Via Electronic Submission 

July 21, 2015 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, N.W. 

Washington, DC 20210 

Re: Definition of the Term “Fiduciary” (RIN 1210-AB32); Best Interest Contract Exemption 

(RIN 1210-ZA25) 

Dear Sir or Madam: 

Pacific Investment Management Company LLC (“PIMCO”) appreciates the opportunity 

provided by the Department of Labor (“DOL”) to comment on its proposed rulemaking to 

expand the definition of the term “fiduciary” under the Employee Retirement Security Act of 

1974 (“ERISA”) as it relates to the provision of investment advice to a Plan1

 or to a Plan’s 

participants and accompanying proposed exemptions and proposed changes to existing 

exemptions (the “Proposal”). For the purposes of this letter, we will provide several general 

observations about the Proposal with a focus on 1) the DOL’s proposed Low Fee Streamlined 

Exemption (“Low Fee Exemption” or “Exemption”) under the proposed Best Interest Contract 

exemption (“BIC Exemption”)2

 and 2) elements of the architecture of the Proposal that may 

adversely impact Plan investors and the ability of asset managers to provide the level of services 

that Plan clients have come to expect. 

By way of background, PIMCO is registered as an investment adviser with the U.S. 

Securities and Exchange Commission (“SEC”) and as a commodity trading adviser and a 

commodity pool operator with the U.S. Commodity Futures Trading Commission (“CFTC”). As 

of June 30, 2015, PIMCO managed approximately $1.52 trillion in assets on behalf of millions of 

individuals and thousands of institutions in the United States and globally, including state 

retirement plans, unions, and corporate defined contribution and defined benefit plans. PIMCO 

manages both separately managed accounts in accordance with custom investment guidelines, 

and commingled funds, such as U.S. mutual funds, that are offered to both institutional and 

individual investors. In all of these cases, PIMCO functions as a fiduciary with a distinct legal 

requirement to act in the best interest of our clients. 

 

1

 We refer to “Plans” generally as those employee benefit plans subject to Title I of ERISA, “plans” subject to Section 4975 of 

the Internal Revenue Code of 1986, as amended (the “Code”) and entities deemed to constitute the assets of one or more 

Benefit Plan Investors (as defined in and as contemplated by 29 CFR 2510.3-101 as modified by Section 3(42) of ERISA). 

Our comments thus relate both to ERISA Plans and other Plans such as IRAs subject to the Code. 

2

 80 Fed. Reg. 21960 (Apr. 20, 2015) (proposal to amend 29 CFR Part 2550) (“Proposed Best Interest Contract Exemption”). 
2 

PIMCO is one of the largest active managers of fixed income assets globally, and as a 

fiduciary and a steward of our clients’ assets, our principal goal is to make sound, long-term 

investments that will meet our clients’ objectives and provide them with stable returns that are 

consistent with their risk preferences over their desired time horizons. In our 44 year history, 

PIMCO has garnered much attention for the innovation and long-term performance of its funds 

and separately managed accounts. For instance, PIMCO’s flagship fund, the Total Return Fund, 

which is the largest active bond fund globally, has outperformed its benchmark, the Barclays 

Aggregate Bond Index, by a cumulative 51.8% net of fees since inception as of June 30, 2015.3

 

Further, PIMCO has been recognized on numerous occasions for its strength of management, 

performance and strategy. We noted that certain of its portfolio management personnel have 

received the prestigious Morningstar Fund Manager of the Year awards for 2012 and 2013. 

As noted above, PIMCO provides investment management services to both institutions 

and individuals. The institutions that we serve are typically sophisticated investors with 

dedicated investment personnel and consultants to help them evaluate and select investment 

managers, oftentimes through a request for proposal process. PIMCO reaches individual 

investors primarily through financial intermediaries, such as registered investment advisers, 

independent broker-dealers, wirehouses and bank trust channels. These institutions rely on 

licensed professionals to serve the individual needs of the individual investors. In all of these 

cases, PIMCO’s fees are fully transparent and completely disclosed either in a mutual fund 

prospectus or other commingled fund offering document or in the case of separate accounts, in 

the applicable client agreement such as the Investment Management Agreement and in otherwise 

required disclosures such as 408(b)(2) fee disclosures. 

