BMO Q* Financial Group 

July 21, 2015 

Via Electronic Mail 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Conflict of Interest Rule 

Room N-5655 

Office of Exemption Determinations 

Employee Benefits Security Administration 

Attn: D-11712 

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Washington, DC 20210 

Re: RIN 1210-AB32 - Definition of the Term "Fiduciary" — Conflict of Interest Rule 

—Retirement Investment Advice: ZRIN: 1210-ZA25 - Proposed Best Interest 

Contract Exemption 

Dear Sir/Madam: 

BMO Financial Group ("BMO") is a highly diversified financial services provider based in North 

America. BMO appreciates the opportunity to provide comments on the U.S. Department of Labor's (the 

"Department") re-proposed regulation regarding the definition of "fiduciary" under the U.S. Employee 

Retirement Income Security Act of 1974 ("ERISA") and the Department's proposed Best Interest 

Contract Exemption (collectively, the "Proposal"). In this letter, we provide commentary on the Proposal 

and its potential effects on the marketplace for retirement plan services. 

With total assets of $633 billion and more than 47,000 employees, BMO provides a broad range 

of retail banking, wealth management and investment banking products and services to more than 12 

million customers. In the United States, BMO serves customers through BMO Harris Bank, an 

integrated financial services organization based in the Midwest, and BMO Private Bank, with wealth 

management offices across the United States. BMO provides comprehensive financial services, including 

investment advisory, investment management, financial planning, retirement planning, and trust and 

estate settlement services to high net worth, ultra-high net worth and affluent customers. 

BMO supports the Department's desire to revisit the 1975 regulatory definition of "fiduciary" in 

light of today's financial marketplace. Changes over the last 40 years have given plan participants, 

beneficiaries and IRA holders with direct responsibility for having the necessary resources to make 

critical decisions, such as whether to participate in an employer-sponsored retirement plan, whether and 

how much to contribute to an IRA, and how to invest assets for a secure retirement. BMO encourages the 

Department to ensure that a final rule adopts a definition of fiduciary investment advice that strikes an 

appropriate balance between regulating conduct intended by Congress as fiduciary investment advice, and 

clearly permitting non-fiduciary education and information to be provided to plans, fiduciaries, 

participants, beneficiaries, and IRA owners in order to allow them to make informed decisions. 
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In Part I of this letter, we discuss the scope of the Proposal's definition of "investment advice" 

and elaborate on our specific concerns regarding the Seller's Carve-Out, the Appraisal/Valuation CarveOut and the Education Carve-Out. Part II outlines our suggestions on how the Department could 

strengthen the usefulness of the Best Interest Contract ("BIC") Exemption. In Part III, we conclude our 

remarks. 

I. The Proposed Fiduciary Definition and Carve-Outs 

The Proposal treats as fiduciary "investment advice" virtually every communication a provider 

would make about its services or products. For example, "requests for proposals" ("RFPs") have long 

been a customary way to match those in need of retirement related services to the providers of those 

services. Providers' responses to the RFPs are their opportunity to promote their own service offerings to 

the issuer of the RFP. These responses are intended to promote the requisite product or service, and the 

market has long understood them as sales pitches. Moreover, RFP responses enable the issuer of the RFP 

(a plan administrator, for example) to understand and examine, in accordance with its duty of care, the 

different offerings available in the market. Outside of the RFP context, there are numerous instances in 

which sales discussions take place. For example, a banker may learn from a branch customer that he or 

she is trying to understand college or retirement savings options and may take that opportunity to 

introduce the branch customer to other services that the bank can provide. These are clearly sales 

conversations that are not expected by the banker or the bank customer to be fiduciary in nature. In this 

context, the banker is already required to disclose to the branch customer that any affiliated broker to 

whom the client is introduced does not work for the bank. Other disclosures regarding the respective 

roles of the bank and the broker, and any compensation that may be received by either if a sale is made, 

are already required under applicable federal securities and banking rules. BMO urges the Department to 

clarify in a final rule that introductions or referrals, including actual or implied endorsements in the 

context of seeking to be hired as a service provider, are not fiduciary acts.1 

BMO further asks the Department to clarify the relationship between the fiduciary definition and 

the carve-outs that are included in the final rule. Specifically, the Department should state that the 

existence of a carve-out should not be read to imply that activities covered by the carve-out would meet 

the definition of fiduciary investment advice, but are excluded from the definition only by reason of a 

carve-out. For instance, information about plan features and general investment principles presented to a 

group of plan participants at an enrollment meeting would most likely not meet the definition of fiduciary 

investment advice under the Proposal. Yet, without clear guidance from the Department as part of the 

final rule, the existence of a carve-out covering this activity could imply that the Department would 

consider such activity to constitute fiduciary investment advice but for the existence of the education 

carve-out. Below, we provide specific comments on certain of the "carve-outs" included in the Proposal. 

