevent them from doing so. Common forms of compensation in use today in 
32

the financial services industry, such as commissions and revenue sharing, will be 

permitted under this exemption, whether paid by the client or a third party such 

as a mutual fund. 

This notion of putting the investor’s interests first is repeated by the Department in numerous 

places throughout the Proposal to describe the best interest standard. Moreover, the 

Department has repeatedly described the exemption as preserving the ability of financial 

Advisers to rely on common compensation practices such as payments from third parties and 

funds.

To ensure the best interest standard is implemented and interpreted consistent with the 

referenced authorities, IRI urges the Department to revise the definition in Section VI(b) of the 

Proposed Amendment to PTE 84-24 to read as follows (new language is underlined):

...the “Best Interest” of the Plan or IRA is when the fiduciary acts with the care, 

skill, prudence, and diligence under the circumstances then prevailing that a 

prudent person would exercise based on the investment objectives, risk 

tolerance, financial circumstances, and needs of the plan or IRA, and that 

subordinates the financial or other interests of the fiduciary and its affiliates to 

those of the plan or IRA. [or, “and that places the interests of the plan or IRA

ahead of the financial or other interests of the fiduciary and its affiliates.”]

D. Other Comments on the Proposed Amendment to PTE 84-24

1. Specific Comment: The Department should clarify that a recommendation to 

rollover a plan account balance or an existing IRA to an annuity is covered by PTE 

84-24.

The Proposed Amendment to PTE 84-24 specifies that the exemption may be used to cover 

recommendations to an IRA or IRA holder to purchase annuity products that are not securities 

(e.g., fixed annuities). We believe a recommendation to roll an existing IRA to a second IRA 

product – or to roll an ERISA plan account balance into an IRA product – that will be invested in 

an annuity, should be covered by PTE 84-24. Specifically, these recommendations should be 

encompassed within the transactions described in Section I(a)(1) (receipt of an Insurance 

Commission in connection with a purchase of an annuity contract), Section I(a)(3) (the 

“effecting” of a purchase of an annuity contract), and/or Section I(a)(4) (the purchase of an 

annuity contract with plan assets from an insurance company). 

We also note that a recommendation to roll an existing IRA to a second IRA – or to roll an ERISA 

plan account balance into an IRA – that will be invested in an annuity necessarily involves an 

implicit recommendation to sell securities held in the existing IRA or ERISA plan. We believe the 
33

Department should make clear that PTE 84-24 would also cover any implied recommendation 

to sell securities in an existing IRA or plan account in order to purchase an annuity.

2. Specific Comment: The Department should clarify that the exemptive relief 

provided by PTE 84-24 is available for both the purchase of the annuity and the 

selection of investments under the annuity contract. 

The Department should clarify that the exemptive relief available for purchases of insurance or 

annuity contracts under PTE 84-24 also applies to “downstream” transactions which occur 

pursuant to the operation of such contracts. This clarification is necessary in light of the 

proposed definitions of “Insurance Commission” and “Mutual Fund Commission” for purposes 

of PTE 84-24, both of which expressly exclude revenue sharing and certain other payments.

In a typical transaction involving the purchase of an annuity, the selling agent receives a 

commission from the insurance company. The investor who purchases the contract will then 

make selections from a menu of investment options available under the contract. The selected 

underlying investments commonly pay fees to the issuing insurance company pursuant to 

revenue sharing arrangements between the insurance company and the underlying 

investments. Under current law, the relief provided by PTE 84-24 applies to the entire 

transaction, including any payments made to the insurance company relating to underlying 

investments.

It is unclear whether the same relief would be available under the Proposed Amendment to PTE 

84-24. The exclusion of revenue sharing and certain other payments from the definitions of the 

terms “Insurance Commission” and “Mutual Fund Commission” casts doubt as to whether 

exemptive relief is available for commissions paid in connection with sales of annuity contracts 

that include such “downstream” payments. 

IRI does not believe the Department intended to preclude payments relating to the underlying 

investments held pursuant to an insurance contract. Foreclosing relief under PTE 84-24 

whenever such arrangements are present in a transaction would lead to adverse consequences 

for many retirement investors. For example, the receipt of such payments by insurance 

companies permits those companies to charge lower fees to self-directed defined contribution 

plans for investment, recordkeeping, and other services. 

IRI therefore urges the Department to clarify that, under the Proposed Amendment to PTE 

84-24, an insurance company issuer of a variable annuity contract, or an underwriter of a 

mutual fund, can still receive 12b-1 fees, administrative fees, marketing payments, revenue 

sharing payments, and other payments that are excluded from the proposed definitions of 

“Insurance Commission” and “Mutual Fund Commission.
34

3. Specific Comment: To level the playing field for annuities and mutual funds under 

PTE 84-24, the Department should extend to annuities the same independent 

fiduciary approval presumption provision that applies to mutual fund transactions. 

IRI believes the same independent approval presumption available for transactions involving 

the purchase of securities issued by a mutual fund (or the receipt of a Mutual Fund Commission 

thereon) should be available for transactions involving the purchase of an insurance or annuity 

contract (or the receipt of an Insurance Commission thereon). 

The proposed amendment carries forward the different treatment afforded to mutual fund 

transactions relative to annuity and insurance transactions under PTE 84-24 with respect to 

satisfying the condition that an independent fiduciary approve the transaction following the 

receipt of the disclosure materials required to be delivered to the independent fiduciary in 

advance of the transactions. 

In the case of an annuity transaction relying on PTE 84-24, an insurance agent or broker is 

generally required to disclose to an independent fiduciary with respect to the plan or IRA: (i) 

whether it is an affiliate of the insurer whose product is being recommended and whether its 

advice is limited by the insurer; (ii) initial and ongoing commission amounts; and (iii) a 

description of any fees and charges under the contract. After receiving these disclosures, the 

independent fiduciary for the plan or IRA must acknowledge “in writing” the receipt of the 

information and approve the transaction (impliedly, the approval of the transaction must also 

be in writing).

By contrast, PTE 84-24 provides that for mutual fund transactions, the independent plan 

fiduciary’s “approval may be presumed if the fiduciary permits the transaction to proceed after 

receipt” of the disclosures, absent facts or circumstances to the contrary.

No reasonable basis exists for the disparate and more onerous independent fiduciary approval 

condition that applies to annuity transactions. The presumption of independent fiduciary 

approval that applies to mutual fund purchase transactions should also be available for annuity 

transactions. There is simply no reason to apply more rigorous requirements for annuity 

transactions than those that apply to mutual funds. IRI believes the playing field should be level 

between mutual funds and insurance products, and therefore urges the Department to extend 

the presumption approval provision to annuity transactions.

Accordingly, IRI respectfully requests that the Department remove the words “in writing” from 

the first sentence of Section IV(b)(2), and add the following as the second sentence thereof: 

“Unless facts or circumstances would indicate the contrary, the approval may be presumed if 

the fiduciary permits the transaction to proceed after receipt of the written disclosure.”
35

III. Comments Relating to the Proposed Best Interest Contract (“BIC”) Exemption

As noted in part II of this letter, IRI believes it is essential for the exemptive relief available 

under both PTE 84-24 and the Proposed BIC exemption be available to cover recommendations 

for the purchase of both fixed and variable annuity products by IRAs. IRI anticipates that some 

distributors of annuity products that also engage in the distribution of mutual funds and 

general securities may prefer a single prohibited transaction compliance regime to cover all IRA 

product recommendations and sales. In order to preserve the availability of these distribution 

channels as a source of annuity products and guaranteed lifetime income information to 

consumers, it is essential that the Proposed BIC Exemption be modified as discussed below. If 

the Proposed BIC Exemption is not modified, IRI believes its conditions will prove to be so 

onerous and so difficult to comply with that vital sources of annuity product distribution 

information to consumers will cease to be available, thereby denying consumers access to 

lifetime income. 

A. General Comment on the Department’s Formulation of a Best Interest Standard and the 

Conditions Requiring the Formation of a Best Interest Contract: To avoid disruptions in the 

availability of annuity products and their guaranteed lifetime income features to millions 

of retirement savers, and advice about whether these products fit their needs, the 

requirements in the Proposed BIC Exemption must be revised in a workable manner.

IRI believes the interests of retirement investors are best protected when they are aligned with 

the financial professionals that advise them. A properly trained and supervised professional 

acts in a client’s best interest by recommending the product that fits that client’s needs. Where 

a financial professional will be compensated on the basis of a recommended transaction, an 

alignment of interests will take place where the client’s needs are met and the adviser has been 

fairly compensated; the adviser can only be compensated fairly where the client has been well 

served. Further, the administrative processes for implementing the best interest standard need 

to be sufficiently streamlined to afford advisers the opportunity to freely interact with clients 

and prospective clients. The Department’s proposed methods of implementation do not 

conform with common business practices and would deprive millions of retirement investors of 

access to retirement planning advice. We understand the Department has expressed a 

willingness to make the Proposed BIC Exemption administratively workable. The following

comments are intended to help the Department achieve this critical objective.

1. Specific Comment: The terms of the BIC exemption should be clarified to indicate 

that a counter-signature on the part of the advice recipient is not needed to satisfy 

the condition. Advisers and financial institutions should be permitted to comply 

with this requirement through a unilateral agreement furnished to the advice 

recipient.
36

In many circumstances, it may be administratively unfeasible for an advice provider to procure 

a manual or so-called “wet” signature on a best interest contract before acting upon a client’s 

request to implement a recommended transaction. The parties may be doing business over 

the phone, for example. It is also foreseeable that some advice recipients may not be willing to 

sign a best interest contract notwithstanding the fact that the same client wishes to accept a 

recommended transaction. The contract requirement would be especially problematic with 

respect to existing annuity contracts. As noted in the attached Deloitte report, if Advisers and 

Financial Institutions are required to enter into contracts with existing clients, they would have 

to build systems and processes to identify, contact and track implementation. Given the fact 

that approximately 30 million Americans currently own variable and fixed annuities, this would 

be an extremely onerous undertaking that would likely take several years to fully complete.44

In light of these practical difficulties, it should be sufficient that the Adviser and the Financial 

Institution unilaterally agree to the terms required to be contained in the best interest 

contract described by the exemption, either orally or in writing (including electronic written 

form).45

In a unilateral contract, only one of the contracting parties makes a promise; the other party 

manifests assent by performance.46 Accordingly, “[t]he legal result is that the promisor is the 

only party who is under an enforceable legal duty. The other party to this contract is the one 

to whom the promise is made, and this promisee is the only one in whom the contract creates 

an enforceable legal right.”47

Moreover, no signature is required for a unilateral contract to be enforceable. Rather, parties 

may become contractually bound by indicating their assent through a variety of other means, 

such as by accepting and acting upon the contract, ratifying the contract, or accepting the 

performance by the other.48

 

44 Deloitte & Touche LLP. Anticipated Operational Impacts to the Insured Retirement Industry of the Department of 

Labor’s Proposed Rules for the Definition of Fiduciary Advice.

