1 

Nick Lane 

Senior Executive Director and Head of U.S. Life and Retirement at AXA 

& Chairman, President and Chief Executive Officer of AXA Distributors, LLC 

1290 Avenue of the Americas 

15th Floor 

New York NY 10104 

July 21, 2015 

FILED ELECTRONICALLY

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, N.W. 200 Constitution Avenue, N.W. 

Room N-5655 Suite 400 

Washington, DC 20210 Washington, DC 20210 

Re: RIN 1210-AB32 – Definition of the Term Fiduciary; Conflict of Interest 

 Rule 

 ZRIN 1210-ZA25 – Proposed Amendment to Proposed Partial Revocation 

 of Prohibited Transaction Exemption 84-24 

ZRIN 1210-ZA25 – Proposed Best Interest Contract Exemption 

Dear Sir or Madam, 

 I am a Senior Executive Director and Head of U.S. Life and Retirement at AXA.1

 In 

addition to serving on the company’s Executive Management Committee, I am Chairman of the 

Board, President and Chief Executive Officer of AXA Distributors, LLC, the wholesale 

distribution arm of AXA. I also serve as a member of the Board of Directors of AXA Advisors, 

LLC, AXA’s retail broker-dealer and registered investment adviser. 

 AXA was founded in 1859 and is one of the country’s largest life insurance and 

retirement savings companies with nearly 2.5 million customers nationwide. Based on the 

foregoing, we are uniquely qualified to provide meaningful and constructive comments on the 

Conflict of Interest Proposed Rule and related exemptions (the “Proposed Rule”) released by the 

Department of Labor (the “Department”) on April 20, 2015. 

 We share the Department’s objective of ensuring that retirement plan participants, 

individual retirement savers, and their families as well as small business plan sponsors and 

potential sponsors have ongoing access to high quality, impartial and affordable retirement 

 

1

 “AXA” is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA 

Equitable Life Insurance Company (NY, NY), MONY Life Insurance Company of America (AZ stock company, 

administrative office: Jersey City, NJ), AXA Advisors, LLC (NY, NY) and AXA Distributors, LLC (NY, NY). 
2 

savings education and advice. However, we believe that the means by which the Department 

intends to accomplish this goal are significantly flawed. Not only will the Proposed Rule restrict 

the opportunities for retirement savers to obtain even basic investment education, more 

fundamentally, the Proposed Rule will inevitably cause a dramatic reduction in choice for 

retirement savers – choice as to when and how to receive investment advice and choice as to the 

retirement products available for purchase – without meaningfully enhancing consumer 

protection, particularly for the 40 million U.S. households that own IRAs. 2

 

I. The existing regulatory framework functions well for consumers 

The defining characteristic of the current regulatory framework governing the retirement 

savings marketplace is that it fosters broad choice and lasting value for consumers. Market 

participants offer retirement savers and small business plan sponsors a wide array of options for 

obtaining investment advice and retirement products, and they provide those options at a range 

of price points. The current system achieves this desirable outcome by: 

(1) providing regulatory certainty; 

(2) effectively regulating – without mandating or proscribing – many different 

 business and investment models and product; and 

(3) not creating unreasonable barriers to entry for new market entrants. 

These features help sustain a healthy and competitive marketplace that encourages 

product innovation and the provision of high quality, affordable retirement solutions. As a result, 

retirement savers and small business plan sponsors can choose from a robust selection of 

retirement products and investment advice models in order to accomplish their savings goals. 

The existing model offers distinct retirement solutions for all types of retirement savers 

The choice and flexibility enabled by the current regulatory framework is crucial to 

serving the needs of today’s retirement savers, who seek varying levels of retirement services 

and preferred methods of paying for those services. The following chart illustrates some of the 

broad types of retirement savers and how they interact with the retirement savings marketplace: 

 

2

 Source: Insured Retirement Institute, The Role of IRAs in U.S. Households’ Saving for Retirement 2014. 
3 

Educational needs Services offered Preferred payment and 

service provider structure 

Regulatory oversight 

First time and/or 

younger 

 Significant 

 Professional help 

to understand 

financial and 

planning concepts 

and make informed 

choices 

 Inspiration and 

encouragement to 

save for retirement 

 Advice to determine 

and refine objectives 

 Non-advisory needs 

analysis 

 Advice regarding 

selection of products 

and services 

 Significant 

administrative and 

brokerage 

transactional support 

 Purchases 

commission-based 

products and no-load 

investment options 

 Unable to afford outof-pocket fees for 

initial or ongoing 

advice 

 Purchases products 

from manufacturer 

salespersons/advisers 

 FINRA/SEC and state 

securities department 

oversight of brokerdealers 

 State insurance 

department oversight 

over insurance and 

annuities sales 

Modest means  Significant 

 Professional help 

to understand 

financial and 

planning concepts 

and make informed 

choices 

 Advice to refine 

objectives 

 Non-advisory needs 

analysis 

 Advice regarding 

selection of products 

and services 

 Significant 

administrative and 

brokerage 

transactional support 

 Purchases 

commission-based 

products and no-load 

investment options 

 Unable to afford outof-pocket fees for 

initial or ongoing 

advice 

 Low cost passive and 

index fund investing 

and buy-and-hold 

strategies 

 Purchases products 

from manufacturer 

salespersons/advisers 

 FINRA/SEC and state 

securities department 

oversight of brokerdealers 

 State insurance 

department oversight 

over insurance and 

annuities sales 

Self-directed  Significant 

 Self-motivated; 

prefers to do 

independent 

research 

 Little or no advice 

 Significant 

administrative and 

brokerage 

transactional support 

 Non-advisory needs 

analysis 

 Purchases low-cost, 

“do-it-yourself” 

services, such as roboadvice and direct-toconsumer offerings 

 Pays for advice only if 

and when needed. 