A. Seller's Carve-Out 

The preamble to the Proposal indicates 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 

1 This approach is consistent with the Department's regulations under Section 408(b)(2) of ERISA (see, e.g., 29 

C.F.R. 2550.408b-2(c)(3)(f) Examples 1 and 4). 
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that the seller is making representations about the value and benefits of proposed deals."2 While BMO 

applauds the Department's objective, we think the Carve-Out should be revised in a number of respects to 

fulfill this purpose. 

Accordingly, BMO asks the Department to consider the following. 

• The Seller's Carve-Out should expressly cover a broad array of customary sales practices, 

including responses to RFPs. As discussed above, BMO asks the Department to amend the 

fiduciary definition within the Proposal to exclude from its scope responses to RFPs and other 

communications widely understood to be mere sales pitches. The Department should also clarity 

that the Seller's Carve-Out encompasses these customary sales practices. 

• The Seller's Carve-Out should expressly cover sales of services. BMO notes that such 

clarification would be consistent with the existing Section 408(b)(2) regulations. 

• The Seller's Carve-Out should expressly cover customary sales practices of all fiduciaries, 

regardless of whether such fiduciaries have discretionary authority over plan assets. 

Because we see no reason to exclude the sale of services from this Carve-Out, and considering 

that many services are offered to section 3(21) "advice fiduciaries," we think eliminating the 

requirement that the independent plan fiduciary exercise authority or control over plan assets is 

the logical next step. 

• Small Plans and IRAs should be included under the Seller's Carve-Out. BMO notes that this 

proposed change is especially important for small employers since there is no small employer 

defined contribution plan relief under the BIC Exemption. However, to the extent the Department 

is reluctant to include all ERISA plans and IRAs under the Seller's Carve-Out, then we would 

propose that the Department adopt the "accredited investor" standard under the securities laws, a 

standard with which the financial markets are already quite familiar. As the Department is aware, 

securities generally may not be offered or sold unless registered with the U.S. Securities and 

Exchange Commission ("SEC") or exempted from registration. Certain securities offerings that 

are exempt from registration may only be offered to investors who are "accredited investors." 

The accredited investor standard is designed to protect potential investors from risk by identifying 

those investors that have sufficient financial sophistication and resources to understand and bear 

the risks associated with more complex or risky investments. Alternatively, the Department may 

consider adopting the threshold for an investor to be considered an "eligible contract participant" 

(as set forth in Section l(a)(18)(A) of the U.S. Commodity Exchange Act). We do not see a 

reason why the same investor should be treated by the SEC or the U.S. Commodity Futures 

Trading Commission as sufficiently sophisticated, yet not be sophisticated enough to be covered 

under the Seller's Carve-Out. 

• The Department should either eliminate or significantly scale back the Carve-Out's 

threshold for assets under management. As previously discussed, BMO proposes that the 

Department expand the Seller's Carve-Out to include customary sales practices for services, and 

2 80 Fed. Reg. 21928, 21941 (Apr. 20, 2015). 
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that, should the Department adopt such suggestion, then sales pitches to non-discretionary 

investment advisers should similarly be covered under the Seller's Carve-Out. If the Department 

makes these important improvements, then the $100 million assets under management 

requirement is no longer relevant. 

• The Carve-Out's required representations should trigger before the contract for services or 

transaction is executed, rather than prior to the time a recommendation is made. BMO notes 

that this alternative approach is consistent with Financial Industry Regulatory Authority and SEC 

guidance, and aligns with the way in which clients prefer to conduct business. Moreover, some 

investment transactions take place over a period of time. To simplify the Carve-Out, any required 

representations relating to the number of participants and assets under management should be met 

prior to, or contemporaneous with, the initial transactions, and should not be continuous in nature. 

B. Appraisals/Valuations 

BMO acts as a directed trustee and custodian for numerous plan clients and plan asset vehicles. 