* * * * * 

PIMCO supports the general principle that financial advisers and other intermediaries 

should act in the best interests of their clients when providing personalized investment advice; 

however, we believe that the complexity, viability and effectiveness of the Proposal in its current 

form could have significant unintended consequences that would be detrimental to the goal of 

helping Americans save for retirement. We encourage the DOL to take heed of the thoughtful 

and well-researched comments submitted by the Investment Company Institute (“ICI”), the Asset 

Management Group of the Securities Industry and Financial Markets Association (“SIFMA 

AMG”), the Investment Adviser Association (“IAA”) and the Insured Retirement Institute, 

among others, of which PIMCO is an active member. Although we do not address each of the 

issues raised by the various industry comment letters, we support the comments, concerns and 

suggestions in those letters, which seek to make any final rulemaking beneficial for the goal of 

helping Americans save for retirement. We discuss in more detail the Low Fee Exemption and 

other aspects of the Proposal that may inadvertently hinder asset managers’ ability to provide the 

level of services that Plan clients have come to expect. 

 

3

 All PIMCO Total Return Fund data cited in this letter is from Morningstar and relates to the Administrative share class. 

The Administrative share class is primarily offered through employee benefit plans, broker-dealers and other 

intermediaries. The inception date of the Administrative share class was September 8, 1994. 
3 

A. LOW FEE EXEMPTION 

As currently drafted, the Proposal includes a Low Fee Exemption, which is a safe harbor 

from the proposed BIC Exemption for those investment advisers who recommend “high-quality 

low-fee investments.”4

 The Low Fee Exemption is problematic as currently proposed because: 

1) the tacit assumption that passive management is in the best interest of clients under all 

circumstances, when there are demonstrated advantages to active management, especially within 

the fixed income sector; 2) the potential underappreciated risks that limiting investors to 

passively managed products may present; 3) the lack of sufficient choice of investment vehicles 

and services for Plan fiduciaries and end-users; and 4) the process and context in which the Low 

Fee Exemption is being considered. 

1. The Low Fee Exemption may incentivize investment professionals to recommend low 

fee, likely passive, products to avoid fiduciary status, even when actively managed 

products may be in the best interest of the Plan.

Although the Low Fee Exemption is generally vague and fails to define specifically the types 

of products that would qualify as “high-quality low-fee investments” and therefore be eligible for 

the safe harbor, the Exemption indicates that the DOL envisions these products to be passively 

managed: 

Facilitating investments in such high-quality low-fee products would be 

consistent with the prevailing...view in academic literature that posits that the 

optimal investment strategy is often to buy and hold a diversified portfolio of 

assets calibrated to track the overall performance of financial markets. Under this 

view, for example, a long-term recommendation to buy and hold a low-priced 

(often passively managed) target date fund that is consistent with the investor’s 

future risk appetite trajectory is likely to be sound.5

 

While we welcome the opportunity to compete with both passive and active investment 

management mandates, we are concerned that the Exemption will provide investment 

professionals with a regulatory incentive to recommend low-fee investment products in order to 

qualify for the safe harbor, even though the recommendation or selection of such products may 

not be in the best interest of the Plan. Such advisers may be incentivized to provide such advice 

to avoid regulatory scrutiny, litigation risk or otherwise minimize compliance costs. 

Moreover, we strongly disagree with the underlying assumption on which the Low Fee 

Exemption is predicated that “low-fee” investment products are by definition “high-quality” or 

that these investment products are necessarily in the best interests of the millions of Americans 

who could potentially be impacted by the use of the safe harbor by their financial adviser. While 

cost is one factor that investors consider, investment performance, strategy, diversification, 

 

4

 Proposed Best Interest Contract Exemption, supra note 2 at 21964, 21978. 

5

 Id. at 21978. 
4 

management style, return objectives, and risk management are among the multitude of other 

factors that investors may consider when evaluating an investment product.6 

Further, even if cost is a primary consideration, most investors do not consider cost on an 

absolute basis, but relative to a fund’s underlying investment performance. In fact, in many 

instances, actively managed funds can deliver performance significantly in excess of their costs, 

outperforming the underlying benchmark and passively managed funds with similar strategies, 

even when fees are considered. This is particularly the case in the fixed income markets, such as 

the intermediate bond market in which numerous structural inefficiencies exist that may distort 

the market and subsequently provide active managers attractive opportunities to generate strong, 

after-fee performance. 

