IV. F. Administrative Prohibited Transaction Exemptions

Ongoing Duty

The discussion of the Best Interest Contract Exemption does not appear
to address the term of the Best Interest Contract and, consequently, the fiduciary
advisers duty (if any) to provide ongoing services.

In Tibble v Edison’, the Supreme Court held that a fiduciary’s duty to an
ERISA plan is ongoing. The case has been remanded to the 9" Circuit for further
consideration, so the full scope of this duty has yet to be determined. However,
this decision raises the question of when a fiduciary’s duty to re-evaluate
investments ends. This is particularly concerning for broker-dealers and
insurance providers, as the Court did indicate that there were more scenarios in
which failure to reevaluate investments might be a breach of fiduciary duty.

It is unclear how this ruling will affect the drafting of Best Interest
Contracts. Can a Best Interest Contract provide for a special short term fiduciary
relationship for brokers, insurance advisers, etc.? If so, will a Best Interest
Contract need to be obtained on a transaction-by-transaction basis? Will the
nature of brokerage and insurance services exempt these professions from long
term ongoing requirements?

NRS recommends that the Department clarify whether, in the eyes of the
Department, a Best Interest Contract necessarily imposes any ongoing fiduciary
duty on fiduciary advisers.

Solicitors for Registered Investment Advisers

As noted in Section IV A 4, above, it appears that a solicitor for an
investment adviser would need to meet the requirements of the Best Interest
Contract Exemption in order to avoid committing a prohibited transaction by
accepting a fee from another fiduciary.

In NRS’s experience, most solicitors only offer the services of a few
investment advisers. Indeed, apart from solicitors who participate in certain large
wrap fee programs, it is unusual to see a solicitor who offers the services of more
than a handful or firms, and it is common to see solicitors who offer the services
of only one or two investment advisers. These solicitors often solicit for
investment advisers with which they have a personal as well as a business
relationship, or with which their clients have had substantial experience.

'_S. Cl. —, No. 13-550, 2015 WL 2340845 (May 18, 2015)
5


managers, or the value of particular securities or other property.” NRS is
concerned that this requirement will make investment educational materials less
accessible to plan participants.

In NRS’s experience, many smaller plans offer only one investment option
in different categories. For example, a small plan may offer a growth equity fund,
a value equity fund, an international fund, a bond fund, and a money market
fund. Restricting the investment education materials from mentioning the
specific names in this situation will only make an already unfamiliar process more
difficult for inexperienced participants. Another common scenario is one in which
a plan offers retirement-date-targeted funds to its participants. In NRS’s
experience, only the very largest plans may offer these types of funds from more
than one fund company. NRS sees very little utility in hiding the name of the
fund company from plan participants.

NRS suggests that the Department extend the carve-out to allow naming
investment options in plans that offer only one investment option in a particular
category. NRS further recommends that, for plans with multiple investment
options in various categories, that the Department consider allowing educational
materials that list all investment options for plans with multiple options, so that
the participant is not left to try to determine which funds meet which categories.

In addition, the Department asked for comment on whether to use
FINRA’s communications standards to distinguish between advice and education
in whole or in part. NRS recommends that the Department adopt the FINRA
standards in their entirety for clarity, to avoid confusion, and because this would
have a minimal impact on current industry practices.

IV. D. Fee or Other Compensation

NRS anticipates that some investment advisers will consider not charging
fees for managing a small IRA for a client who has substantial assets in addition
to an IRA. Would waiving the fee for the IRA assets be sufficient in order for the
investment adviser to avoid fiduciary status? Would the analysis change if the
adviser considered the assets in the IRA in determining the appropriate allocation
for the non-retirement assets? NRS recommends that the Department provide
scenarios to help determine when an investment adviser may be receiving
indirect compensation.