 FINRA/SEC and state 

securities department 

oversight of brokerdealers 

 State insurance 

department oversight 

over insurance and 

annuities sales 

Wealthy  Minimal 

 Relies on adviser 

to make 

appropriate 

investment 

decisions 

 Comprehensive asset 

management services 

 Ongoing advice 

 Discretionary and 

non-discretionary 

 Fee-based financial 

plan 

 Advice tailored to 

individual needs 

 Significant 

administrative and 

brokerage 

transactional support 

 Pays annual fee of up 

to 3% of assets under 

management 

 Pays for ongoing 

access to advice from 

investment advisers 

 FINRA/SEC and state 

securities department 

oversight of brokerdealers 

 Investment

advisory/SEC fiduciary 

rules and examinations 

The spectrum of services, educational requirements and payment structures specified in 

this chart reflects a vibrant marketplace in which retirement savers have plenty of options to 

choose from to satisfy their needs. This marketplace creates space for all types of retirement 

services providers, including fee-for-service investment advisers who offer education and advice 

only; product manufacturers who sell their products to retirement savers either directly or 

through captive agents; third party distributors who sell products sourced from multiple 
4 

manufacturers; "hybrid" broker-dealers/retirement investment advisers who offer both fee-only 

advice and commission-based products; 401(a)/401(k) turnkey retirement plan providers who 

focus mainly on servicing small businesses; and robo-advisers and other do-it-yourself services 

that offer more limited and less-personalized education and advice. A recent survey shows that 

investors are happy with the current model, with the vast majority indicating that they would be 

likely or highly likely to recommend their financial planner to a friend or relative.3

The existing model incorporates extensive consumer protections for retirement savers 

 The flexibility of the current regulatory framework is accompanied by strict regulatory 

oversight that affords retirement savers significant protections. In addition to the Department’s 

existing oversight of retirement plans subject to ERISA, retirement services providers must also 

comply with SEC and Financial Industry Regulatory Authority (“FINRA”) rules governing the 

sale of registered securities, as well as state insurance department regulations applicable to 

insurance companies and products – rules which apply to the sale of both retirement and nonretirement products. This comprehensive regulatory regime has consumer protection as its 

overarching priority and effectively furthers that goal while providing regulatory certainty to 

retirement services providers. 

II. The Proposed Rule unnecessarily disrupts the current retirement marketplace 

 The crux of the Proposed Rule is a dramatic expansion in the circumstances in which 

investment advisers, insurance agents and other retirement planners and intermediaries would be 

deemed fiduciaries under ERISA, including extension of fiduciary status to financial 

professionals who advise clients on IRA rollovers and distributions. At the same time, the 

Proposed Rule sharply narrows longstanding exceptions to the prohibition against fiduciaries 

receiving any compensation from third parties in connection with their advice, while also 

creating a new “Best Interest Contract Exemption” to which broker-dealers, investment advisory 

fiduciaries and sellers of certain proprietary products must adhere in order to receive 

commission-based compensation. 

 This blanket approach – which imposes the highest legal duty upon retirement services 

providers in virtually all retirement-related transactions – will almost certainly reshape the 

retirement services marketplace by disrupting effective business models that provide both 

significant choice for retirement savers and appropriate consumer protection, in favor of 

mandated “one size fits all” business models which sacrifice client choice for the Department’s 

judgment as to the appropriate relationship between retirement savers and retirement service 

providers. This view is shared by many stakeholders in the retirement marketplace, including 

SEC Commissioner Daniel Gallagher, who recently stated that if adopted, the Proposed Rule 

could lead “entire categories of products and services that are now available to investors [to] . . . 

disappear,” and further noted that “the negative impact of this loss will be borne by low and 

moderate-income workers.”4

 

 

3

 Source: Insured Retirement Institute, Retirement Planning: A Changing Dynamic, August 19, 2014 4

 The SEC Speaks, February 20, 2015 (accessed via http://www.sec.gov/news/speech/022015-spchcdmg.html). 
5 

In the interest of brevity, this letter does not address every concern we have with the 

Proposed Rule; particularly those we believe may be addressed by other commenters. Instead, 

we address below our key concerns and note our support via the appendix to this letter for certain 

comments that may be made by others. Specifically, the Proposed Rule: 

 unduly expands the traditional definition of a fiduciary; 

 conflicts with the SEC investment advisory fiduciary standard; 

 deems providers of even the most basic investment education to be fiduciaries; 

 discourages the sale of annuities – particularly variable annuities – by excluding them 

from PTE 84-24; and 

 forces retirement services providers to rely on an impractical and legally uncertain Best 

Interest Contract Exemption (“BICE”) in order to receive commission-based 

compensation for their services. 