These structural inefficiencies include, but are not limited to the following: 

o Some bond market participants have varying objectives and are restricted in what they 

can buy, creating opportunities for active managers. The global bond market is 

comprised of numerous investors who are constrained by guidelines or whose primary 

objectives may include other considerations than simply maximizing profits. For instance, 

central banks may buy and sell foreign bonds to influence their exchange rates; insurance 

companies may have to sell corporate bonds if their credit ratings fall below a certain 

threshold in order to meet specific guideline constraints; and passive investment funds may 

be limited to buying only the largest offerings to match what is included in the underlying 

index. For active managers in the fixed income markets, these constraints can provide 

attractive price distortions and resulting premia (including liquidity, term and credit premia) 

that can be garnered for the benefit of their clients, including Plans. 

o Bond indices are comprised of the largest debtors, which may not necessarily represent 

the most attractive investment opportunities. The composition of bond indices are driven 

largely by the amount of outstanding debt issuers have, i.e., the more debt an issuer has 

outstanding, the bigger part of the index it is. This means that bond indices could favor 

companies with more financial leverage and passive managers must buy the holdings of those 

issuers with ever-increasing debt loads if they want to track the underlying index. Active 

managers, on the other hand, can decide whether it makes sense to increase the holding of a 

bond issued by a company or country that is taking on more financial leverage or if there are 

other more attractive opportunities from a risk-return perspective.

o Bond market structure favors active managers. Unlike in the equity market, where there 

is a high degree of standardization and trading on electronic platforms, the vast majority of 

the bond market trades “over-the-counter” – i.e., bilaterally between an asset manager and a 

dealer. This means that transactions become a negotiation between two parties. This 

dynamic can favor active managers who have strong, established relationships with dealers 

and who have the resources to garner superior terms for their clients. 

 

6

 In fact, many investment professionals agree that any well balanced portfolio would consist of both active and passive 

mandates. The ability to choose the right investment option for a plan requires thoughtful, unbiased analysis. See

Karabell, Zachary, Solving the Active Vs. Passive Investing Debate, Barrons (Jan. 26, 2015).
5 

o New issuance is important to the fixed income markets, making active credit analysis 

essential. In 2013, U.S. corporate bond issuance was approximately $1.4 trillion, while U.S. 

equity issuance was small in comparison at $255 billion, according to SIFMA. As such, an 

active presence in the new issuance market is an important element to maximizing 

performance for fixed income investors, which typically favors active managers. For one, 

allocations of new issues are made by investment bankers that may differentiate among 

participants in an offering, such as managers who have larger interests and more consistently 

active in those markets. Also, we have observed that some new issues can sometimes be less 

liquid after their initial offering; thus clients appreciate having an active manager that as part 

of its regular processes conducts extensive credit analysis to determine whether participating 

in the new issue would be in the best interests of the client. This is in contrast to the 

approach of passive investing, where the asset manager must indiscriminately buy and hold 

the components of an index irrespective of the underlying fundamentals of a particular 

component. 

These structural inefficiencies, in addition to tactical strategies and robust investment 

processes, help active managers, such as PIMCO, to add value in excess of the fees charged, 

benefiting the savers and retirees invested in such products. As a case in point, consider the 

performance of PIMCO’s flagship active intermediate bond fund, the Total Return Fund: for the 

ten years ended 6/30/2015, the Total Return Fund returned 5.46% on an after-fee, annualized 

basis vs. 4.44% for the Barclays Aggregate Bond Index for the same time period.7

 This 

represents outperformance of an annualized 1.02% net of fees over the benchmark while taking 

benchmark-like risk.8 In other words, the performance of the Total Return Fund has exceeded its 

benchmark’s returns by more than a cumulative 10.5% over the decade, which translates into 

significant value for its underlying investors. For instance, if an investor had invested $10,000 

over this time period, she would have made $1,068 more for retirement after fees as of 

6/30/2015, compared to what she would have had if she invested in the benchmark.9

 

The Total Return Fund’s outperformance is generally directionally consistent with the 

performance other active managers within the intermediate bond category during similar time 

periods. According to Morningstar, for the five years ended December 31, 2014, active 

intermediate bond funds returned 5.10% net of fees vs. 4.38% for passive funds; for the ten years 

ended December 30, 2014, active bond funds returned 4.96% net of fees vs. 4.56% for passive 

funds.10 

In a time where personal retirement savings is more integral than ever to the future financial 

viability of retirees, providing an incentive to financial intermediaries to recommend investments 

based exclusively on cost and not on the plethora of other important characteristics, including 

after-fee performance, seems antithetical to the DOL’s goal of adopting new regulations that 

seek to provide enhanced protections for investors. It also could severely limit consumer choice 

 

7

 See note 4. 