45 IRI urges the Department to clarify that, where more than one Financial Institution is involved in the sale of 

product (e.g., a broker-dealer firm engaged in the distribution of a variable annuity product and the insurance 

company issuer of the product), the Financial Institution primarily responsible for supervising the conduct of the 

Adviser with respect to the Adviser’s recommendation is the proper party to the contract.

46 Corbin on Contracts § 1.23 (3d ed. 2004); see also United States ex rel. Modern Elec., Inc. v. Ideal Elec. Security 

Co., 81 F.3d 240, 241 (D.C. Cir. 1996) (citing the “well-recognized” principle that “in a unilateral contract, 

performance constitutes acceptance of an offer”).

47 Corbin on Contracts § 1.23.

48 17A Am. Jur. Contracts 2d § 173; see also Words, Inc. v. Xerox Corp., 205 F.3d 1336, at *1 (4th Cir. 2000) (per 

curiam) (“If the party against whom the contract is being enforced has indicated through some unequivocal act or 

through performance that it intends to adopt the contract, then a signature by that party is not required for the 

contract to be binding.”).
37

The unilateral contract is supported by the same consideration that would support a signed 

bilateral contract. That is, engagement of the financial services firm by the customer 

constitutes sufficient consideration to create a legally binding relationship.

The principles of the unilateral contract are perfectly-suited to the BIC exemption, where the 

goal should be to hold a single party – the financial services firm – to an enforceable legal duty. 

This can be achieved by requiring firms wishing to use the exemption to post a statement on 

their website (or other accessible venue) that sets forth the BIC standards and commits to act 

in accordance with those standards when providing covered investment services. The client 

would be advised of this promise, the standards, and where to review them at the time 

covered services were offered. This could be done orally, when the interaction is by telephone 

or in person, or in writing, when the interaction is computer-based. The client would accept 

the firm’s offer by proceeding to use the firm’s services, thereby forming an enforceable 

agreement under basic principles of contract law.49

These principles of contract law would be sufficient to bind financial services firms to the BIC 

without the unnecessarily cumbersome and costly difficulties associated with an actual signed 

written agreement. However, the doctrine of promissory estoppel would serve as an 

additional means to enforce the BIC’s terms. Under promissory estoppel, if a party changes its 

position substantially either by acting or forbearing from acting in reliance upon a clear and 

unambiguous promise, then that party can enforce the promise even though the essential 

elements of a contract are not present.50

In the context of the Proposed BIC Exemption, that doctrine would apply if a firm represented 

to a customer that it would abide by the best interest standards when providing services, and 

the customer accepted those services in reliance on that assurance. In these circumstances, 

even if a court were to determine that for some reason no enforceable contract exists, a 

customer could use the doctrine of promissory estoppel to enforce the firm’s representations. 

The customer’s enforcement rights could be further enhanced if, on its website (or in some 

other publicly-accessible format), the firm is required, as a condition of the exemption, to 

 

49 See Corbin, supra; see also Coulier v. United Airlines, Inc., 2015 WL 2452393, at *5 (S.D. Tex. May 21, 2015) (the 

portion of defendant’s website guaranteeing lower price for tickets purchased on the website was a “unilateral 

contract that the customer must accept by performance”); Edquist v. Bidz.com, Inc., 2013 WL 1290130, at *1 (D. 

Mass. Mar. 29, 2013) (“[A] person such as the plaintiff who accepts the terms offered by the defendant on its 

website by participating in an online auction governed by those terms has entered into a contractual relationship 

with the defendant.”).

50 Restatement (Second) of Contracts § 90; see also Williston on Contracts § 8:7 (4th ed. 2008) (“[B]oth versions of 

the Restatement recognize that in certain circumstances, a promise might be enforced despite the absence of 

consideration – and, according to some courts, despite the absence of other elements necessary to form a 

traditional contract – based on the promisee’s foreseeable, reasonable, justified and detrimental reliance on the 

promise”); Allen v. A.G. Edwards & Sons, Inc., 606 F.2d 84, 87 (5th Cir. 1979) (recognizing promissory estoppel 

where broker-dealer, “[h]aving benefitted from oral agreements transacted through local agents, [ ] cannot now 

be heard to complain of failure to observe formalities”).
38

acknowledge the enforceability of its BIC promise and the client’s reliance on that promise in 

engaging in the interaction.

For all of these reasons, there is no need for the Department to require a signed, bilateral 

contract for the BIC. The proposed exemption should be revised to permit firms to become 

legally bound in the manner described.

2. Specific Comment: The contract timing requirement under the Proposed BIC 

Exemption should require the contract to be executed prior to the transaction, not 

prior to the recommendation.

The contract timing rule set forth in the Proposed BIC Exemption is simply unworkable in many 

respects. Due to the breadth of the Proposed Regulation’s definition of “recommendations” 

that will rise to the level of fiduciary advice, IRI is concerned that most sales presentations 

involving retirement investors will be swept into the status of fiduciary conduct. Accordingly, 

the Proposed BIC Exemption will become a key compliance strategy for insurance brokers and 

agents in their dealings with ERISA plans, participants and IRA holders. 

The Proposed BIC Exemption requires that the contract be entered into prior to 

“recommending” that the investor purchase, sell or hold an Asset. As a practical matter, this 

timing requirement will be impossible to satisfy in many cases, particularly with respect to

activities that have been historically viewed as sales activities but will now be considered 

fiduciary “recommendations.” 

Typically, an adviser would make a “recommendation” in the context of a sales presentation 

before an investor has had the opportunity to make a judgment about whether the 

recommendation is worthy of serious consideration. We believe many ERISA investors would be 

unwilling to enter into a contract with an adviser before they understand the nature of the 

recommendations that the adviser will make. Moreover, requiring a prospective investor to 

sign a detailed, tri-party contract before the adviser is permitted to give the client any of his or 

her recommendations whatsoever will have the unnecessary effect of stopping sales 

presentations dead in their tracks. 

IRI believes the point in time when it is most critical for a customer to understand the nature of 

the relationship between the parties is prior to the execution of the transaction, meaning the 

time that the investor acts on the advice and either purchases, sells or holds an asset based on 

the recommendations of the adviser. Accordingly, IRI requests that the Department revise 

Section II(a) of the Proposed BIC Exemption to state:

(b) Contract. Prior to the transaction for which relief is sought under Section I, the 

Adviser and Financial Institution provide a unilateral agreement to the 

Retirement Investor that incorporates the terms required by Section II(b) – (e). 
39

3. Specific Comment: The definition of the term “Best Interest” in the Proposed BIC 

Exemption is overly prescriptive and should be revised to make clear that advisers 

and financial institutions must always put their clients’ interests first, but would 

not be required to completely disregard their own legitimate business interests.

IRI fully and unequivocally supports the fundamental notion that a “best interest” standard of 

care should govern the conduct of a fiduciary Adviser to Retirement Investors as a condition to 

obtaining exemptive relief under the Proposed BIC Exemption. However, IRI is gravely 

concerned that the best interest standard articulated by the Department appears to require a 

complete disregard of any financial interest of the Adviser, the Financial Institution or any 

Affiliate, Related Entity or other party to the transaction. In particular, the phrase “without 

regard to the financial or other interests of the Adviser, Financial Institution or an Affiliate, 

Related Entity or other party” is problematic because it appears to require that any advice 

provided wholly ignore the business and economic reality that advisers and financial 

institutions have to generate enough revenue to cover their costs and earn a reasonable profit 

in order to stay in business.

We do not believe the Department intended to require an Adviser and Financial Institution to 

completely disregard their own legitimate business interests. In our view, if the Adviser, 

Financial Institution and their Affiliates have absolutely “zero” interest in a transaction, there 

would be no potential conflict of interest and therefore no need for the transaction to comply

with an exemption in the first place. Rather, IRI believes that the Department intended to

require compliance with ERISA’s prudence rule and ensure that the investor’s interests are

always considered first and foremost. Accordingly, we respectfully urge the Department to 

modify the text of the best interest standard to more clearly reflect this intent. Without this 

clarity, it will be impossible for any adviser or financial institution to rely on the Proposed BIC 

Exemption, meaning millions of Americans would lose access to advice.

Our belief regarding the intent of the standard derives from the Department’s statement that it 

“expect[s] the standard to be interpreted in light of forty years of judicial experience with 

ERISA’s fiduciary standards and hundreds more with the duties imposed on trustees under the 

common law of trusts.”51 Judicial authorities interpreting ERISA’s general fiduciary standards 

have agreed that an ERISA fiduciary’s receipt of an incidental benefit from a transaction that 

otherwise is primarily for the benefit of a plan, will not itself cause a violation of ERISA’s 

fiduciary standards. In other words, many courts have held that where taking the best course of 

action for a participant or beneficiary would lead to an "incidental benefit" to a plan fiduciary, 

such incidental benefit is permitted by ERISA.52

 

51 80 FR 21970.

52 See, e.g., Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982). ("[O]fficers of a corporation who are trustees of 

its pension plan do not violate their duties as trustees by taking action which, after careful and impartial 
40

In addition, the Department’s Fact Sheet about the Proposal described the best interest 

standard as follows: 

The “best interest contract exemption” will allow firms to continue to set their 

own compensation practices so long as they, among other things, commit to 

putting their client’s best interest first and disclose any conflicts that may 

prevent them from doing so. Common forms of compensation in use today in 

the financial services industry, such as commissions and revenue sharing, will be 

permitted under this exemption, whether paid by the client or a third party such 

as a mutual fund.53

This notion of putting the investor’s interests first is repeated by the Department in numerous 

places throughout the Proposal to describe the best interest standard.54 Moreover, the 

Department has repeatedly described the exemption as preserving the ability of financial 

Advisers to rely on common compensation practices such as payments from third parties and 

funds.55

To ensure the best interest standard is implemented and interpreted consistent with the 

referenced authorities, IRI urges the Department to revise the definition in Section VIII(d) of the 

Proposed BIC Exemption to read as follows (new language is underlined):

Investment advice is in the “Best Interest” of the Retirement Investor when the 

Adviser and Financial Institution providing the advice act with the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent 

person would exercise based on the investment objectives, risk tolerance, 

 

investigation, they reasonably conclude best to promote the interests of participants and beneficiaries simply 

because it incidentally benefits the corporation or, indeed, themselves . . . ."); Hughes Aircraft Co. v. Jacobson, 119 

S. Ct. 755, 764 (1999) (incidental benefits conferred upon an employer when it amends a plan do not constitute a 

fiduciary breach under section 404); Trenton v. Scott Paper Co., 832 F.2d 806, 809 (3d Cir. 1987) ("[T]he fact that a 

fiduciary's action incidentally benefits an employer does not necessarily mean that the fiduciary has breached his 

duty."); Siskind v. Sperry Ret. Program, Unisys, 47 F.3d 498, 506 (2d Cir. 1995). See also, Restatement (Third) of 

Trusts § 78 cmt. d (2007) (“[A] trustee’s action or decision that is motivated by and taken in the best interest of the 

beneficiaries does not violate [the trustee’s duty of loyalty] merely because there may be an incidental benefit to 

the trustee.”).