BMO custody clients include defined benefit, defined contribution and IRA assets, as well as assets of 

plan asset vehicles, such as bank collective investment funds and limited partnerships. BMO provides 

valuation information in connection with securities lending programs, and is responsible for collecting 

information necessary to strike a net asset value for a plan or fund. Valuation information provided by 

BMO to its custody clients may be used for multiple purposes, including on-going fiduciary monitoring 

of investment performance, providing distributions to plan participants and meeting reporting and 

disclosure obligations or requests. In its role as valuation provider, BMO does not exercise discretion or 

act as an advisor to its plan clients. To arrive at the requested valuations, BMO typically utilizes marketbased information from a number of sources, including well established daily pricing firms, the prior 

custodian, account owner, investment source (as in hard-to-value assets), or a third-party 

valuation/appraisal firm. Plan clients contracting with BMO as a custodian understand that BMO's role 

in providing valuation information is not evaluative or subjective, but rather involves a process of 

collecting and consolidating information. Based on the reality of the valuation process, BMO is 

concerned that the scope of the application of the Proposal to the valuation process is unclear and 

suggests certain changes. 

The Department should clarify that a plan service provider, including a trustee or custodian 

providing valuations based on information available in the market or through another fiduciary, should 

not be deemed a fiduciary, even if the valuation may be used for some purpose related to a transaction. In 

BMO's view, the language of the regulation included in the Proposal, which includes as fiduciary advice 

"a statement . . . concerning the value of securities or other property if provided in connection with a 

specific transaction,"3 is confusing and overly broad. Correct, updated values are required for retirement 

plans and IRAs for a number of reasons, many of which could be viewed as "in connection with" a 

specific transaction, yet the role of the valuation provider is not to advice with respect to whether or not to 

engage in the transaction. The following examples should serve to illustrate this point. 

• A custodian may provide valuation information for purposes of calculating required 

minimum distributions. 

3 80 Fed Red at 21957 (emphasis added). 
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• A custodian may provide pricing information to calculate a market value to enable 

clients to provide updated information to participants for purposes of plan 

administration, such as qualified domestic relations order administration. 

• Custodians also typically report to clients on the value of securities held out on 

loan. These values are typically used to set collateral levels with plan counterparties. 

• In its capacity as a custodian, BMO provides various on-line tools that calculate and 

show a daily net asset value. These tools may provide updated information to 

participants or IRA owners, who may (or may not) use the information for the purpose of 

evaluating a specific transaction, but who do not view the custodian calculating the 

values as an advisor with respect to the transaction. 

BMO is concerned that these valuation services could be viewed as "in connection with a specific 

transaction," yet we do not believe that the Department (or Congress) intended that a custodian be viewed 

as a fiduciary in these circumstances. BMO requests that the Department consider changing the language 

in the final rule such that a valuation statement must be provided primarily for the purpose of advising the 

recipient in evaluating a specific transaction. 

BMO is also concerned that the valuation carve-out included in the Proposal is too 

limited. Specifically, subsection (iii) of the carve-out only applies where valuation information is 

provided "solely" for reporting and disclosure purposes. As discussed above, valuation information may 

be used for numerous purposes, and the custodian may not know (even the recipient may not know when 

it first receives the information) how the information will be used. Therefore, BMO suggests striking 

"solely" from subsection (iii) of the valuation carve-out. 

C. Education Carve-Out 

BMO applauds the Department for recognizing the importance of investment education by 

creating a specific advice carve-out that is largely based on existing Interpretive Bulletin 96-1. The 

Department is no doubt aware that investment education plays a vital role in helping Americans prepare 

for retirement, particularly as individuals are increasingly responsible for managing their own retirement 

savings. 

Accordingly, BMO asks the Department to consider the following. 

• The Carve-Out should apply to IRA platforms. The Department should confirm that the 

structuring and offering of a platform, including an IRA platform, should not constitute fiduciary 

advice. At the least, the Department needs to distinguish a general offering of a platform and 

services from recommendations or sales that are tailored to a particular plan, participant, or IRA 

owner. 

• The Carve-Out should be amended to reflect the fact that identifying specific investment 

options available under a plan or to an IRA is part and parcel of providing practical 

investment education. The Carve-Out is drafted so narrowly that it would limit investors' ability 

to understand available investment options. Many individual investors understand investment 

alternatives more clearly when presented with information on sample asset allocations. The 

ability to see illustrations of actual investments helps customers understand investment strategies. 
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The Carve-Out's inapplicability to the identification of specific investment options under a plan 

or IRA, even when asked by the investor and in combination with general financial and 

investment concepts, hinders any possible progress in arming investors with information that they 

can use to construct diversified portfolios. Above all, investment education must be practical. A 

discussion of asset classes in the abstract would do little in assisting the average investor in 

making investment decisions unless it is permissible to identify examples of available and 

applicable products or services. 