 

Key Concern #1: The Proposed Rule’s new fiduciary definition will likely 

 lead to fewer affordable investment advice options and retirement 

 products 

 Today, retirement services providers are free to define the terms of their relationships 

with clients and potential clients, who in turn are free to engage and pay for a fiduciary with 

respect to receipt of investment advice and/or a retirement product purchase only when they want 

to. This freedom allows retirement services providers to offer other product and advice options 

with varying payment structures. And the Seller’s Exemption facilitates the provision of 

transactional advice from salespersons/advisers – a key for first-time and modest means 

retirement savers – by ensuring that salespersons/advisers have a clear regulatory pathway to 

offer advice in the context of such purchases without triggering fiduciary status. 

 The Proposed Rule would impose fiduciary status – the highest duty under the law and 

one which imposes personal liability even for individuals who act within the scope of their 

employment – on both providers of investment advice and manufacturers and distributors of 

retirement products as to virtually all transactions with their clients (and sometimes potential 

clients) with only a few, overly narrow and often impractical exceptions and carve-outs 

available. 

 As a result, retirement savers will essentially be forced to hire a fiduciary in order to 

receive investment advice or purchase a retirement product. In turn, the cost of the products and 

services offered by retirement services providers will almost surely increase due to the 

compliance costs and heightened liability associated with near-universal fiduciary status, leaving 

a bifurcated market where: 

 wealthy investors will continue to have access to the same advice and products they 

utilize today as they are able to afford fiduciary-level services with ongoing costs; 

 self-directed savers will have access to low-cost direct to consumer offerings with no 

advice component, which suits their inclination to perform independent research; and 
6 

 first-time or younger savers and savers with modest means – for whom the availability 

and accessibility of appropriate investment advice and retirement products is often a 

critical motivator – will essentially be left out; they will likely face a marketplace in 

which (1) fewer affordable retirement products are available, (2) the only affordable 

investment advice available will be automated investment services, or robo-advisers, that 

cannot possibly meet their individualized goals,5

 and (3) access to comprehensive 

financial planning which takes into account both retirement and non-retirement assets 

will be unavailable to them because they cannot afford to hire a fiduciary. 

Key Concern #2: The conflict between the current SEC investment advisory fiduciary 

 standard and the new fiduciary definition could cause retirement 

 services providers to increase the cost of their offerings or exit the 

 market altogether 

 The Proposed Rule seeks to solve one purported problem – conflicts of interest – by 

creating another one: conflicting regulatory regimes. For example: 

 The very nature of the fiduciary standard under the Proposed Rule – the sole interest 

standard, which forbids even mutually beneficial transactions and does not permit 

disclosure to remedy an apparent conflict – differs from the SEC’s best interest fiduciary 

standard, which recognizes that sometimes the client’s best interest aligns with that of the 

fiduciary and that disclosure can such conflicts. Thus, even if the Proposed Rule and the 

SEC fiduciary standard were in sync with respect to when someone is considered a 

fiduciary, they are in utter conflict as to the import of that status. 

 While the Investment Advisers Act of 1940 (the “Advisers Act”) currently exempts 

“incidental” advice from fiduciary status, under the Proposed Rule broker-dealers will 

instead be required to admit fiduciary status at the outset of any sales transaction – 

irrespective of whether any investment advice they provide is “incidental” to such sale – 

which in and of itself could cause the broker-dealer to fall outside of the current 

exception. 

 While the Advisers Act recognizes solicitor activity as a distinct advisory activity not 

subject to its comprehensive requirements, under the Proposed Rule, solicitor activity can 

trigger fiduciary status. 

 

5

 Nor does funneling retirement savers to low-cost, depersonalized investment advice and retirement products ensure 

that retirement savers will be better off. According to Bloomberg, investors in passive funds bore billions in hidden 

costs in 2014 alone: “As the popularity of index investing soars to new heights, the emergence of index frontrunning is raising fundamental questions about so-called passive investment strategies, as well as how indexes are 

compiled and the role the funds themselves play in elevating costs. By one estimate, it gouges owners of funds 

tracking the Standard & Poor’s 500 Index to the tune of $4.3 billion a year, a sum that can double or even triple the 

cost of such investments.” The Hugely Profitable, Wholly Legal Way to Game the Stock Market, by Yuji 

Nakamura, BloombergBusiness July 7, 2015. http://www.bloomberg.com/news/articles/2015-07-07/the-hugelyprofitable-wholly-legal-way-to-game-the-stock-market 
7 

 The Proposed Rule requires certain point of sale disclosures regarding total costs of 

investment and reasonable assumptions about future investment performance that 

contradict both the Advisers Act and FINRA rules regarding investment performance 

projections. 