53 EBSA Fact Sheet: Department of Labor Proposes Rule, available at 

http://www.dol.gov/protectyoursavings/FactSheetCOI.pdf.

54 See, e.g., 80 Fed. Reg. at 21970 (“Under this standard, the Adviser and the 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.”).

55 See, e.g., 80 FR 21961 (“Certain types of fees and compensation common in the retail market, such as brokerage 

or insurance commissions, 12b-1 fees and revenue sharing payments, fall within these prohibitions . . . . [T]he 

exemption would allow certain investment advice fiduciaries, including broker-dealers and insurance agents, to 

receive these various forms of compensation ”); see also 80 FR 21966 (“[The BIC Exemption] seeks to preserve 

beneficial business models by taking a standards-based approach that will broadly permit firms to continue to rely 

on common fee practices, as long as they are willing to adhere to basic standards aimed at ensuring that their 

advice is in the best interest of their customers.”)
41

financial circumstances, and needs of the Retirement Investor, and that 

subordinates the financial or other interests of the Adviser, Financial Institution, 

or any Affiliate, Related Entity or other party to those of the Retirement Investor.

[or, “and that places the interests of the Retirement Investor ahead of the 

financial or other interests of the Adviser....”]

For consistency, a similar change should also be made to the parenthetical language in Section 

II(c)(1).

4. Specific Comment: Given that the duty to act in a client’s best interest is contained 

in the required contract under the Proposed BIC Exemption, the warranties 

required under the Exemption serve no useful consumer purpose but expose 

Advisers and Financial Institutions to risks of frivolous and costly litigation, adding

to the expense associated with serving retirement investors.

The primary enforcement mechanism under the Proposed BIC Exemption is the contractual 

promise that the Adviser and Financial Institution will act in the client’s best interest. An advice 

recipient who believes the best interest promise has been breached can pursue contractual 

remedies. IRI believes the requirement that the Adviser and Financial Institution also promise 

to adhere to extremely rigorous warranties will likely give rise to nuisance litigation claims for 

warranty violations in circumstances where a claim of a failure to act in the advice recipient’s 

best interest cannot be supported. These warranties would not provide any additional benefits 

for consumers beyond the protections provided by the best interest standard, but would 

provide ample fodder for frivolous litigation. For those reasons, IRI strongly urges the 

Department to remove the written warranties required under paragraph II(d) of the BIC. 

5. Specific Comment: The “reasonable compensation” conditions of the Proposed BIC 

Exemption are focused on the value of services and fail to take into account the 

costs of annuity products’ guaranteed features. Moreover, the conditions unfairly 

disadvantage proprietary products. For purposes of annuity product 

recommendations, the definition of “reasonable compensation” contained in the 

Proposed BIC exemption should be conformed to the corresponding provision in 

the Proposed Amendment to PTE 84-24.

Section III(c) of PTE 84-24, as re-proposed, contains a “reasonable compensation” condition 

that distinguishes between (1) amounts paid for the provision of services to a plan or an IRA, 

and (2) amounts paid in connection with the purchase of the annuity contract itself. The total of 

both such amounts may not exceed reasonable limits, yet the distinction between amounts 

paid for services and amounts paid for insurance is useful for purposes of ascertaining 

compliance with the condition.
42

The Proposed BIC Exemption contains “reasonable compensation” conditions in Sections II(c)(2) 

and IV(b)(2). The measurement of reasonable compensation for purposes of the BIC exemption, 

however, lacks PTE 84-24’s distinctions between costs of services and costs of insurance. 

Instead, the proposed BIC exemption measures reasonable compensation strictly in relation to 

the services they provide.

By measuring the reasonableness of total annuity costs purely in relation to the provision of 

services, the Proposed BIC Exemption overlooks the fact that much of the value provided by 

annuities (and to which many of the costs of annuities are attributable) pertains to their 

guaranteed features. The assumptions of risk associated with the provision of annuity 

guarantees has significant value, but it is not a value that can be measured in relation to the 

services provided by the Adviser.

This same difficulty is magnified in the case of proprietary annuities. The BIC Exemption’s 

reasonable compensation test measures the reasonableness of total compensation received by 

the Adviser, Financial Institution, Affiliates and Related Entities against services provided to a 

retirement investor. An Adviser offering a non-proprietary product would be required to test 

only the reasonableness of the amounts he and the Financial Institution he represents receive 

(since the issuing insurer is not an Affiliate of the Adviser, amounts payable to the insurer 

would not be counted). By contrast, where an Adviser offers a proprietary product for the same 

price and for the same level of services, the total compensation would have to include the

amounts paid to the Affiliated annuity issuer in addition to the amounts received by the Adviser 

and the Financial Institution he represents, making the reasonable compensation condition 

much more difficult to satisfy despite the fact that the actual amount of compensation paid in 

these two scenarios would be the same.

To remedy these issues, IRI urges the Department to substitute the same reasonable 

compensation measure contained in section III(c) of PTE 84-24 in place of the counterpart 

language contained in Section II(c)(2) and IV(b)(2) of the Proposed BIC Exemption, for purposes 

of applying the BIC exemption conditions to annuity products. As noted in part II of this 

comment letter, IRI strongly believes that both the BIC Exemption and PTE 84-24 should be 

available as sources of exemptive relief for annuity transaction recommendations to IRAs.

6. Specific Comment: The Adviser’s and Financial Institution’s agreement to comply with 

the Impartial Conduct Standards by delivering a Best Interest Contract should be 

sufficient to satisfy the conditions of section II(c) of the Proposed BIC Exemption. 

Violations of the Impartial Conduct Standards should not result in loss of the 

exemption.

The Department has proposed the contractual enforcement mechanism described by the 

Proposed BIC Exemption as the means by which plans, plan participants and IRA holders may 
43

hold their Adviser and the Financial Institution accountable for a breach of the Impartial 

Conduct Standards. This is particularly important for IRA holders who would have no remedies 

under ERISA for breaches of fiduciary duty. As proposed, the exemption would not only subject 

Advisers and Financial Institutions alleged to have breached the Impartial Conduct Standards to 

potential contract liability but would also subject them to excise tax liability under section 4975 

of the Code in connection with prohibited transactions associated with the provision of advice.

IRI is concerned that the lack of clarity regarding the best interest standard will create 

unnecessary disputes and uncertainty as to when the exemption applies and when it does not. 

Excise tax liability is a self-assessed and self-reported tax under section 4975 of the Code. 

Although it is generally 15% of the amount involved in the prohibited transaction, the tax 

escalates to 100% of the amount involved if the IRS asserts liability for the tax before it has 

been self-reported and assessed.56 Needless to say, these amounts can be substantial and there 

are penalties and interest associated with failures to timely file and pay excise tax liabilities.

It is essential that Financial Institutions and Advisers know for certain when their activities will 

be covered by the BIC Exemption and when the BIC Exemption may be lost. In order to give 

Financial Institutions and Advisers certainty regarding when excise tax liability arises, IRI asks 

the Department to revise the Proposed BIC Exemption so that compliance with the Impartial 

Conduct Standards is not a condition of the Proposed BIC Exemption, but remains a 

requirement of the contract. Specifically, the phrase “and comply with” should be removed 

from section II(c) and should solely be a requirement of the contract entered into under the BIC 

Exemption. This would be consistent with the treatment of the warranties under the Proposed 

BIC Exemption, under which the best interest contract is required to contain the warranties, but 

violations of the warranties would not cause the exemption to be lost. 

B. General Comment on Treatment of Propriety Products under the Proposed BIC Exemption:

The Department should take steps to preserve proprietary annuity distribution models, 

which provide consumers with invaluable and irreplaceable sources of knowledge about 

annuity products and how annuities can be used to provide guaranteed lifetime income to 

retirees. To that end, the “Limited Range of Investment Options” requirements included 

in section IV of the Proposed BIC Exemption should not apply to Advisers and Financial 

Institutions that offer only proprietary products.

Some IRI members only offer proprietary investment menus in connection with individual or 

variable annuity contracts and IRA products. There are good reasons why this type of business 

model exists. A number of insurers maintain career agent distribution forces, comprised of 

individuals who contractually agree to limit their annuity sales and servicing efforts primarily or 

exclusively on products offered by a single insurance carrier. In consideration of that 

 

56 I.R.C. § 4975(b).
44

commitment, an insurer may sponsor benefit plans to cover qualifying career agents, provide 

office housing allowances and offer substantial training and education support. Yet section IV of 

the Proposed BIC Exemption seems to imply that such arrangements are inherently problematic 

by imposing an additional layer of conditions on Advisers and Financial Institutions that offer 

only proprietary products. Specifically, under section IV(b) the Financial Institution must make a 

written finding that the limitations it has imposed on Assets made available to an Adviser do 

not prevent the Adviser from providing advice in the Best Interest of the investor. Moreover, 

before giving recommendations to the investor, the Adviser or Financial Institution must give 

the investor written notice of the limitations placed on the Adviser. The Adviser must notify the 

investor if it does not recommend a sufficiently broad range of Assets to meet the investor’s 

needs.

IRI asks that the Department make clear that the use of a proprietary-only product platform 

would not necessarily and in every case require the provider to be subject to the “Limited 

Range of Investment Options” requirements of section IV(b) of the Proposed BIC Exemption. In 

other words, the Department should clarify that an annuity provider that exclusively offers 

proprietary products is not subject to section IV(a), and will not be subject to the disclosure 

conditions of section IV(b).