8

 Source for performance data is Morningstar. For the ten years ended 6/30/2015, the annualized sharpe ratio for the 

PIMCO Total Return Fund was 0.99. 

9

 All fund data sourced from Morningstar 

10 “Morningstar’s Active/Passive Barometer” at 11 (June 2015). 
6 

and runs dangerously close to substituting the DOL’s judgment of what is a prudent investment 

for that of investment professionals. In fact, based on our experience as an active manager, we 

would agree with the assertion made in the Proposal that “it is unclear whether mutual funds with 

the lowest fees necessarily represent the highest quality investments for [r]etirement 

[i]nvestors.”11 Further, on numerous occasions, the DOL has recognized that cost is but one 

factor in a fiduciary’s decision making process, a concept that has found expression in the DOL's 

final 408(b)(2) and 404(a)(5) disclosure regimes along with those investment options that are 

permissible as qualified default investment alternatives. 

2. There are possible risks and opportunity costs to passive strategies, especially in 

certain sectors.

We believe there is a broad, and at times, erroneous assumption that investment strategies in 

passively managed funds are inherently less risky than active strategies given the breadth of 

portfolio holdings and market-tracking characteristics of passive management. In fact, in the 

fixed income market, passive strategies are subject to the same interest rate and credit risk 

inherent in all fixed income investing, but may also pose other distinct risks and opportunity 

costs not found in the active management space. 

For one, many indices in fixed income are slow to incorporate new sectors and new types of 

securities, and many markets within fixed income have significantly limited passively managed 

options. This can render entire portions of the fixed income universe inaccessible to passive 

managers, thereby significantly limiting diversification for end-investors. One example of this is 

the U.S. bank loan market, which has one primary passively managed product12 that is 

benchmarked to the S&P/LTSA U.S. Leveraged Loan 100 Index. This index, which includes the 

100 largest bank loan issuers, represents only a fraction of the investable bank loan market, 

which includes approximately 800 to 1,200 issuers. Further, because bank loan indices are 

composed of issuers based on the size of loans outstanding, some of the riskiest loans associated 

with leveraged buyouts or restructurings are included in the indices – loans that active managers 

that engage in robust credit research may avoid. A case in point: in 2014, the PIMCO Senior 

Floating Rate Fund saw no defaults of the loans it held, whereas the Credit Suisse Institutional 

benchmark, the index to which it is benchmarked, saw a default rate of 3.1%.13 

Moreover, since demand for securities in most indices is intense, making them more 

expensive, some passive managers may be inclined to “tilt” portfolios to include more credit 

exposure to boost returns. When applied structurally and indiscriminately versus tactically based 

on extensive credit analysis, the “tilted” passive strategy may only produce modestly higher 

returns while putting the passive fund at risk by adding credit risk and volatility that most passive 

managers are not able to avoid by having to purchase and hold the components of the index. 

3. Investment professionals and Plan fiduciaries should retain the ability to select the 

investment strategies and vehicles that are most suitable for clients.

 

11 Proposed Best Interest Contract Exemption, supra note 2 at 21978. 

12 PowerShares Senior Loan ETF (BKLN). 

13 PIMCO, Credit Suisse, Bloomberg Financial Markets. 
7 

Historically, the DOL has been reluctant to take an overly prescriptive approach as it relates 

to the legal interpretation and regulations surrounding ERISA. Instead, it has promulgated a 

framework that allows fiduciaries to have the flexibility to make investment decisions for the 

best interest of a Plan and its participants given their particular needs, objectives and risk 

tolerances, while at the same time establishing clear guardrails and responsibilities around the 

conduct. This is seemingly in part a recognition that investment styles and trends change over 

time and that the needs of Plans and their participants change, too (in terms of demographics, 

return objectives, etc.). This is also likely an acknowledgement that the Plan fiduciary is in the 

best position to do what is right for the Plan and its participants in terms of understanding and 

meeting the customized needs of its Plan participants. 