 

 Retirement services providers are likely to respond to the significant regulatory 

uncertainty created by this conflict by passing along increased compliance costs – multiple 

fiduciary standards equals multiple monitoring regimes for providers to account for – or paring 

down their product and advice offerings, as pointed out by Rick Ketchum, CEO of FINRA: 

I fear that the uncertainties stemming from contractual analysis and 

the shortage of useful guidance will lead many firms to close their 

IRA business entirely or substantially constrain the clients that 

they will serve.6

 

This is particularly true for broker-dealers, investment advisers, and other SEC-regulated 

retirement services providers, who by definition cannot ever satisfy the Proposed Rule’s 

fiduciary standard by satisfying the SEC standard as they do today. According to FINRA, “[t]he 

proposal would impose a best-interest standard on broker-dealers that differs significantly from 

the fiduciary standard applicable to investment advisors registered under the federal and state 

securities laws, and it would impose the best-interest standard only on retirement accounts . . . 

[t]his fractured approach will confuse retirement investors, financial institutions and advisors.”7 

Key Concern #3: Deeming providers of basic investment education to be fiduciaries will 

 reduce access to such education 

 These potential adverse consequences are magnified by the fact that fiduciary status 

would now be triggered simply by providing any communication about investment choices that 

mentions specific investment products, identifies specific investment managers, or indicates the 

value of particular securities or other property. The average retirement saver may not necessarily 

be able to distinguish a small cap fund from an emerging markets fund, or between a mutual fund 

and an exchange traded fund, nor are they likely to be able to readily identify these types of 

investments on their own. Providing general information such as that outside the scope of the 

expanded fiduciary definition may be so unintelligible for the average retirement saver so as to 

be useless. And financial professionals may be unlikely to provide any information beyond that 

for fear of the litigation risk and increased liability associated with their new fiduciary status. 

 

 The result: only wealthy investors who can afford to purchase investment advice – the 

price of which will likely increase due to the fiduciary status associated with providing such 

advice – will have access to the most basic investment education, even though they are least 

likely to need it. Indeed, SEC Commissioner Daniel Gallagher recently noted the likelihood of 

 

6

 http://www.investmentnews.com/article/20150527/FREE/150529942/finras-ketchum-criticizes-dol-fiduciary-rule. 7

 July 17, 2015 letter from FINRA to Employee Benefits Security Administration and U.S. Department of Labor 

regarding the Proposed Rule, page 4. 
8 

this outcome: “. . . a uniform fiduciary duty could actually harm retail investors and . . . it could 

limit financial advisory options or preclude investors from receiving investment advice 

altogether.”8

 This is particularly troubling because research demonstrates that a large segment of 

retirement savers – including first-time and younger savers and modest means savers – will not 

commit to saving for retirement unless educated and prompted to do so in one-on-one 

conversations with a financial professional. Indeed, while 60% of baby boomers report having 

some money saved for retirement, that figure rises to more than 90% for baby boomers who 

work with investment advisers.9

 

Key Concern #4: Excluding variable annuities – one of the most effective retirement 

 products that offer guaranteed lifetime income – from PTE 84-24 will 

 likely drive them from the market 

 The Proposed Rule makes a critical change to the availability of prohibited transaction 

exemptions by excluding variable annuities from PTE 84-24, the prohibited transaction 

exemption under which they have traditionally been offered. This change explicitly limits choice 

for retirement savers by strongly discouraging the sale of variable annuities, which offer 

retirement savers an essential and unique vehicle for accessing guaranteed lifetime income while 

still retaining some effective control over investments. The sale of variable annuities is generally 

more labor-intensive than the sale of other retirement products precisely because of the 

investment control and uniqueness of the guaranteed lifetime income and other features they 

offer, as well as the wide array of such products available in the marketplace. Therefore, it is 

imperative that insurance companies be able to adequately and appropriately compensate their 

distribution partners for their services in connection with variable annuity sales, as they are today 

via PTE 84-24 as well as the current Seller’s Exemption which, unlike PTE 84-24, also protects 

insurance companies and their salespersons/advisers from triggering fiduciary status. 

 However, if faced with the prospect of selling such products with the added compliance 

burden and liability of fiduciary status because neither PTE 84-24 nor the current Seller’s 

Exemption are available, insurance companies will sell fewer variable annuities and develop 

fewer new ones. The availability and variety of guaranteed lifetime income products that are 

vital to a financially viable retirement – particularly given the steady decline in the availability of 

employer-sponsored defined benefit plans – would consequently be lessened. Indeed, the 

popularity of living benefit riders offered in variable annuities contributed to a strong year for 

annuity sales in 2014, serving as further evidence of the attractiveness of this product to 

retirement savers and the critical role these products play in helping to ensure that American 

retirees do not outlive their savings.10 Furthermore, reducing the availability of options for 

lifetime income directly conflicts with the Department of Treasury’s policy to encourage the 

availability of such options: “As boomers approach retirement and life expectancies increase, 

income annuities can be an important planning tool for a secure retirement, [and thus] Treasury 

is working to expand the availability of retirement income options for working families. By 

 

8

 The SEC Speaks, February 20, 2015 (accessed via http://www.sec.gov/news/speech/022015-spchcdmg.html). 9