IRI also believes Section IV(b) should not apply when a plan participant or IRA investor seeks

investment advice solely on a source of guaranteed lifetime income.Similarly, the Department

should clarify that an Adviser can provide investment recommendations on a limited range of 

asset classes specified by the investor without requiring compliance with section IV(b) of the 

Proposed BIC Exemption. 

Finally, IRI is concerned that it may not be possible to offer a platform of exclusively affiliated 

investments and still satisfy the Best Interest standard as proposed. In this regard, the Proposed 

BIC Exemption requires an Adviser and Financial Institution to act in the “Best Interest” of a 

Retirement Investor; and this standard is met if they provide “advice that reflects the care, skill, 

prudence, and diligence under the circumstances then prevailing that a prudent person would 

exercise based 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.”57 The final phrase of this 

standard – requiring that both the Adviser and Financial Institution act “without regard to” the 

financial interests of themselves, Affiliates and other parties – raises the question of whether a 

proprietary-only platform could be consistent with this standard. We do not believe that the 

Department intended the Best Interest standard to be a complete bar to the use of a 

proprietary-only platform. Given the significant concern in the industry on this point, we urge 

 

57 Prop. BIC Exemption, § VIII(d).
45

the Department to make clear that the Proposed BIC Exemption is still available, and the Best 

Interest standard itself can still be satisfied, where a Financial Institution offers (or an Adviser 

makes available) exclusively proprietary products. We note that our earlier recommendation in 

section III.A.3 of this letter to delete the phrase “without regard to the financial or other 

interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party” is 

consistent with this comment.

C. General Comment on the Disclosure Conditions of the Proposed BIC Exemption: The 

proposed point of sale, website, annual and ongoing information maintenance 

requirements impose exceedingly burdensome, expensive and duplicative disclosure 

requirements on annuity product providers and distributors, and should be removed from 

the Proposed BIC Exemption.

1. Specific Comment: The point of sale disclosures required under the Proposed BIC 

Exemption should be made through the provision of a prospectus for registered 

annuity products and should be replaced by a reference to the statutory 

prospectus disclosure requirement. 

The proposed point of sale disclosure requirements under Section III(a) are problematic and not 

calibrated for annuity products in many respects. As written, the proposed initial disclosure 

must include: (i) the all-in costs and anticipated future costs of an asset in a summary chart and 

the total costs to the retirement investor for 1-, 5- and 10- year periods expressed as a dollar 

amount; and (ii) the total costs of investing in an asset. These disclosures must be expressed 

based on the specific dollar amount invested by the investor.

As a threshold matter, with respect to variable annuities at least, the proposed point of sale 

disclosure would appear to ignore the ready availability of appropriate fee and expense 

disclosures contained in the SEC mandated prospectus for such products.58 The variable annuity 

prospectus includes not only a fee table that summarizes the various fees and charges that 

apply (e.g., sales charges, ongoing asset-based charges, rider charges, and transaction charges) 

but also hypothetical expense examples for 1, 3, 5, and 10 year periods based on certain 

assumptions relating to such things as: (a) the amount invested, (b) the performance of such 

investment, (c) the underlying fund fees applied, and (d) whether the investor surrenders or 

annuitizes at the end of the stated periods.

The SEC’s carefully designed fee table and expense examples, with which the industry and 

millions of investors have decades of experience, provide exactly the type of simple, succinct, 

and uniform disclosure and comparability the Department seeks. The SEC’s disclosure regime 

accommodates the various types of mortality and expense risk charges as well as rider charges 

 

58 See, e.g., SEC Form N-3, Part A, Item 3 and SEC Form N-4, Part A, Item 3.
46

that may be imposed under a variable annuity, and addresses countless other matters specific 

to variable annuities, such as the method for converting flat annual charges into asset based 

charges for purposes of preparing the required expense examples. In addition, the SEC and the 

industry have considered and worked out a myriad of other disclosure issues relating to fees 

and charges, all consistent with investor protection and the public interest. For example, the 

SEC long ago streamlined the volume of expense information required to be shown regarding 

underlying funding options by allowing issuers to present a high/low range to avoid 

overwhelming investors with a paralyzing blizzard of numbers. Moreover, the SEC has 

developed appropriate disclosure standards for annuity products under which the carrier 

guarantees a particular interest rate and retains the difference between the rate credited and 

the earnings on the assets invested rather than imposing fees and charges.

The Department should leverage the SEC’s decades of experience to avoid getting mired in the 

enormous task of trying to create a separate but equal disclosure regime. For example, the 

Proposed BIC Exemption would require disclosure of the “total costs” of ownership a variable 

annuity investor might incur over time, but does not explain how an insurance company would 

calculate this amount. As a practical matter, because many variable annuity fees and charges 

are based on the amount of the investors’ assets, which may fluctuate over time, the Proposed 

BIC Exemption would appear to require that an insurer assume or “project” some degree of 

future performance in order to compute the total costs of the investment. The SEC has declared 

it would be materially misleading to suggest that past performance may be indicative of future 

results, and FINRA rules on communications with the public expressly prohibit projections of 

performance except under limited circumstances.59 For this reason, and to facilitate 

comparability, the SEC requires the use of an assumed 5% hypothetical return in its fee table 

expense examples. This point illustrates how a seemingly simple requirement proposed by the 

Department may actually present a significant challenge were the SEC’s disclosure regime not 

to be followed. 

In addition, the Proposed BIC Exemption would require an adviser to develop a unique 

disclosure tailored to each investor’s investment amount. Putting to one side the potential 

confusion and lack of comparability that might result in the absence of a standard and common 

set of assumptions for fees and charges, it would be extremely expensive for annuity providers 

to develop new systems to comply with these disclosure requirements. As a practical matter, it 

would be impossible for annuity providers to develop these systems within eight months after 

the Proposed BIC Exemption is finalized. A recent study conducted by Deloitte & Touche for IRI 

found that creating and implementing the systems changes needed to comply with the 

 

59 See, e.g., Rule 482(b)(3)(i) and FINRA Rule 2210(d)(1)(F), respectively.
47

requirements of the Proposed BIC Exemption will be a multi-year process.60 In addition, the 

inevitable delays in providing individualized disclosures to annuity investors would likely result 

in inaction, – which is exactly what the White House does not want to have happen to people 

on the cusp of retirement who need to take action.

Accordingly, IRI respectfully submits that the Department should permit the point of sale 

disclosure requirement to be met for annuity products that are registered as securities through 

the provision of a prospectus or summary prospectus that meets SEC requirements by revising

Section III(a) of the Proposed BIC Exemption to add the following as the final sentence thereof:

With respect to the purchase of an Asset that is an annuity contract registered 

under the Securities Act of 1933, the requirements of this subsection (a) shall be 

deemed satisfied if, prior to the execution of the purchase of the Asset by the 

Plan, participant or beneficiary account, or IRA, the Adviser furnishes to the 

Retirement Investor a copy of the statutory prospectus or summary prospectus 

for such Asset.

2. Specific Comment: The website disclosure requirements for annuity products 

should be eliminated in favor of the settled disclosure regimes under applicable 

federal securities laws and state insurance laws.

IRI is concerned that the website disclosure provision in the Proposed BIC Exemption would 

require that extensive information about the costs of annuity products be provided by each 

selling firm rather than the product issuer. This could result in different consumers receiving 

different information about the same product, which would generally conflict with securities 

and insurance industry disclosure standards that emphasize accuracy and consistency of

product cost disclosure across distribution channels.

In the insurance industry, product disclosures, including cost disclosures, are typically

controlled by the product issuer, and not the individual adviser or selling firm. This has the 

benefit of increased uniformity of disclosure, in that hundreds of sales persons selling for an 

issuer can use the same consistent, carefully reviewed sales materials. For that reason, 

insurance product issuers typically contractually prohibit distributors from independently 

generating product-related sales materials. 

In the context of SEC-registered investment products, consistency and comparability of 

disclosure are critical elements of facilitating investor understanding and informed choice. All 

issuers of registered securities, such as variable annuities, are required to prepare a standard 

offering document, i.e., a prospectus that not only must contain specific disclosures, but also 

 

60 Deloitte & Touche LLP. Anticipated Operational Impacts to the Insured Retirement Industry of the Department of 

Labor’s Proposed Rules for the Definition of Fiduciary Advice. 
48

must follow certain “ordering requirements,” so that the information conveyed appears in a 

specific sequence that is intended to facilitate comparability and assist in consumer 

comprehension and understanding.61

Moreover, in the case of a variable annuity product, the website disclosures required under the 

Proposed BIC Exemption would likely constitute advertising material under state insurance 

laws, and an advertisement under the federal securities laws that would have to be filed with 

FINRA, and that would be subject to highly detailed disclosure and computational 

requirements. For fixed annuities, any advertising material would have to comply with state 

insurance model advertising regulations.

With respect to annuities that are not registered with the SEC, appropriate disclosure 

requirements have been established by the National Association of Insurance Commissioners 

(NAIC) in its Annuity Disclosure Model Regulation.62 This NAIC model regulation was carefully 

crafted through the combined efforts of the state insurance regulators, industry 

representatives, and consumer advocates to ensure that consumers are provided the 

information they need in order to fully understand annuities and their costs and benefits. IRI 

encourages the Department to allow advisers and financial institutions to utilize disclosures 

meeting the requirements of the NAIC model regulation to satisfy the disclosure requirements 

for non-registered annuities under the Proposed BIC Exemption.

Further, the website disclosure requirements are not at all tailored to the nuances of annuity 

products. For example, the Proposal would require the website to disclose the direct and 

indirect compensation paid to the Adviser, the Financial Institution, and any Affiliate in 

connection with each Asset purchased, held or sold within the last 365 days, and the source of 

the compensation. Because of the sheer number of transactions for which Financial Institutions 

will undoubtedly rely on the Proposed BIC Exemption, the website would quickly become so 

unwieldy as to not provide any useful information to Retirement Investors. Furthermore, the 

overwhelming investors with such disclosures would make it difficult for them to find the 

information they most need and want. Investors arguably would benefit most from knowing (a) 

that the intermediary with whom they are dealing is a compensated and, therefore, motivated 

sales person, (b) any conflicts of interest that result from such compensation, and (c) the 

product pricing and pricing variations available to the investor. Details of intercompany revenue 

sharing arguably would be of little or no meaningful use to the investor, and likely would 

distract the investor from focusing on the key information that is essential to making an 

informed investment decision.

 

61 See, e.g., SEC Forms N-4 (variable annuities) and N-1A (mutual funds).

62 Available at http://www.naic.org/store/free/MDL-245.pdf. 
49

3. Specific Comment: The annual disclosure requirement under paragraph III(b) of the 

Proposed BIC Exemption is overly burdensome, would be exceedingly costly to 

develop and does not advance investor interests, and should therefore be

removed.