This being the case, NRS is concerned that these solicitors may not meet
the requirement of the Best Interest Contract Exemption that fiduciaries relying
on this exemption who “limit the products their advisers recommend” must
“make a finding that the limitations do not prevent advisers from providing advice
in those investors’ best interest.” While NRS is certain that the vast majority of
solicitors believe they are acting in the client's best interest, most do not base
this on a comparison of the recommended investment advisers with a national
database of advisers who pay solicitor’s fees (if such a database even exists).

NRS recommends that the Department (a) determine if the service of
another investment adviser is a “product” for the purposes of the Best Interest
Contract Exemption and (b) if such a service is a “product,” clarify the
requirements for making “a finding that the limitations do not prevent advisers
from providing advice in those investors’ best interest.” Specifically, NRS
recommends that the Department state whether or not subjective, non-
quantifiable information (such as a solicitor’s own experience with an investment
adviser) would satisfy the requirements of the Best Interest Contract Exemption.

IV. G. The Provision of Professional Services Other than Investment Advice

NRS recommends that teachers be added to the list of professions that
qualify for this exemption. Teachers should not be inhibited from answering
questions about a student’s personal situation (particularly if that student is at or
near retirement age).

NRS is also concerned that the following statement is overly vague:

Only when these professionals act outside their normal roles and
recommend specific instruments or render valuation opinions in
connection with particular investment transactions, would they be
subject to the proposed fiduciary definition.

Does this mean that recommending specific instruments when acting
within their specific roles is permissible, or does the recommendation of a
specific instrument take these professionals outside of their normal roles?
Moreover, how does one determine the scope of their normal roles? Does an
accountant who calls a report she provides to a client a “financial plan”
automatically step out of her normal role?


PO Box 71, 29 Brook Street
Lakeville, Connecticut 06039

Phone 860.435.0200
Fax 860.435.0031
www.nrs-ine.com

July 21, 2015

Office of Regulations and Implementations
Employee Benefits Security Administration
Attn: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

RE: Definition of the Term “Fiduciary”; Conflict of Interest Rule- Retirement
Investment Advice
29 CFR Parts 2509 and 2510
RIN 1210-AB32

To Whom It May Concern:

This comment letter is submitted on behalf of National Regulatory
Services (“NRS”), part of Accuity. NRS is the nation’s leading compliance
consulting, technology and education firm founded in Lakeville, CT in 1983.
NRS provides compliance and consulting services, compliance technology
solutions, national conferences, seminars and the NRS Certified Compliance
Professional certificate program to approximately 6,000 investment advisers and
broker-dealers, ranging from sole practitioners to the largest global financial
firms.

A substantial majority of these investment advisers and broker-dealers
provide services to individual retirement accounts ("IRAs”) and so would be
considered “fiduciaries” under the rules proposed (the “New Proposal”) by the
Department of Labor (the “Department”) in its release dated April 14, 2015 (the
“Release”). As a provider of compliance services and solutions for investment
advisers, broker-dealers and other financial institutions, NRS, and our clients,
place a premium on clarity and precision in the regulatory environment which
promotes transparency regarding the expectations of the regulator as well as the
obligations of the regulated.


These questions were addressed for SEC-registered investment advisers
in SEC Release IA-1092 (October 8, 1987), which has lasted over 25 years as
the touchstone in determining when advice about securities was incidental to the
practice of a profession. NRS suggests that the Department consider replacing
the current language about professionals acting in their “normal roles” with IA-
1092’s well-accepted definition? of conduct incidental to the practice of a
profession.

Conclusion

If we may assist further or provide additional information or background on
our comments, please let us know. We at NRS would certainly look forward to
assisting the Department in this very important area affecting the entire financial
services industry.

Sincerely,

John Gebauer
President

? Without going into detail, [A-1092 does not extend the professional exclusion from investment adviser
registration to a professional who holds himself out as providing advisory services or who accepts separate
compensation for advisory services.


NRS appreciates the opportunity to comment on the New Proposal. After
a general comment on the proposal as a whole, NRS’s comments will follow the
table of contents used in the Release.