 Source: Insured Retirement Institute, Boomer Expectations for Retirement 2015, April 13, 2015. 10 Source: Insured Retirement Institute, Fourth-Quarter and Year-End 2014 Annuity Sales Report. 
9 

encouraging the use of income annuities, today’s guidance can help retirees protect themselves 

from outliving their savings.”11 

Key Concern #5: The new Best Interest Contract Exemption (“BICE”) is so impractical 

 and legally uncertain that is it unlikely to be useful except with 

 wealthy investors 

 Finally, the Proposed Rule offers retirement services providers a new prohibited 

transaction exemption – the Best Interest Contract Exemption (“BICE”) – which is presumably 

designed to counterbalance the blanket nature of fiduciary status under the Proposed Rule and 

the exclusion of annuities from PTE 84-24. The BICE obligates a financial professional and/or a 

financial institution that wishes to receive commission-based compensation to contractually 

acknowledge that they are fiduciaries (by entering into a best interest contract (“BIC”) with their 

clients) and imposes extensive compliance and disclosure requirements. However, the BICE 

presents practical difficulties – for both retirement savers and for retirement services providers – 

that do not account for marketplace realities, and also creates significant litigation risk. As a 

result, retirement savers will be unlikely to seek out BICE-compliant transactions, and for 

retirement services providers, entering into a BICE-compliant transaction will only make 

economic sense with respect to transactions involving wealthy investors, as there will be 

insufficient financial incentive to take on the compliance burden and legal uncertainty of the 

BICE for transactions with any other type of retirement saver. 

 By requiring that retirement savers enter into a BIC in order to take advantage of the 

BICE, the Department has inherently determined that retirement savers will find doing so to be 

in their best interest. However, as a practical matter, it is more likely than not that retirement 

savers – particularly first-time or younger savers and modest means savers – will instead be 

intimidated by having to sign a contract before even having a meaningful conversation with their 

salesperson/adviser, with whom they may not yet have had the opportunity to develop trust. This 

could severely dissuade these retirement savers from entering the market in the first place, as 

they often require significant motivation to do so. Or it could delay their entry to the 

marketplace, which would also be harmful. The benefits of starting to save for retirement at an 

early age are well-documented: an employee who contributes 10% of income annually to a 

retirement plan beginning at age 35, rather than age 30, will receive 7.6 percent less in annual 

retirement income at age 70, and 11% less if commencing retirement at age 65.12 

 The BICE presents two other practical difficulties for both retirement savers and 

retirement services providers: 

 BIC timing: Even though an adviser will oftentimes meet with a potential client multiple 

times over the course of months before s/he is ready to decide upon a course of action 

such as rolling over assets to an IRA, the BICE requires that the parties must enter into 

 

11 J. Mark Iwry, Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and 

Health Policy, October 29, 2014. Accessed via http://www.treasury.gov/press-center/pressreleases/Pages/jl2673.aspx. 

12 Source: Insured Retirement Institute, It’s Time to Save For Retirement, November 13, 2014. 
10 

the BIC prior to any advice being given. This begs the question: at what point during 

those months of conversations are the parties required to have entered into the BIC? 

Moreover, customers often consult several advisers before selecting an adviser to work 

with; must they enter into multiple BICs? 

 BIC execution: The BICE also requires physical signature of the BIC, ignoring the 

growing digital retirement marketplace. 

 And for retirement services providers, there are yet more practical difficulties with the 

BICE: 

 

 BIC warranties: The BIC is required to include a warranty stating that neither the 

financial institution nor the adviser nor any affiliate “uses quotas, appraisals, performance 

or personnel actions bonuses, contests, special awards, differential compensation or other 

actions or incentives to the extent they would tend to encourage individual Advisers to 

make recommendations that are not in the Best Interest of the Retirement Investor.” 

However, this warranty conflicts with longstanding compensation arrangements for “full 

time life insurance salesmen” (“FLTS”) under the Internal Revenue Code used by 

insurance companies to provide employee benefits and other additional benefits to their 

retail sales force. 

 

 BICE enforcement: Under the Proposed Rule, enforcement of the BICE is accomplished 

via private litigation under state contract and fiduciary law. However, this after-the-fact 

enforcement mechanism is entirely impractical. For example, though the BICE requires 

that both the adviser and financial institution adhere to an impartial conduct standard that 

includes, among other requirements, the receipt of “reasonable compensation in relation 

to the total services they provide to the retirement investor,” the Department has not 

provided guidance on the standard. Thus, the parties to the BIC will not know with any 

certainty whether compensation was “reasonable” except upon final adjudication by a 

court long after the transaction that was the subject of the BIC will likely have been 

completed. Even good faith attempts to comply with the BICE are in danger of 

ultimately being deemed non-compliant – and thus in violation of prohibited transaction 

rules – simply because a court later determines that compensation was not reasonable. 

 

 This enforcement mechanism also creates significant litigation risk. Though the 

Department correctly notes in its proposal that a well-developed expertise exists among the 

Federal bar on ERISA fiduciary jurisprudence, the Department fails to recognize that it does not 

exist at the state level and, even if it did, state judges are not bound by it. Thus, enforcement via 

private litigation will lead to at best uneven and at worst inconsistent interpretation and 

enforcement across and within state courts. The uncertainty this creates renders it difficult and 

costly for retirement services providers to incorporate the BICE into their business models. All 

told, use of the BICE is likely to be viewed by many retirement savers and retirement services 

providers as more trouble than it is worth and, with no other exemption provided for in the 

Proposed Rule, the result is once again likely to be a bifurcated market with high and low-cost 

options for wealthy investors and self-directed savers, respectively, and few affordable and 
11 

effective investment advice and retirement product options for first-time and young savers and 

modest means savers. 