IRI notes that much of the information that would be required under the Proposed BIC 

Exemption’s annual disclosure condition is already available to investors through their quarterly 

account statements, which report sales and purchase activity and which list account holdings. 

IRI questions the need for an annual restatement of the previous four quarterly statements. 

The condition would also require complex, dollarized disclosures of fees and expenses paid and 

amounts received by various parties in connection with account transactions. In this regard, IRI 

notes that the merits and countervailing costs of such dollarized disclosures were a major topic 

of the Department’s multi-year, recently finalized plan-level and participant-level disclosure 

regulations under sections 408b-2 and 404a-5 of the Department’s ERISA regulation, 

respectively. In both of those efforts, following extensive public comment and discussion, the 

Department elected not to require dollarized disclosures in its final rulemaking. IRI questions 

the need to re-open that same issue, which was only recently decided. The annual disclosure 

requirement of section III(b) should be removed or conformed with the Department’s recently 

finalized disclosure requirements under sections 408b-2 and 404a-5 of the ERISA regulations. 

4. Specific Comment: The Proposed BIC Exemption’s provision authorizing public 

disclosure of Adviser return information will provide no meaningful benefit to 

consumers but will be extremely expensive to implement, and should therefore be 

deleted. 

IRI is highly concerned about the Department’s right to publicly disclose information provided 

pursuant to the Data Request provision of section IX(d). First, developing the systems necessary 

to compile the required information on a quarterly basis, including cash flows going to or from 

the portfolio, for each Retirement Investor will be an enormously expensive and 

resource-intensive task for Financial Institutions. Moreover, since annuity products feature 

guaranteed values as well as cash values it is unclear how portfolio beginning and ending 

“values” should be calculated for individual and group annuity products that include lifetime 

income guarantees in addition to an investment component. 

However, even if Financial Institutions could compile and provide this information at the 

Retirement Investor level, we are highly concerned that any disclosure of information by DOL, 

as expressly permitted under section IX(e), would be unhelpful at best and misleading at worst. 

Advisers who will rely on the Proposed BIC Exemption will be engaged in the marketing and 

selling of everything from bank deposits and CDs, to bank collective funds and mutual funds 

and insurance and annuity products, all of which have different risk and return features. 
50

Moreover, these recommendations will be made to unique plans, plan participants, and IRA 

investors that have very different characteristics as well as investment goals and horizons. The 

“return” information for these various Assets will not tell any coherent story or be useful to any 

specific person. 

Moreover, DOL’s own investment prudence regulation makes clear that the prudence of an 

investment choice is not measured in hindsight by return alone, but by a consideration of 

several factors as applied to the investor’s unique facts and circumstances at the time the 

investment is made.63 We strongly believe that a public disclosure of “return” information 

alone on a per-Adviser basis sends the wrong information to the public about investment 

prudence in the ERISA space and will not be informative. 

We ask the Department to delete section IX(e) on the basis that compliance with this provision 

will be extremely costly, while public disclosure of this information will not provide any 

meaningful information to plan participants or IRA owners.

C. Other Comments on the Proposed BIC Exemption.

1. Specific Comment: The condition to the exemption for pre-existing transactions 

prohibiting additional advice following the applicability date of the regulation

would render the exemption worthless in practice, and should therefore be 

removed.

While IRI appreciates the Department’s efforts to provide relief from ERISA’s prohibited 

transaction rules for certain arrangements entered into prior to the effective date of the 

proposed regulatory changes, we have serious concerns that the conditions placed on such 

relief create inappropriate incentives for Advisers and Financial Institutions not to service 

existing clients that would run counter to the best interests of Retirement Investors.

Specifically, section VII(b)(3) of the Proposed BIC Exemption makes exemptive relief available 

only if “[t]he Adviser and Financial Institution do not provide additional advice to the Plan 

regarding the purchase, sale or holding of the Asset after the Applicability Date.” 

In effect, this condition requires Advisers and Financial Institutions to ignore the ongoing needs 

of their clients in order to take advantage of the relief provided by the Department. Such a 

result would be contrary to the overall purpose of DOL’s broader regulatory proposal, which is

aimed at requiring Advisers and Financial Institutions to always act in the Best Interest of 

Retirement Investors. It would also run afoul of FINRA’s regulatory expectations that advisers 

should periodically check back with clients to see if their needs or objectives have changed and 

if their holdings remain appropriate. Furthermore, the condition makes no distinction between 

 

63 See 29 C.F.R. § 2550.404a-1(b); see also DOL Adv. Op. 98-04A (May 28, 1998) (applying this standard to the 

selection of investment options in a participant-directed 404(c) plan).
51

advice that is initiated by an Adviser or Financial institution and advice provided in response to 

a customer-initiated request. This means that if a Retirement Investor, following the 

applicability date of the Proposed BIC Exemption, contacts his Adviser to ask whether he should 

continue to hold shares in a mutual fund he purchased on the Adviser’s recommendation one 

year prior, the Adviser would only be able to answer the customer’s question if he otherwise 

satisfies the conditions of the Proposed BIC Exemption because the pre-existing transaction 

exemption would no longer be available.

In short, the condition requiring that no additional advice be given either: (i) discourages

Advisers from their existing customers’ ongoing retirement planning needs; or (ii) eliminates 

any usefulness that the exemption for pre-existing transactions would otherwise provide. In 

practice, Advisers will be forced to preemptively target all pre-existing customers in order to 

enter into tri-party contracts which satisfy the Proposed BIC Exemption’s requirements, and 

they will need to do so immediately upon the applicability date of the Proposed BIC Exemption.

IRI urges the Department to delete this condition so that Advisers and Financial Institutions may 

continue to look out for their customers’ best interests with respect to pre-existing investments 

without forfeiting exemptive relief. 

IV. Comment on Timing of Implementation for Proposal

A. The Department should provide an implementation period of at least three years to 

ensure the industry has adequate time to develop the necessary compliance processes. 

The proposed eight-month timeline would result in significant and harmful market 

disruptions.

IRI is concerned that the Department has significantly underestimated the amount of time 

annuity providers and distributors will require to come into compliance with the rules under 

the Proposal. The requirements and conditions included in the Proposal are exceedingly 

complex and would require massive information technology re-design and build outs to 

support. Our members believe it would take a minimum of three years to complete this work.

64

The Department allowed for a two year implementation period for service providers to 

implement the section 408(b)(2) regulations. By comparison, the Department is proposing a 

compressed eight month timeframe for the industry to meet the far more challenging and 

complex requirements under the Proposal.

IRI urges the Department to reconsider its proposed abbreviated timetable. Many institutions 

will simply not be able to meet the Proposal’s requirements within such a short time frame and 

would be forced to suspend the delivery of services to customers. A timeframe of at least three 

 

64 Deloitte & Touche LLP. Anticipated Operational Impacts to the Insured Retirement Industry of the Department of 

Labor’s Proposed Rules for the Definition of Fiduciary Advice.
52

years would be far more realistic and would avoid the unnecessary market disruptions inherent 

in the Department’s eight month timeframe.

Conclusion

In an age when saving and preparing for retirement is squarely on the shoulders of individuals, 

financial professionals will have an important part in helping their clients develop retirement 

plans and grow their savings. As currently formulated, IRI and its members are extremely 

concerned that the Proposal will limit consumer choice or deprive lower- and middle-income 

consumers from accessing affordable assistance with retirement planning. The revisions 

recommended in this letter will enable the Department to establish a best interest standard 

while preserving Americans’ access to retirement planning products and advice.

If you have any questions about any of our recommendations or if we can be of any further 

assistance as the Department works to improve the Proposal, please feel free to contact me or 

Lee Covington, IRI’s Senior Vice President and General Counsel.

Sincerely,

Catherine J. Weatherford

President & CEO

Insured Retirement Institute
Anticipated Operational Impacts to 

the Insured Retirement Industry of 

the Department of Labor’s Proposed 

Rules for the Definition of Fiduciary 

Advice
This document contains general information only and Deloitte & Touche LLP is not, by 

means of this document, rendering accounting, business, financial, investment, legal, tax, 

or other professional advice or services. This document is not a substitute for such 

professional advice or services, nor should it be used as a basis for any decision or action 

that may affect your business. Before making any decision or taking any action that may 

affect your business, you should consult a qualified professional advisor. Deloitte & Touche 

LLP shall not be responsible for any loss sustained by any person who relies on this 

document.

Member of Deloitte Touche Tohmatsu Limited

Copyright © 2015 Deloitte Development LLC. All rights reserved.
Contents

Executive Summary 4

Insurers 5

Distribution Channels 12

Call Centers 14

Wholesalers 15

3
Executive Summary

On April 20, 2015, the Department of Labor (“DOL”) proposed the “Definition of the Term 

‘Fiduciary’; Conflict of Interest Rule – Retirement Investment Advice; Proposed Rule1” (“Rule 

Package”). The Insured Retirement Institute2 (“IRI”) engaged Deloitte & Touche LLP (“Deloitte & 

Touche”) to facilitate a study with 17 IRI member firms representing a 68% share of the annuity 

market based on 2014 sales 3 (referred to as the “IRI Working Group” throughout this document) to 

gather the IRI Working Group’s view on operational impacts of the Rule Package on the insured 

retirement industry, its products and its customers. The IRI Working Group analyzed applicable rule 

requirements and amendments of the Rule Package through collaborative working sessions and a 

questionnaire to establish the impacts to the retirement industry.

The IRI Working Group consisted of insurers who manufacture and distribute insurance products.

Through the collaborative working sessions the IRI Working Group utilized process flows and rule 

requirement information to consider the implications of the Rule package across a variety of 

business models, including the operational impacts to captive and non-captive (third-party) 

distribution channels, with a specific focus on the operational impacts to fixed annuities, variable 

annuities and in-plan retirement income products.

The findings represent the views expressed by the IRI Working Group as communicated to Deloitte 

& Touche4 through facilitated discussions and surveys. Deloitte & Touche has aggregated and 

summarized these views, but was not asked to and did not independently verify, validate or audit

the information presented by the IRI Working Group.

Summary of Findings

The following report addresses the operational impacts identified by the IRI Working Group as the 

impacts apply to insurance companies, and the different business models or channels utilized by 

the Insurers, including Distribution Channels (Captive and Non-Captive), Call Centers and 

Wholesalers. Some of the main impacts identified by the IRI Working Group, which are discussed 

in detail in this report, are as follows:

• The expanded definition of who is considered a “fiduciary” creates operational risk

considerations and obligations that may cause insurers to restrict or end certain types of 

communications, products and services that consumers rely on to plan for their financial 

security in retirement.