General Comments:

The New Proposal, if enacted, would have a far-reaching impact on
investment advisers and broker-dealers. NRS is concerned that the New
Proposal, in its current form, would likely have some unintended consequences
that would, at a minimum, create confusion and hinder the efficient delivery of
much-needed financial services to retirement plans and individual investors.
NRS therefore urges the Department to provide as many specific examples as
possible to demonstrate how the requirements of the New Proposal apply to
specific situations commonly faced by investment advisers, broker-dealers, and
other potential fiduciaries. The remainder of our comments will address specific
situations that we believe would benefit from further clarification.

|. C. Gains to Investors and Compliance Costs

NRS notes that the benefit analysis used in this section does not appear
to address the benefits received by investors through incidental advice provided
by broker-dealers. In NRS’s experience, this incidental advice can be crucial in
helping retirees navigate the sometimes bewildering world of investing. Many
registered representatives of broker-dealers are not simply stock or fund pickers;
they often assist their clients in understanding their investments, making
adequate plans to pay for 10, 20 or 30 years of living expenses following
retirement, and dealing with the vicissitudes of a sometimes volatile economy.

As the Department notes on page 26 of the Release, there is a “gap in
expertise and information between advisers and the customers who depend on
them for guidance.” By focusing on investment costs alone, the New Proposal
may make it difficult for broker-dealers to be fairly compensated for the time and
effort required to share this expertise.

NRS recommends that the Department provide specific examples of how
compensation for incidental advice can be addressed in the Best Interest
Contract Exemption. For example, would a statement that the fiduciary adviser
“will not always recommend the lowest-cost products in order that [the fiduciary
adviser] may be compensated for providing incidental advice about the client's
other investments and overall financial situation” be adequate?


IV. A. Categories of Advice or Recommendations

The types of activities that constitute recommended advice include “a
recommendation to take a distribution of benefits ...”. NRS is concerned that this
is So broad that it could bring in persons who otherwise would not be considered
fiduciaries. Take, for example, an investment adviser who is meeting with a
retired client for whom the adviser manages a portfolio that specifically excludes
retirement assets. The client mentions that he is finalizing his year-end finances,
and the adviser reminds him to be sure to take a required IRA distribution.
Would that be sufficient to make the adviser a fiduciary? NRS recommends
adding a carve-out for recommending minimum required distributions or other
distributions that may be required by law or regulation. (Please also see the
discussion of indirect compensation in Section IV.D., below.)

IV. A. 4. Recommendations of a person to provide investment advice or
management services

The New Proposal imposes fiduciary status on persons who provide
“recommendations of persons to provide investment advice for a fee or to
manage plan assets” for “direct or indirect compensation.” This may be
confusing. For example, let’s say a solicitor who is not otherwise a fiduciary
adviser suggests the use of an adviser to an investor. The investor then hires
that investment adviser to manage $1,000,000 in non-retirement assets and a
$10,000 IRA. The investment adviser pays the solicitor a percentage of the non-
retirement assets, but no percentage of the IRA. Under this scenario, would the
solicitor be receiving indirect compensation? NRS suggests that the Department
use specific scenarios to clarify what does and does not constitute indirect
compensation in this scenario. (Please also see the discussion of indirect
compensation in Section IV.D., below.)

In a situation in which a solicitor was considered a fiduciary adviser only
through the recommendation of an unaffiliated investment adviser, it would
appear that the solicitor would then be required to have a Best Interest Contract
with the client in order to be able to receive compensation from the investment
adviser (itself a fiduciary) in order to avoid the prohibited transactions rules. NRS
suggests that the Department clarify whether or not a Best Interest Contract
would be required in that situation.

IV. C. 4. Investment Education
The New Proposal requires that, in order to qualify for the investment

education carve-out, “information and materials not include advice or
recommendations for as to specific investment products, specific investment