 In sum, the overarching theme of our key concerns with the Proposed Rule is clear – 

fewer options and less choice and value for retirement savers – due to fewer offerings from 

product manufacturers and other retirement services providers as well as fewer retirement 

services providers in the market altogether – and less flexibility for retirement services providers 

to meet the needs of retirement savers across the spectrum of the retirement marketplace. These 

concerns were specifically echoed by FINRA, which stated: 

If the proposal were adopted as is, many broker-dealers will 

abandon these small accounts, convert their larger accounts to 

advisory accounts and charge them a potentially more lucrative 

asset-based fee. They will do so largely because of the BICE 

constraints on differential compensation, the ambiguities in the 

best interest standard, the lack of clarity concerning various 

conditions, the costs of compliance, and uncertainty about the 

consequences of minimal non-compliance.13 

 

 These concerns are not academic; they are reinforced by the impact of a similar initiative 

on the investment advisory industry in the United Kingdom. A study by Cass Business School 

shows that the number of U.K. financial advisers fell by 25% during the first year following 

adoption of the new rules, and the remaining advisers reported that servicing accounts with less 

than £150,000 in assets was not profitable. In all likelihood, the Proposed Rule would lead to a 

similar, yet ultimately avoidable, outcome. While wealthy and self-directed investors will be 

minimally impacted by implementation of the Proposed Rule, the red entries in the chart below 

illustrate how choice of products and services are substantially limited for first-time and younger 

savers and modest means savers: 

 

13 July 17, 2015 letter from FINRA to Employee Benefits Security Administration and U.S. Department of Labor 

regarding the Proposed Rule, page 6. 
12 

Services offered Preferred payment and service provider 

structure 

Existing Post-implementation Post-implementation 

First time and/or younger  Advice to 

determine and 

refine objectives 

 Non-advisory 

needs analysis 

 Advice regarding 

selection of 

products/services 

 Significant 

administrative and 

brokerage 

transactional 

support 

 Limited, mainly 

online and roboadvice 

 Generic advice not 

customized to 

individual needs 

 Limited administrative 

support 

 Directed to a limited range of no-load and 

low cost investment products 

 Required to pay up front for online or roboadvice 

Modest means  Advice to refine 

objectives 

 Non-advisory 

needs analysis 

 Advice regarding 

selection of 

products and 

services 

 Significant 

administrative 

support 

 Generic advice not 

customized to 

individual needs 

 Limited administrative 

support 

 Directed to a limited range of no-load and 

low cost investment products 

 Required to pay up front for online or roboadvice 

III. Recommended changes to the Proposed Rule

We believe that the Proposed Rule can help achieve the Department’s objectives, but 

only if the Department modifies it to avoid the adverse consequences discussed above. We 

submit that the Proposed Rule should be changed as follows: 

 1. Restore a meaningful Seller’s Exception. Traditionally, pure selling activities 

have been distinguished from fiduciary investment advice under the Seller’s Exception, which 

reflects the common understanding of fiduciary duty and the ability of retirement savers to 

distinguish pure advice from advice provided in the context of sales and marketing of retirement 

products. This enables financial institutions to sell their proprietary products at a variety of price 

points, helping to ensure that small retirement plans, first-time and younger savers, and modest 

means savers who cannot afford or choose not to pay for individualized investment advice have 

access to affordable, high quality service options via a “one-stop shopping” transactional model 

which offers education, advice and product solutions in one transaction without the need for an 

ongoing relationship or ongoing advisory fees. This model is critical to engaging and servicing 

these plans and savers, who in addition to affordable options also often need motivation to enter 

the market in the first place. The Seller’s Exemption provides that inspiration and an appropriate 

entry point to the market by facilitating the use of the transactional model. 

 Without the Seller’s Exemption, affordable high quality options could disappear because, 

as noted earlier, the price of products and services offered by retirement services providers is 

likely to increase due to the operational and compliance costs of expanded fiduciary liability. 

The remaining choice for first-time and younger savers and modest means savers – as well as 
13 

small business retirement plan sponsors and participants14 – would be to either pay for ongoing 

and comprehensive retirement services or essentially go without the advice and expertise of a 

financial professional, which is really no choice at all for those who cannot afford the former. 

The Department has not made a compelling case to abandon this well established industry 

convention, which at a minimum should be reflected in an expanded carve-out that would allow 

sellers of proprietary products to continue to service this vital market segment with an array of 

choices for obtaining investment advice that includes the transactional model. 

 2. Restore annuities – particularly variable annuities – to PTE 84-24 and harmonize 

the ERISA and SEC fiduciary standards. The Department should work with the SEC to create a 

single fiduciary standard with a comprehensive disclosure regime that would apply to all product 

providers, including those servicing retirement plans and IRAs, while affording equal treatment 

to all retirement products within a specific category. There is no need for artificial distinctions in 

the regulation of the sale of fixed and variable annuities; in reality, variable annuities are far 

more like fixed annuities than mutual funds with respect to features and benefits: 

 Both fixed and variable annuities include a fixed (general account) option with 

interest, mortality-based investment, and retirement income guarantees, and offer lifecontingent withdrawal options. Mutual funds and other securities investments do not 

provide these features. 