• Current customer service models, such as call centers and wholesalers, which provide 

information, education and guidance to consumers, may be unfeasible under the 

requirements of the Rule Package. Insurance companies may shutter call centers as a 

result, further limiting consumer access to account and product information.

1 Federal Register Vol. 80, No. 75 - Proposed Rules – Employee Benefits Security Administration (4/20/2015) 2 IRI is an association for the retirement income industry. As a not-for-profit organization, IRI provides an objective 

forum for communication and education, and advocates for the sustainable retirement solutions Americans need 

to help achieve a secure and dignified retirement.

3 Data obtained from Morningstar, Inc. and Beacon, Inc. 4This engagement was performed in accordance with Standards for Consulting Services established by the 

American Institute of Certified Public Accountants. Deloitte & Touche did not provide any assurances regarding 

the sufficiency of the services provided for IRI’s purpose. Deloitte & Touche services provided in conjunction with 

this assignment do not constitute an engagement to provide audit, review, compilation or attestation services as 

described in the pronouncements on professional standards issued by the American Institute of Certified Public 

Accountants and, accordingly, Deloitte & Touche did not provide any assurance concerning the reliability of any 

assertion that is the responsibility of another party. These services did not result in the issuance of any written or 

oral communication by Deloitte & Touche expressing an opinion or any other form of assurance with respect to 

financial data or internal controls to IRI or any third party.

4

 
• For many Insurers, significant and lengthy updates, changes and bifurcations to systems, 

processes and oversight functions across organizations would be required to comply with 

the Rule Package if passed in its current form.

• The Rule Package is unclear and ambiguous as to the requirements and responsibilities 

for Insurers with non-captive distribution channels, leading to difficulty in operationalization 

of the Rule Package

• The different exemption requirements for fixed annuities and variable annuities will lead to 

further system bifurcations, oversight processes and standards, which may result in 

insurers no longer offering both products because of the operational complexities,

potentially reducing retirement product options for consumers.

The IRI Working Group emphasized that the operational impacts of updates and the creation of 

systems, processes and oversight functions to comply with the Rule Package would be costly and 

would require a significant amount of time for creation and implementation, which would likely be 

significantly longer than the eight months between finalization of the Rule Package and the Rule 

Package taking effect. The IRI Working Group noted that the costs would inevitably trickle down to 

consumers, through indirect fees, as a result of the updates.

Insurers

Expansion of systems and processes The Rule Package will require the development and 

enhancement of systems and processes to ensure compliance with new obligations. The IRI 

Working Group identified several instances where Insurers may need to make considerable 

investments and changes to people, process and technology to accommodate the revised fiduciary 

definition. The Rule Package will result in firms needing to implement new systems, capabilities, 

and monitoring processes to oversee and administer internal operations. The IRI Working Group 

noted that fully implementing the system development and process modifications to comply with the 

Rule Package will likely take 2 – 3 years, assuming normal development cycles. However, The IRI 

Working Group emphasized that accelerating modifications within the timeframe proposed by the 

DOL and Rule Package will likely lead to significant disruptions to normal operations and will result 

in many, if not all, Insurers suspending new development and potentially new sales of retirement 

products in order to put systems in place to comply with the Rule Package.

The Rule Package, as written, will require Insurers to meet new obligations such as enhanced 

recordkeeping and disclosure responsibilities. The IRI Working Group noted that substantial 

investment will be required to develop or enhance the technology solutions to obtain the data 

elements necessary to comply with these requirements. Several instances were identified where 

the technology functionality to capture data point requirements of the Rule Package do not 

currently exist. Significant effort and time will be required by Insurers to acquire, implement and

maintain the capabilities needed to ensure compliance. 

• Significant investments and changes to people, process and technology will likely 

be required to determine applicability and ensure compliance with the requirements 

of the Best Interest Contract Exemption (BICE). The IRI Working Group indicated that 

considerable effort and cost will be incurred to establish the necessary infrastructure for 

customers to utilize the BICE. The IRI Working Group noted that the following process, 

5
system and oversight changes will be required5 to determine applicability and compliance 

for new customers and exiting customers:

• New processes will be required to verify that applicability and conditions of 

exemption are met.

• Training and certifications for producers will be required to determine applicability 

for both new and existing customers.

• Additional layers of supervision and controls will need to be implemented to 

ensure compliance.

• Coding of administrative and correspondence systems will be needed to ensure 

that a best interest contract is in place and executed by all parties.

• Additional personnel, possibly with skill sets that do not currently exist internally, 

may need to be added.

The IRI Working Group noted that the modifications to current systems and processes will 

be essential to comply with the proposed Rule Package and are expected to lead to 

significant cost expenditures. Furthermore, it will take a multi-year effort to evaluate, 

design, test and implement the necessary changes to systems and processes. The IRI 

Working Group indicated that Insurers with the scale and financial capacity to 

operationalize the proposed Best Interest Contract Exemption requirements will likely 

have a competitive advantage over the Insurers with limited resources and capabilities. 

Figure 1.1 below illustrates an example of a process flow demonstrating the potential 

steps to create and implement contracts for reliance on the BICE.

Figure 1.1 – Illustrative process flow of the creation and implementation of contracts for the BICE in 

the onboarding/pre-transaction portion of the customer lifecycle

• Given the numerous communication touch-points with clients (See Figure 1.3), 

Insurers will need to make significant modifications to training, administrative, 

compliance and correspondence systems and processes in order to ensure 

compliance with the Rule Package. Due to the number of communication lines that 

exist between retirement product companies and customers or advisors there is an 

increased possibility that personnel may be providing advice, under the expanded 

definition of what is considered investment advice, leading to an expansion of the 

monitoring of additional personnel to ensure compliance with disclosure and 

recordkeeping requirements. The IRI Working Group noted that it would take at least two 

5 Anticipated changes to processes, systems and oversight requirements noted by the IRI Working Group is not 

exhaustive

6

 
years and significant effort to design, test and implement the necessary changes to 

systems and processes.

• BICE disclosure requirements will necessitate the creation and collection of new 

data points, and require significant operational transformation and effort as many 

of these data points are not currently calculated or maintained by most firms. The 

IRI Working Group noted that operationalizing the website, initial transaction, and annual 

transaction disclosure requirements of the BICE may require firms to implement systems 

that gather, calculate and distribute this information. Specifically, website, 

correspondence, compensation and administrative systems will need to be modified, or 

built from scratch, which may take several years to implement. The IRI Working Group 

indicated that disclosure compensation and fee information is not available at the 

individual contract level or by the exact dollar amount. Insurers will need to make changes 

to technology and processes to capture required reporting information and perform 

calculations for these new data points. 

• BICE disclosure requirements will require firms to develop new supervisory and 

control systems and processes to effectively monitor and ensure completeness and 

accuracy of disclosure statements to consumers in compliance with the Rule 

Package. The IRI Working Group indicated that firms will need to develop new oversight 

processes and additional training to ensure compliance with disclosure requirements. 

Firms will need to build adequate supervisory and operational systems to develop 

effective control frameworks that ensure and safeguard the accuracy and completeness of 

disclosure information. 

• Because many Insurers currently maintain compensation and fee data points 

required by the BICE across multiple systems, it will likely be a difficult, costly and 

lengthy initiative to aggregate these data points for consumer disclosure purposes. 

Insurers will be required to identify which accounts contain qualified products, within 

account types where the Insurer is required to provide compensation and fee disclosure 

information to customers. Currently, many Carriers maintain compensation and fee 

information in multiple systems and not in a format easily transmittable to customers or to 

broker-dealers who may require this information for disclosure purposes. Insurers will be 

required to update or build new systems to calculate and maintain the required 

compensation and fee information. The IRI Working Group noted that this would impact a 

number of systems and would be expected to take a minimum of 2 years to implement.

• As a result of the expanded recordkeeping requirements to substantiate 

compliance with the BICE, current technology and process capabilities may not be 

able to accommodate the expanded recordkeeping requirements and will likely 

require enhancement across many Insurers. Insurers are required to maintain, and 

provide to the DOL as requested, records to substantiate reliance on and compliance with 

the requirements of an exemption. Insurers may be required to update or create systems 

or data repositories to capture, maintain and provide this information to the DOL to remain 

compliant with the requirements. The IRI Working Group identified that the requirements 

would lead to updates or expansion of processes, systems and oversight for document 

management, correspondence, valuation and administrative systems that could potentially 

take 2 – 3 years to build and implement. 

• With the expansion of the fiduciary definition, to potentially include Call Center 

personnel, Wholesalers and other personnel, firms would be required to implement 

new or significantly modified training programs to accommodate expanded 

personnel responsibilities. The IRI Working Group noted that enhanced or new training 

programs would be built to inform front, middle and back office personnel of the 

7
requirements of the new definition, updated processes, policies and oversight associated 

with compliance.

Lack of clarity around requirements and responsibilities The IRI Working Group 

emphasized that the Rule Package, as written, does not provide clear requirements and 

responsibilities of the Insurers in certain types of customer relationships and customer 

communication lines. The lack of clarity here makes it difficult for Insurers to understand the scope 

of requirements or responsibilities, therefore making it difficult to operationalize the Rule Package. 

The IRI Working Group specifically noted the following instances where the Rule Package is broad 

in scope:

• As a result of the ambiguity and lack of clarity in the Rule Package regarding the 

requirements and responsibilities for the BICE of the Insurers within customer 

relationships at non-captive (third party) distribution channels, there could be 

inconsistent adoption of standards to comply with the Rule Package. In a third-party 

or independent distribution channel, it is not clear what the impact of the BICE will be on 

the Insurer, and specifically, how the BICE is applied to the Insurer, broker-dealer, and 

investment professional. Specifically, the IRI Working Group noted that currently, an 

Insurer could provide information or advice to an agent or advisor in the non-captive 

distribution channel that may flow through the agent or advisor to the customer. Although 

the communication is indirect, under the Rule Package it is unclear what the implication of 

this type of indirect communication would be for Insurers and if this communication would 

constitute advice under the expanded definition. The IRI Working Group noted that in the 

event Insurers would be included in the best interest contract relationship, there would be 

significant technology, process and oversight builds that would need to occur to implement 

best interest contracts.