II. The Best Interest Contract Exemption 

BMO appreciates that the Department has issued the BIC Exemption as a means through which 

financial institutions and advisers can, if acting in the best interest of the client, continue to receive 

traditional forms of compensation. However, in its present form, BMO believes that the proposed BIC 

Exemption is unworkable from a practical standpoint in various respects. Accordingly, we ask the 

Department to consider the following. 

A. "Assets " Definition 

The BIC Exemption should not be limited to certain approved "Assets." Such a limitation 

needlessly restricts consumer investment choice and is unnecessary given the comprehensive consumer 

protections already embedded in the Exemption and ERISA. First, the Department should consider 

substituting its often-used phrase "securities or other property" for the term "Asset." This approach 

would allow the Exemption to evolve with the financial markets and incubate the flexibility fiduciaries 

need in honoring their duties to the plans and participants. Second, an investment advisory or 

management contract or arrangement should be expressly included under the Exemption. This is 

necessary for two reasons: (1) relief may be required for the marketing of these types of services; and (2) 

relief is required for non-discretionary advisers who, as part of their advice programs, recommend 

discretionary asset managers. For example, BMO offers investment advisory programs under which it 

will recommend, based on the customer's expressed risk profile, affiliated and unaffiliated mutual funds 

and/or discretionary investment managers for selection by the customer fiduciary or IRA owner. The 

Department should either confirm that such programs constitute "securities or other property" (if our 

suggestion above is adopted) or instead broaden the definition of "Asset" to include such programs. 

B. Contract Timing Requirement 

As proposed, the BIC Exemption requires that the contract be entered into prior to 

"recommending" that the investor purchase, sell or hold an asset. This requirement is untenable. 

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. 

It is unrealistic to expect that any investor would be willing 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 recommendations will stop many sales presentations in their tracks. The BIC 

Exemption should not be conditioned on execution of the contract by all or any of the parties. Instead, 
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other reasonable means of establishing the requisite mutual agreement should be permitted, including a 

"negative consent" process, provided that the contract is presented by the adviser or financial institution 

in advance of, or contemporaneous with, the transaction. 

Similarly, requiring the substitution of tri-party contracts for millions of existing contracts, within 

eight months or even twelve months, would require a substantial capital and time investment. 

Substituting tri-party contracts would require significant administrative and operational efforts without a 

corresponding increase in customer protection. Not all clients diligently sign and return paperwork 

(either electronically or through the mail), which means that only a fraction of retirement investors may 

enter into the contract envisioned by the Department in the proposed implementation timeframe. BMO, 

therefore, requests the Department to permit the amendment of existing contracts (to conform to the new 

BIC Exemption) via notification {i.e., negative consent). We believe that these alternative methods of 

obtaining the required contract will be less intimidating to the investor while still achieving the objective 

of making the requisite information available. 

C. Disclosure 

Finally, BMO urges the Department to remove the various disclosure requirements from the BIC 

Exemption {e.g., Compensation Disclosure - Point of Sale & Annual, Website Disclosure, etc.). Section 

408(b)(2) of ERISA already requires the appropriate disclosures and service providers have already 

devoted significant financial and compliance resources to complying with the Department's 408(b)(2) 

disclosure scheme. As a result, the Department should require disclosures similar to those required under 

Section 408(b)(2). Moreover, BMO notes that the Department reserves the right to publicly disclose this 

information, presumably without the permission of the bank's primary regulator. This may force banks to 

choose between conflicting legal and regulatory obligations involving the requirements of the Proposal 

versus the obligation to refrain from providing information to sources other than the bank's primary 

regulator, particularly when such information is subject to public disclosure. 

BMO appreciates this opportunity to provide comments to the Department on this important 

initiative. We would be pleased to make representatives available to the Department to further discuss 

any of our comments. We look forward to working closely with the Department to ensure that both 

proper protections and proper regulatory certainty are in place to best serve the retirement needs of 

American workers. 

III. Conclusion 

Sincerely, 

Andrew T. Karp 

Deputy General Counsel