We are concerned that the Low Fee Exemption would be antithetical to the responsibilities of 

one’s fiduciary duty, including the responsibility to act solely in the best interest of Plan 

participants as well as the requirement to sufficiently diversify Plan investments. In fact, the 

ability and flexibility for a Plan fiduciary or investment professional to select different styles of 

management (e.g., active vs. passive), different vehicles (e.g., mutual funds, separate accounts, 

private funds) and different fee structures depending on the services rendered is paramount to an 

investment professional’s ability to establish a well-balanced portfolio, and by extension, to meet 

his or her fiduciary duty to his or her client. 

We encourage the DOL to abandon this prescriptive approach that effectively promotes 

specific investment styles, investment vehicles and management approaches by picking “winners 

and losers” in the retirement savings industry. Instead, as it has for the past forty years, the DOL 

should permit investment professionals to select the best strategy and product for the end-user, 

based on the end-user’s return and risk objectives, free of arbitrary constraints and pre-existing 

biases imposed by the DOL. 

4. The process surrounding the proposal of Low Fee Exemption is deeply flawed. Given 

the vast unintended consequences, the DOL should wait to evaluate the need for the 

Exemption, and should it decide to proceed, only do so as part of a separate 

rulemaking proposal.

In addition to the substance of the Low Fee Exemption, the process in which the Low Fee 

Exemption was proposed was flawed, especially given the far reach that such an Exemption 

could have on the marketplace and ultimately on American retirees. Indeed, according to the 

ICI, one third of U.S. households owned IRAs in 2014, representing $7.3 trillion in assets or 30 

percent of all U.S. retirement market assets, up from 18 percent twenty years ago. In addition, 

63 percent of all U.S. households had retirement plans either through work (defined benefit or 

defined contribution plans) or IRAs (or both), meaning that a large part of retirement assets in 

the U.S. could be impacted by the Low Fee Exemption.14

Given the vast impact and the potential unintended consequences of the Low Fee Exemption, 

we believe it is premature for the DOL to move forward on the Exemption without first adopting 

the revised fiduciary standard. Once the fiduciary rule is adopted and operating in practice, it 

would be more appropriate at that time to consider whether any additional exemptions are 

 

14 See ICI, The Role of IRAs in U.S. Households’ Saving for Retirement (2014). 
8 

prudent or necessary. We encourage the DOL, should it decide to proceed with the Low Fee 

Exemption, to pursue a distinct regulatory rulemaking process with the required notice and 

comment process and a robust cost/benefit analysis. As it is currently, the DOL has not provided 

a sufficient level of detail surrounding the Low Fee Exemption to move forward with adopting 

such a provision in compliance with the Administrative Procedure Act. Indeed, given the 

complexity and scope of the Proposal, we would argue that respondents may not pay sufficient 

attention to the Low Fee Exemption and thus responses adopting it in the context of the Proposal 

would be incomplete. 

B. AVOIDING HARM TO PLAN CLIENTS 

While the Proposal is aimed at protecting retail investors, the Proposal, as drafted, could 

impose burdens and expenses upon “large . . . plans [that] are managed by financial experts who 

are themselves fiduciaries”15 as well as other investors advised by sophisticated fiduciaries like 

PIMCO who already have a duty to act in their clients’ best interests. Indeed, while the DOL’s 

objective is to help retirement savers, aspects of the Proposal may have a contrary result by 

restricting products, information and services that asset managers routinely provide to Plan 

clients in order to help them make decisions in the best interests of their participants. 

Specifically, under the Proposal, we are concerned that: 

o Asset managers will not be able to effectively offer products and services to Plans or 

enhance or expand existing relationships with ongoing incidental communications; 

o Asset managers will be constrained in the type of helpful information and education 

that they routinely provide to Plans either as informational or in response to a Plan’s 

specific request; and 

o Asset managers will be unable to effectively serve as fiduciaries because other market 

participants from whom we receive valuable generalized information, such as brokerdealers, investment banks, FCMs etc. may not continue to provide such information 

out of concern that they will become investment advice fiduciaries in their 

interactions with asset managers. 

1. Asset Managers should be able to market services and communicate with clients 

without being deemed a fiduciary. 