 Nor do mutual funds and other securities investments offer another key feature of 

both fixed and variable annuities: the ability to draw down principal and income over 

the investor’s life expectancy while the insurance company assumes the attendant 

longevity risk. 

 In short, annuities offer virtually the only means by which retirees can access guaranteed 

lifetime income. Therefore, to ensure that the types of guaranteed living benefits provided by 

variable annuities – which have proven popular with retirement savers and which provide them 

with substantial value – remain a part of the robust choice of retirement products available in the 

retirement marketplace, variable annuities should be restored to PTE 84-24. 

 With respect to regulatory harmonization, coordination with the SEC’s efforts to 

consolidate the standards of conduct, including fiduciary rules, would be in keeping with 

Congress’ harmonization directive in the Dodd-Frank Act – a directive underpinned by 

Congress’ agreement with the SEC’s finding that a regulatory regime which facilitates 

maintaining multiple business models was best for investors. As then-CFTC Commissioner 

Scott O’Malia stated in 2013 in the context of cooperation by the CFTC and the FTC in 

accordance with the Dodd-Frank directive, “We must harmonize our rules to prevent regulatory 

 

14 The existence of employer sponsored workplace savings programs dramatically increases savings rates. 

According to a study by the American Society of Pension Professionals & Actuaries, the single most important 

factor in determining if a worker is saving for retirement is whether or not a retirement plan is available at work; a 

review of participation rates by workers earning $30,000 to $50,000 annually showed that 71.5% of employees with 

access to a workplace plan save through that plan, whereas only 4.6% save in an IRA where there is no available 

workplace plan. 
14 

arbitrage from undermining our comprehensive financial reforms." Instead, the Proposed Rule 

creates confusion and conflict in the very body of law Congress directed to be harmonized. 

 Harmonization would also leverage the well-developed regulatory and judicial 

framework for enforcing fiduciary standards for investment advisers which already exists under 

the SEC’s jurisdiction, and would avoid the increased compliance and litigation risks associated 

with conflicting regulatory regimes while giving both retirement savers and retirement services 

providers the certainty they need in order to plan for the new retirement services marketplace. 

Absent such certainty, the risks and increased costs created by conflicting regimes could drive 

retirement services providers of all types from the retirement marketplace and thereby reduce the 

choices available for retirement savers seeking retirement products and/or investment advice. 

Alternatively, if the Department wishes to retain its own framework, we urge the Department to 

reformulate those provisions of the Proposed Rule that conflict with existing SEC rules. 

 3. Create a workable BICE. The BICE should be revised to better align with the 

practicalities of the retirement services marketplace and to reduce the regulatory uncertainty it 

creates in order to increase its utility and make it a truly viable prohibited transaction exemption. 

In particular, these modifications should: 

 Establish more practical timing guidelines that would permit financial professionals 

who are not making investment recommendations to educate potential clients prior to 

requiring entry into one or several BICs; 

 Include flexible delivery methods for the best interest contract such as telephonic 

delivery, electronic delivery, etc. and to dispense, if possible, with requiring physical 

signature of the BIC; 

 Recognize longstanding industry practice by carving out or, at a minimum, providing 

a presumption that sales requirements used to establish FTLS status are not suspect 

absent factors indicating the sales advice was not in the best interest of the retirement 

saver; 

 Reduce regulatory uncertainty by reverting to SEC and FINRA enforcement regimes 

that are already rigorously enforced for fiduciaries instead of providing for state lawbased private causes of action for BIC enforcement; and 

 Further reduce regulatory uncertainty with respect to the impartial conduct standard 

by explicitly stating that reasonableness is to be viewed in relation to customary 

practices prevailing in the marketplace at the time the compensation was earned. 

 4. Expand the investment education carve-out to allow reference to specific 

investment products as illustrative of investment type or asset class. Current longstanding 

investment education practices, which permit financial professionals to provide allocation 

models to customers that suggest specific investment products or identify specific alternatives 

available under a plan or IRA, have proven effective. The use of enrollment materials and in-
15 

person meetings in which this type of information is provided continues to be the primary way 

that the vast majority of teachers, employees of not-for-profits, and small plan participants learn 

about the existence of employer-provided retirement products and the benefits they offer, and an 

Employee Benefit Research Institute analysis of the 2010 Survey of Consumer Finances shows 

that for families with a retirement savings account, almost two-thirds of the families total 

financial assets are in these accounts.15 Any consumer protection concern that the Department 

may have would be better addressed by requiring specific disclosure regarding the illustrative 

nature of the specific investment alternatives being furnished. 

 

 In conclusion, we are confident that these modifications to the Proposed Rule would 

further the Department’s goal of ensuring that all Americans have access to a broad range of high 

quality retirement products and investment advice at multiple price points without causing 

extensive and ultimately harmful disruption to the current retirement services marketplace. 