• The Rule Package leads to different requirements for different product types (e.g., 

PTE 84-24 applies to fixed annuities, and BICE applies to variable annuities) within 

distribution channels requiring Insurers to accommodate a variety of options 

across distribution channels. Distribution channels may choose to rely on PTE 84-24 

and the BICE or just the BICE. Because the choice of reliance can be unique to 

distribution channels, different distribution channels may choose different methodologies, 

systems and processes to meet rule requirements. Insurers will now have to 

accommodate a variety of options where differing requirements exist within the 

exemptions. In addition to taking into account the different requirements between Best 

Interest Contract and PTE 84-24, Insurers will have to overlay these requirements with 

current suitability requirements specific to each state. With regard to qualified versus nonqualified sales, insurance companies with captive agents will need to develop different 

processes to manage transactions in retirement plans and those outside retirement plans 

to different standards, and build or update systems and processes to accommodate the 

differences. Insurers who are unable to accommodate different requirements based on the 

type of business, and different business models, may not be able to service certain 

business within distribution channels which could lead to a competitive advantage for 

those firms able to make these accommodations. Further, smaller insurance companies or 

those with a smaller presence in the retirement market may find it difficult and costly to 

adapt systems and may choose to exit the retirement product business, further limiting 

consumer choice.

• The Rule Package does not clearly specify whether a PTE 84-24 or BICE would be 

applicable in a switch transaction from a variable annuity to a fixed annuity, which 

will likely lead to the need for Insurers to update or build systems, processes and 

bifurcate as necessary in accordance with the different business models across 

distribution channels. The IRI Working Group noted that Insurers will need to 

understand the source of funds for each product type in order to understand what level or 

8
standard of suitability or exemption is required for the transaction. For example, take the 

case of a distribution channel performing a transaction where the customer uses funds 

from a variable annuity to buy a fixed annuity. The Insurer would need to require a Best 

Interest Contract, in the event that advice was provided, or evidence that advice was not 

provided for the sale of the variable annuity to purchase the fixed annuity product. To 

accommodate this increased requirement, Insurers would be required to update or build

systems, processes and bifurcate as necessary in accordance with the different business 

models across distribution channels. 

• The Rule Package lacks clarity on determining reasonable assumption performance 

and cost allocations for the BICE disclosures and potentially conflicts with current 

regulations on price projections for certain products. This will make Insurers 

responsibilities difficult to understand and may prevent the operationalization of 

the performance assumption requirement. The IRI Working Group noted that additional 

guidance is required on what constitutes “reasonable compensation” in order to calculate 

the total cost of investing for initial transaction disclosures. Furthermore, in the case of 

variable contracts, the SEC requires insurance companies to complete Form N-4 which 

includes a standardized fee table using prescribed calculations established by the SEC 

within prospectuses 6. The IRI Working Group noted that the fee tables required by the 

SEC illustrating costs may not align with the suggested projection table within the Rule 

Package. FINRA Rule 21117 prohibits projection of costs. Further clarification is also 

needed on how all fees, expenses, and compensation on an individual contract level need 

to be allocated for disclosure requirements. Additionally, without a common interpretation 

or standard for “reasonable compensation” calculations, competitive advantages or 

disadvantages among Insurers may develop. BICE disclosure ambiguity makes it difficult 

for Insurers to understand the proposed Rule Package responsibilities, which will prevent 

Insurers from effectively operationalizing requirements and potentially lead to an extended 

period of time when retirement product availability to consumers is curtailed or 

suspended. 

 

• It is unclear if the BICE’s annual transaction disclosure, which requires the 

disclosure to be provided within 45 days of year end, refers to the policy year or 

fiscal year, making it difficult for Insurers to determine the impact and how to 

operationalize this requirement. The IRI Working Group indicated that if the disclosure 

responsibility is defined as end of the fiscal year, it will be difficult to meet the 45 day 

requirement. Numerous disclosures are already required during this time frame, including 

many that are tax related. The IRI Working Group noted that adding these disclosure 

requirements at fiscal year-end may strain correspondence and call center resources.

Bifurcation of systems and processes Several instances were identified by the IRI Working 

Group where systems and processes will need to be bifurcated between qualified and nonqualified 

products. The Rule Package, as written, is only applicable to qualified products, which will require 

firms to separate systems and processes by each specific product type. Furthermore, the 

applicable exemptions (e.g., Best Interest Contract and PTE 84-24) are applicable to different 

product types, which will require firms to bifurcate systems and processes by product type as they 

apply to the prohibited transaction exemptions. Significant cost and effort would be necessary to 

modify or acquire the technology functionality or capabilities to delineate between permissible and 

non-permissible products. The IRI Working Group noted that oversight, surveillance and other 

compliance processes and systems would need to be bifurcated to accommodate the unique 

requirements for each type of product. Operational transformations will require significant 

6 Securities Exchange Commission Form N-4: https://www.sec.gov/about/forms/formn-4.pdf 7 FINRA Rule 2111 Suitability: 

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9859&print=1

9

 
investments, time and effort, which may provide larger Insurers with a competitive advantage over 

smaller Insurers with less disposable resources.

• Oversight, surveillance, and other compliance processes and systems will need to 

be bifurcated in order to accommodate differences across account types for 

qualified versus non-qualified products. The IRI Working group indicated that Insurers

will be required to update or build new systems to identify and monitor accounts with 

qualified products. Insurers will likely need to create or update systems to accommodate 

the suitability or expanded requirements for accounts with qualified products.

• Bifurcating and reporting of required disclosures for qualified products will require 

significant time and expense to separate processes, systems and oversight 

function into separate groups. The understanding of the IRI Working Group is that the 

Rule proposal will apply only to qualified products. In order to report on only qualified 

contracts, members would have to split their business, including processes, systems and 

oversight into qualified and non-qualified groups in order to create the required disclosures 

for only the qualified products.

• As a result of amendments to PTE 84-24, firms will be required to bifurcate systems, 

processes and oversight responsibilities to accommodate separate requirements 

for annuities products. PTE 84-24 no longer includes relief for transactions in securities 

based annuities (variable annuities), and requires that these types of transactions be 

covered by the BICE. Insurers may be required to create three separate supervisory 

channels to monitor transactions in variable annuities, fixed annuities and non-qualified 

products in order to rely on applicable exemptions. See Figure 1.2 below for illustrative 

examples of future states for firms reliance on exemptions based on proposed 

amendments of PTE.

Figure 1.2 Illustrative current state and examples of future state8 for Insurer and Distribution 

Channel reliance on PTE 84-24 and BICE based on proposed amendments of PTE 84-24

8 The future state options present in Figure 1.2 are not all inclusive and other options may exist for reliance on 

PTE 84-24 and BICE for fixed and variable annuities.

10

 
Changes to products or services that impact customer fees and prices The IRI 

Working Group noted instances where significant high cost changes will be required across 

business models and Distribution Channels to comply with the requirements of the Rule Package. 

As written, the Rule Package may lead to significant changes to people, process, and technology 

within business models and Distribution Channels for firms and investment professionals for to 

achieve compliance. 

• The cost of the updates and changes to technology, systems and business models 

for compliance will likely trickle down to the prices and fees paid by customers due 

to the ultimately higher costs of updates and changes for Insurers to comply with 

the Rule Package. The IRI Working Group specifically noted that consumers may 

experience higher indirect fees as a result of the operational changes. 

• The effort to review and revise all marketing and communication material will be an 

extensive and expensive undertaking given the size and scope of sales practices.

Insurers will need to review hundreds of annuity and retirement planning collateral pieces 

to determine if sales practices comply with the Rule Package. The operational implications 

of performing a holistic review to identify and remove impacted material from circulation 

and prevent its use may take Insurers 6-12 months to complete. Additionally, revising all 

impacted material may create added strain on compliance and paralyze Insurers’ ability to 

market products. The IRI Working Group estimated that this will be a multi-million dollar

effort to cover production and staffing costs and would potentially take 2 – 3 years for 

production and implementation.

• Insurers will likely be required to modify or discontinue investment analysis tools to 

comply with the proposed Rule Package, as the Investment Education carve-out 

does not provide relief for investment education materials with reference to specific 

products previously permitted under FINRA Rule 2211. The IRI Working Group noted 

that currently, FINRA Rule 2211 allows for some flexibility in information around specific 

investment products in marketing materials that are considered investment education 

materials. Specifically, FINRA Rule 22119 provides a safe harbor for investment strategies 

of a security or securities devised through “asset allocation models that are (i) based on 

generally accepted investment theory, (ii) accompanied by disclosures of all material facts 

and assumptions that may affect a reasonable consumer’s assessment of the asset 

allocation model or any report generated by such a model and (iii) in compliance with 

FINRA Rule 2214 (Requirements for the Use of Investment Analysis Tools), if the asset 

allocation model is an ‘investment analysis tool’ covered by FINRA Rule 2214.” As written, 

the proposed Rule Package limits investment education materials including asset 

allocation tools to general information and does not include a provision for references to 

specific investment products. Insurers would be required to review and update asset 

allocation or investment analysis tools to include general information only. If Insurers do 

not update the investment analysis tools in use to comply with the Investment Education 

carve-out as written Insurers will be required to update and create processes and systems 

to monitor and comply with the requirements of a fiduciary for personnel who utilize these 

tools. 

• Product types have fees that will be difficult to quantify and communicate, which 

may limit Insurers’ ability to meet the Rule Package’s disclosures requirements. 

Insurers that manufacture products like immediate annuities, where there are no explicit 

9 FINRA Rule 2111.03 Suitability 

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9859&print=1

11

 
fees and charges and embedded cost to the consumer is difficult to quantify, will require 

additional guidance or clarification on how to include costs in disclosure reporting. For 

products where fees and charges will depend on future investment performance, such as 

the mortality and expense fees on a variable annuity, it is unclear how future investment 

performance should be reflected in the cost disclosures. Specifically, the IRI Working 

Group noted that it will be extremely difficult at the contract level when money is moved 

between investment divisions in variable annuities and for non-cash value products where 

fees are built in to the pricing structure. Furthermore, it will be difficult, if not impossible, to 

calculate the dollar amount of all direct and indirect compensation at the individual 

contract level.

Distribution Channels

The IRI Working Group emphasized the impact to operations within Distribution Channels, and 

noted the implementation and enhancement of processes and systems within the Distribution 

Channels would likely be an arduous, time consuming and costly task. The IRI Working Group 

noted that retirement product Insurers utilize several types of Distribution Channels and business 

models to interact with customers, where multiple communication lines exist across models. The 

IRI Working Group focused on two types of models, the captive and non-captive (third-party) 

models. Within the Captive and Non-Captive models there are different communication lines that 

can occur as illustrated below in Figure 1.3: 

Figure 1.3 Illustrative examples of Non-Captive and Captive Distribution Channels 

communication lines10

The IRI Working Group noted extensive operational impacts for captive and in-house agent 

models, specifically noting the expansion of systems and processes for these Distribution Channels 

to accommodate the amended requirements. In the view of the IRI Working Group, the process to 

implement and update systems and processes within the captive channels to ensure oversight and 

compliance with the expanded Rule Package would be a high cost and time consuming process. 