PIMCO is concerned that under the Proposal fiduciary status would attach to sales and 

marketing activities due to the proposed expanded scope of what constitutes “investment advice” 

and a “fiduciary.” If the fiduciary standard attaches to ordinary marketing and sales activities, an 

asset manager would be precluded from ordinary and routine activities such as submitting an 

RFP or participating in a finals presentation to a prospective Plan client. If an asset manager 

wins a mandate as a result of these discussions, the asset manager would not be able to earn a fee 

 

15 See Fact Sheet: Department of Labor Proposes Rule to Address Conflicts of Interest in Retirement Advice, Saving 

Middle-Class Families Billions of Dollars Every Year (“Fact Sheet”) available at: 

http://www.dol.gov/ebsa/newsroom/fsconflictsofinterest.html 
9 

on the services provided to the Plan. This cannot be what the DOL intended.16 We note that the 

Proposal broadly treats communications with Plans as “recommendations,” with no exclusion for 

selling and marketing of services, such as investment management services. While the Proposal 

contains the “Counterparty Carve-Out,” we note that it applies only to certain “sophisticated” 

Plans and does not appear to apply to services such as investment management services. We 

thus read the Proposal as possibly preventing asset managers from selling basic investment 

management services, even with respect to those sophisticated Plans that are captured under the 

Counterparty Carve-Out. Such a result not only upends established norms, it prevents asset 

managers from offering the very services that Plans may want in order to fulfill their duty to act 

in the best interests of the participants they ultimately serve. 

We also worry that the Proposal would have the unintended consequence of hampering 

an asset manager’s ability to provide market insights and color to its Plan clients given the 

expanded definition of investment advice and the proposed elimination of the “primary basis,” 

“mutually agreed” or “individualized” tests that are in the current rule. For example, if a PIMCO 

client relationship manager wanted to discuss developments in the European bond market with a 

Plan client, he or she may not be inclined to do so out of a concern that the information could be 

considered investment advice under the Proposal, which may then preclude PIMCO from 

earning a fee on any future products that could be considered the result of the discussions on 

Europe. In that case, the Plan could claim that it relied on the investment advice on Europe in its 

selection of the product. This could have the unfortunate result of preventing asset managers 

from providing helpful information or market color to Plans to avoid these types of situations. 

Clearly this cannot be what the DOL intended. For example, under the Proposal, an asset 

manager could provide market commentary to the Treasurer of a corporation with respect to her 

duties in managing the corporation’s investment capital, but could not provide the same 

information to her if she also happened to be a Plan trustee of the corporation’s 401(k) or defined 

benefit plan. We respectfully submit that the final rules should make clear that these types of 

discussions would not be covered as investment advice or such discussions would fall under a 

 

16 Section 406(b)(1) of ERISA broadly prohibits a fiduciary from dealing “with the assets of the plan in his own interest 

or for his own account” and Section 406(b)(3) prohibits a fiduciary from receiving “any consideration for his own 

personal account from any party dealing with such plan in connection with a transaction involving the assets of the 

plan.” 

See also Proposed Best Interest Contract Exemption, supra note 2 at 21960, 21964: 

If the Proposed Regulation is adopted, [entities that have not previously been viewed as investment advice 

fiduciaries but will be under the Proposal] will become subject to the prohibited transaction restrictions in 

ERISA and the Code that apply specifically to fiduciaries. ERISA section 406(b)(1) and Code section 

4975(c)(1)(E) prohibit a fiduciary from dealing with the income or assets of a plan or IRA in his own interest 

or his own account. ERISA section 406(b)(2) provides that a fiduciary shall not ``in his individual or in any 

other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose 

interests are adverse to the interests of the plan or the interests of its participants or beneficiaries.'' As this 

provision is not in the Code, it does not apply to transactions involving IRAs. ERISA section 406(b)(3) and 

Code section 4975(c)(1)(F) prohibit a fiduciary from receiving any consideration for his own personal 

account from any party dealing with the plan or IRA in connection with a transaction involving assets of the 

plan or IRA. . . . In the Department's view, receipt by a fiduciary of [12b-1, revenue sharing and other] 

payments would violate the prohibited transaction provisions of ERISA section 406(b) and Code section 

4975(c)(1)(E) and (F) because the amount of the fiduciary's compensation is affected by the use of its 

authority in providing investment advice, unless such payments meet the requirements of an exemption. 

 
10 

carve-out. We ask that the DOL find an appropriate way to ensure that Plans are not 

disadvantaged relative to our other non-Plan clients who would continue to receive such benefits. 