Respectfully Submitted, 

Nick Lane 

cc: Senator Richard Shelby, Chairman, Senate Banking, Housing & Urban Affairs 

 Committee 

 Senator Sherrod Brown, Ranking Member, Senate Banking, Housing & Urban Affairs 

 Committee 

 Senator Orrin G. Hatch, Chairman, Senate Finance Committee 

 Senator Ron Wyden, Ranking Member, Senate Finance Committee 

 Senator Lamar Alexander, Chairman, Senate Health, Education, Labor & Pensions 

 Committee 

 Senator Patty Murray, Ranking Member, Senate Health, Education, Labor & Pensions 

 Committee 

 Representative John Kline, Chairman, House Education and the Workforce Committee 

 Representative Robert C. “Bobby” Scott, Ranking Member, House Education and the 

 Workforce Committee 

 Representative Jeb Hensarling, Chairman, House Committee on Financial Services 

 Representative Maxine Waters, Ranking Member, House Committee on Financial 

 Services 

 

 Senator Charles E. Schumer, New York 

 Senator Kirsten E. Gillibrand, New York 

 Representative Lee N. Zeldin, New York 1st District 

 Representative Peter T. King, New York 2nd District 

 Representative Steve Israel, New York 3rd District 

 

15Accessed via savemy401k.com. 
16 

 Representative Kathleen M. Rice, New York 4th District 

 Representative Gregory W. Meeks, New York 5th District 

 Representative Grace Meng, New York 6th District 

 Representative Nydia M. Velazquez, New York 7th District 

 Representative Hakeem S. Jeffries, New York 8th District 

 Representative Yvette D. Clark, New York 9th District 

 Representative Jerrold Nadler, New York 10th District 

 Representative Daniel M. Donovan, Jr., New York 11th District 

 Representative Carolyn B. Maloney, New York 12th District 

 Representative Charles B. Rangel, New York 13th District 

 Representative Joseph Crowley, New York 14th District 

 Representative Jose E. Serrano, New York 15th District 

 Representative Eliot L. Engel, New York 16th District 

 Representative Nita M. Lowey, New York 17th District 

 Representative Sean Patrick Maloney, New York 18th District 

 Representative Christopher P. Gibson, New York 19th District 

 Representative Paul Tonko, New York 20th District 

 Representative Elise M. Stefanik, New York 21st District 

 Representative Richard L. Hanna, New York 22nd District 

 Representative Tom Reed, New York 23rd District 

 Representative John Katko, New York 24th District 

 Representative Louise McIntosh Slaughter, New York 25th District 

 Representative Brian Higgins, New York 26th District 

 Representative Chris Collins, New York 27th District
17 

Appendix 

 We anticipate that the Department will receive a number of additional helpful comments 

on the proposal. We would like to note our support for the following comments and would be 

happy to provide additional explanation in this regard at the Department’s request. 

 The counterparty carve-out to the new fiduciary definition should be extended to include 

small defined contribution retirement plans and IRA holders. 

 The definition of investment advice as it pertains to statements of value should be revised 

to clarify that actuarial valuations and similar routine calculations under annuity contracts 

are not to be deemed as investment advice. 

 The platform provider carve-out should be expanded to include IRA platforms and 

clarified to specifically include variable annuity platforms. 

 With respect to the BICE: 

o The definitions of “Financial Institution” and “Adviser” should be revised to make 

clear that the BIC need only include as parties (1) the individual who will receive 

compensation for the investment advice and (2) the entity directly paying that 

compensation to the individual; 

 

o a significant amount of additional time will be necessary to establish systems to 

enable compliance with the BICE; 

o the BICE’s additional conditions with regard to situations where an adviser’s 

range of investment recommendations is limited is unworkable in practice and 

should be replaced with a simple disclosure requirement; 

o the BICE should not narrowly limit the assets for which it is applicable; 

o the requirement for life-of-the-product disclosure via a web page maintained by 

financial institutions should be removed as it imposes considerable expense and 

strain upon parties to the BIC (as well as other entities which feed required 

information to such parties16) without providing benefit to retirement savers; 

o the BICE should incorporate existing disclosure mechanisms, rather than 

introducing onerous new disclosure requirements that will be of little additional 

benefit to retirement savers already inundated with similar information while at 

the same time imposing significant cost burdens on retirement services providers; 

and 

 

16 More generally, we note that the burden of information collection requests for all proposed exemptions has been 

significantly underestimated. 
18 

o to the extent that the Department’s final regulations include the BICE, the 

Department should ensure that retirement savers damaged by defective Roboadvice models have appropriate legal recourse and access to web disclosure data 

to assist them in identifying when and how they have been damaged and to assist 

in their enforcement efforts before a state court or arbitrator. 

 Because a streamlined exemption for low cost investments could have unintended 

consequences, particularly with regard to the Department’s and the Department of 

Treasury’s policies to encourage the use of lifetime income options, it should be the 

subject of a separate study – insufficient time has been given to analyze and comment on 

a theoretical exemption as part of this already voluminous proposal. 

 The final regulation should exempt contracts issued prior to the applicability date unless 

and until they are transferred or otherwise exchanged, otherwise it will create a class of 

frozen or orphaned retirement savers whose only option may be to transfer to Financial 

Institutions who will enter into BICs with them and thus potentially incur surrender 

charges and/or lose valuable IRA annuity contract benefits that may no longer be 

replaceable in the marketplace (e.g. pre-2008 guaranteed living withdrawal benefits).