Specifically, the IRI Working Group emphasized the impact to inforce contracts, where customers 

10 The communication lines depicted in Figure 1.3 are not all inclusive and other communication lines exist within 

Insurers.

12

 
would be required to execute a best interest contract and potentially change their relationship with 

the captive agents.

The IRI Working Group expressed that operations would be impacted within third party Distribution 

Channels, resulting in an impact to the Insurers as the Rule Package requires changes to 

relationships. As a result of the disclosure requirements of the BICE, the IRI Working Group noted 

that the Rule Package may lead to significant changes in interactions between Insurers and 

distribution lines, requiring Insurers to share and provide access to information and systems that 

the Distribution Channels previously did not require. 

The IRI Working Group specifically noted that the Rule Package lacks specificity, and Distribution 

Channels, both captive and non-captive, require further clarity in order to operationalize the Rule 

Package. Furthermore, the IRI Working Group noted that the operational changes and updates 

would impact the relationships between Insurers and Distribution Channels, as well as the 

relationships between customers and Distribution Channel personnel.

• Insurers would be required to provide access to non-captive (third-party) 

distributors for customer disclosure information that is not currently provided, 

which will require significant technological, process and oversight changes to grant 

access to or distribute this information. In order to meet the Financial Reporting and 

Valuation Carve-out requirements, non-captive (third-party) distributors would have to be 

able to access information currently maintained in Insurers’ administration systems to 

report on account values and provide other administrative reporting. In the event that 

Insurers provide this information directly to customers, under the expanded definition, the 

Insurers may be considered fiduciaries in the relationship which may require a best 

interest contract and the documentation requirements associated with the fiduciary status. 

For the fiduciary status to remain with the non-captive third party, Insurers would be 

required to provide information around account values directly to the non-captive 

distributor. The IRI Working Group noted that this would require significant technological, 

process and oversight changes to grant access to or distribute this information to broker 

dealers and would likely require 2 – 3 years and significant resources to implement.

• The Rule Package lacks clarity on whether advisors or agents may be considered a 

fiduciary for one type of product and not another product within the same account 

or customer. This may lead to potential confusion or uncertainty of the 

requirements and responsibilities of the distribution channels and Insurers under 

the Rule Package. As the Rule Package is written, once an agent/firm claims fiduciary 

status, the agent/firm remains a fiduciary. It is unclear if this applies to all types of 

products in an account or if a fiduciary duty can be removed or revoked for certain types of 

products within an account. It is unclear whether an agent is able to have separate 

accounts with the same customer/consumer where the relationship is different.

• The Rule Package lacks clarity on the requirements and steps necessary for 

inclusion of inforce contracts, specifically for implementation of the best interest 

contracts for inforce contracts, which may prevent the requirements from being 

operationalized. The IRI Working Group noted that requiring best interest contracts for 

inforce business would require approximately 2 – 3 years and significant cost to contact 

millions of existing customers and re-document accounts where necessary. Additionally, it 

is not clear if for existing business the firms would be required to proactively reach out to

each customer. Insurers would be required to build systems and processes to identify, 

contact and track implementation of best interest contracts across inforce business. The 

IRI Working Group expressed that the process to identify, contact and track the best 

interest contracts for inforce business would be a multi-year process.

13
Call Centers

Call Center personnel are often responsible for providing basic account information, balances, and 

general administrative customer services to consumers. The IRI Working Group indicated that Call 

Centers provide an important communication line for their customers, providing basic account 

information through an easily accessible medium. However, the IRI Working Group noted that the 

scope of the Rule Package, as written, may be interpreted to include some employees not 

previously understood to be giving advice, including Call Center personnel. Several components of 

the Rule Package, including the expanded fiduciary definition and certain carve-outs, include 

wording that is ambiguous and does not specify responsibilities and outcomes for certain types of 

personnel. Ultimately, the IRI Working Group noted that this could lead to the need for Insurers to 

expand their workforces, including operations and oversight personnel, to accommodate additional 

fiduciaries on accounts. This would likely result in higher dollar costs to firms which could trickle 

down to customers through customer service fees and other indirect fees, as well as the potential 

exit of some firms from the industry with a commensurate reduction in product supply and 

consumer choice.

Additionally, the IRI Working Group noted that firms may elect to limit the capabilities and 

interaction of Call Center personnel to comply with the Rule Package. In this instance, Insurers

would be required to build and expand monitoring of these personnel to ensure the information and 

interaction with clients is aligned with the Rule Package and does not constitute investment advice. 

The IRI Working Group noted that limiting interactions of Call Center personnel with customers 

would ultimately affect the customer experience, and could make the use of call center personnel 

obsolete. The IRI Working Group emphasized that this could ultimately lead to customers having 

less access to account and investment information by eliminating a communication line. The IRI 

Working Group noted the following specific examples:

• Call Center personnel, whom previously interacted with customers primarily for 

customer service purposes, may be considered fiduciaries under the Rule Package, 

which would limit the services Call Centers provide retirement customers. The Rule 

Package includes an expanded definition of fiduciary and what is considered investment 

advice. Currently Call Center personnel may interact and communicate with customers; 

and this communication is not considered advice. However, under the expanded definition 

the interaction between customers and these personnel may be considered to be

investment advice, therefore these personnel may be considered fiduciaries for the 

account. This expansion may lead to changes in business models, including requiring Call 

Center employees to enter into best interest contracts prior to communicating with 

customers to ensure compliance with the Rule Package. The IRI Working Group noted 

that if fiduciary status extended to such routine tasks as providing contract values, it would 

be virtually impossible to provide service to retirement customers. As a result, some firms 

may choose to eliminate Call Centers as the Rule Package will lead to increased

requirements to monitor the activities and communications of these types of personnel.

• It is unclear if the expansion of the fiduciary definition, which as written includes 

providing financial information, extends to basic account or contract level 

information provided by customer service personnel, which limits the ability of 

Insurers to operationalize these requirements. As written, the definition of fiduciary is 

expanded to include a person providing "appraisal, fairness opinion or similar oral or 

written statement concerning the value of securities or other property provided in 

connection with a specific transaction." Specifically, the IRI Working Group expressed 

concern that this language could include information that is currently provided by Call 

Center personnel (e.g., account value, current minimum death benefit). As written, it is 

unclear whether these personnel are intended to be considered fiduciaries under the 

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expanded fiduciary definition limiting the ability of Insurers to operationalize these 

requirements.

• In the event that the expanded fiduciary definition includes call center personnel, 

increased oversight of third party vendors within Call Centers may require updates 

or new monitoring systems and processes to be established to ensure compliance 

with new requirements. As some Insurers utilize third party vendors for Call Center 

personnel, the IRI Working Group noted that there will be a need for new or significantly 

modified systems, processes and monitoring of the Call Center personnel to ensure 

compliance with the requirements of the Rule Package. It was noted that this may be 

more difficult to implement as these personnel are employed by a third party. Firms may 

either be required to implement stricter contracts with these third parties for 

implementation of monitoring systems or cease to use third party vendors to eliminate the 

risk which may further raise costs that may be passed to consumers.

• The IRI Working Group indicated that the extension of the definition of fiduciary to 

cover Call Center personnel would likely lead to increased pricing of products due 

to a need for more experienced personnel. In the event that Call Center personnel are 

considered fiduciaries under the Rule Package, firms indicated that there would be a need 

to hire more experienced and potentially licensed personnel to interact with customers in 

Call Center locations. The need to hire more experienced and licensed personnel would 

likely result in firms needing to offer more competitive compensation to these personnel. 

The increase in compensation for Call Center personnel would lead to an increase in the 

fees paid by consumers for these services.

Wholesalers

The IRI Working Group noted that the responsibilities of Wholesalers will be considerably changed 

and limited through the requirements of the Rule Package. Currently, Wholesalers interact with 

Distribution Channel personnel on a regular basis, including by conducting education seminars to 

teach advisors how to appropriately use retirement income products or attending individual client 

investment meetings with the advisor, as needed, to provide detailed information about specific 

retirement products. As written, the Rule Package, specifically the Investment Education Carve-out 

and the definition of a fiduciary, may be interpreted to limit the information Wholesalers will be able 

to provide to Distribution Channel personnel and consumers.

The expansion of the fiduciary duty may lead to Wholesalers becoming party to best interest 

contracts, and directly forming relationships with consumers where they previously have not 

entered into such a relationship. Operationally, firms would be required to build out systems, 

processes and oversight to ensure Wholesalers are in compliance with the requirements of the 

Rule Package. Furthermore, the IRI Working Group noted that if operations are not expanded to 

accommodate Wholesalers as fiduciaries, the Wholesaler business model would likely become 

obsolete and Insurers would be limited in the investment education they are able to provide to 

Distribution Channels and consumers in order to comply with the Rule Package as it is written. The 

IRI Working Group specifically noted:

• The expanded definition of fiduciary may result in significant changes to the 

services Wholesalers are able to provide, which may limit investment education 

resources and require Insurers to build out systems, processes and oversight to 

ensure compliance. The Rule Package includes an expanded definition of fiduciary and 

what is considered investment advice. Under the expanded definition, the interaction 

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between consumers and Wholesalers may be considered investment advice; therefore 

these personnel may be considered fiduciaries for the account. Under the expansion of 

fiduciary, Wholesalers may be required to be a Best Interest Contract signatory and 

assume fiduciary responsibility in any instance where they have provided some training or 

educational assistance. This could limit the interactions Wholesalers have with clients and 

create business impediments that did not previously exist. Furthermore, some firms may 

choose not to bring Wholesalers into compliance with the Rule Package, which will require 

an increase in monitoring the activities and communications of these types of personnel.

• The Investment Education Carve-out challenges the traditional Wholesaler 

distribution model where Wholesalers provide specific information about products 

to advisors and consumers because these educational services may not be 

permitted within the expanded fiduciary definition. The IRI Working Group noted that 

Wholesalers are a critical component of adviser training and education and often serve as 

subject matter experts working together with advisers and their clients. Currently, 

Wholesalers often provide information about specific products and assist advisers in 

choosing suitable retirement products for their clients. In some firms, Wholesalers have 

securities licenses and have obligations under securities’ laws when they work in 

environments where both advisers and clients are present.

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