We would also hope that the DOL at a minimum clarify that boilerplate or nonindividualized marketing or research materials do not constitute investment advice. Such a result 

would comport with other regulators’ attempts to strike an appropriate balance between sales and 

investment advice. We believe that the aforementioned industry comment letters address many 

of our concerns and offer constructive solutions that accomplish the DOL’s objectives while 

permitting asset managers to continue to serve their Plan clients as fiduciaries. Without limiting 

those suggestions, we strongly urge the DOL to adopt a paradigm where any “recommendation” 

be defined as a communication that is qualitative in nature. 

2. Interactions with sophisticated Plans should not confer fiduciary status, unless 

the sophisticated Plan and the asset manager mutually agree on the existence of 

such a relationship. 

We understand the DOL’s view that sometimes “differentiating investment advice from 

sales pitches in the context of investment products” can be “difficult,”17 but we disagree that it 

should be difficult in the event that a party makes it clear that it is selling a product or service (or 

the Plan recipient should know under the circumstances that the asset manager is going to earn a 

fee on the sale of a product). Large Plans that are managed by sophisticated financial experts 

who are themselves fiduciaries should not be in need of further support, and we thus urge the 

DOL to presume that no interactions involving a sophisticated Plan as may be defined for 

purposes of the Proposal should confer investment advice unless the parties mutually agree 

otherwise. As to whom should be considered “sophisticated” for this purpose, we urge the DOL 

not to draw any artificial lines that invoke standards not already widely adopted in the 

marketplace. These market accepted standards are articulated in some of the industry comment 

letters that have been submitted to the DOL. 

3. Investment education should be applicable to all Plans (including IRAs) but 

retain the substantive features of I.B. 96-1. 

The Proposal wisely calls for an investment education carve-out, but then surprisingly 

adds a new condition that the information and materials not include advice or recommendations 

as to specific investment products, specific investment managers, or the value of particular 

securities or other property.”18 We believe the addition of the new conditions will only work to 

the detriment of Plans. The DOL appears to believe that “even when accompanied by a 

statement as to the availability of other investment alternatives, [such types of specific asset 

allocations that identify specific investment alternatives in I.B. 96-1 investment education] 

function as tailored, individualized investment recommendations, and can effectively steer 

recipients to particular investments, but without adequate protections against potential abuse.”19

But, respectfully, the DOL has not offered any evidence in support of its assertion. In our 

experience, the opposite is true. The Proposal ignores the fact that Plans often request analyses 

 

17 See Fact Sheet, supra note 15. 

18 Proposed Best Interest Contract Exemption, supra note 2 at 21927, 21944. 

19 Id. at 21927, 21945. 
11 

and different interactive materials to assist them in making informed decisions. In this regard, 

we assist clients—including Plans—in helping them crystalize their investment and risk 

objectives, and provide investment alternatives for their consideration. The education carve-out 

as crafted would fail to allow us to help Plans in this manner. 

Further, the imposition of a restriction on the use of a given asset manager or other 

market participant’s name or product will almost certainly have the result of decreasing 

important and needed information for Plans, participants and beneficiaries. We request that the 

substance of the carve-out be maintained as under I.B. 96-1, but expand its application, as has 

been indicated in the Proposal, to include all Plans (including IRAs). 

4. The Proposal should not limit information that is helpful to us in performing our 

jobs as fiduciaries. 

Often times, market participants, such as broker-dealers and prime brokers offer insights, 

ideas and views on the market and other developments (e.g., identifying where there is liquidity 

in the markets) without any compensation or direct linkage to further business. Failing to 

include such services as a carve-out may result in having our counterparties and service 

providers with whom we do business on behalf of Plans being deemed to be providing 

investment advice. Because of that risk, these market participants may discontinue providing 

this helpful information to asset managers. 

This result seems inappropriate especially where asset managers such as PIMCO are both 

large and sophisticated and we do not generally regard such information as anything other than 

generalized and “data points” that supplement our decision making as fiduciaries. Nevertheless, 

given the maximalist architecture of the Proposal and the presumption of investment advice 

absent a specific (and often-time narrowly defined) carve-out, we are genuinely concerned that 

such information will be limited if not curtailed. This will benefit nobody and we ask that it be 

squarely addressed. 

* * * * *

If you have any questions, please do not hesitate to call me at (949) 720-6000. 

Sincerely, 

Douglas M. Hodge 

Chief Executive Officer