FRANKLIN TEMPLETON
INVESTMENTS

July 20, 2015

By U.S. Mail and Email {e-OED@dol.gov)

Office of Regulations and Interpretation
Employee Benefits Security Administration
Room N-S5655

U.S. Department of Labor

200 Constitution Avenue, N.W.
Washington, DC 20210

Re: Comment Letter on RIN 1210-AB32: Definition of the Term “Fiduciary”; Conflict of Interest Rule -
Retirement Investment Advice

Dear Sir/Madam:

Franklin Resources, Inc. appreciates the opportunity to comment on the Department of Labor's (the
“Department” proposed regulation defining who is a “fiduciary” of an employee benefit plan under the Employee
Retirement Income Security Act of 1974 (“ERISA”), or an individual retirement account (“IRA”} under section 4975
of the Internal Revenue Code of 1986, as a result of giving investment advice to a plan, its participants, or to an
IRA owner (the “Proposed Rule”). Franklin Resources, Inc. is a global investment management organization
Operating as Franklin Templeton Investments (“Franklin”). Headquartered in San Mateo, California, we employ
over 9,000 people and have offices in 35 countries. Our common stock is listed on the New York Stock Exchange
under the ticker symbol BEN and is included in the Standard & Poor’s 500® Index. As of June 30, 2015, Franklin
had assets under management of over $866 billion.

Franklin is a global provider of products and services to retirement clients, and manages over $200 billion in assets
in the U.S. for individuals saving for retirement through defined contribution plans, defined benefit plans, IRAs
and variable annuity products. Through our registered funds, collective investment trusts and other private
vehicles, separate accounts, educational tools and research information, Franklin is dedicated to the investment
needs of the U.S. retirement community during all phases of the retirement savings and distribution cycles.
Franklin is committed to partnering with the entire retirement community - plan sponsors, plan consultants and
advisers, and financial advisers to plan participants and IRA owners - to ensure that it offers products and services
that meet the needs of investors saving for and in retirement.

Franklin, both directly and as a member of the investment Company Institute (“ICI), the Asset Management Group
of the Securities Industry and Financial Markets Association (“SIFMA AMG”), the Defined Contribution
Institutional Investment Association {“DCIA”) and the American Retirement Association (“ARA”), supports the
Department's efforts to ensure that retirement investors are protected with respect to the investments in their
accounts. We write today to endorse the comment letters of these groups and to (1) express our concern about
the breadth of the proposed definition of “fiduciary” and to provide examples of the unintended consequences
that such a sweeping definition will have; (2) express our disagreement with the Department’s approach to
proscribing or endorsing certain investment products or strategies over others; and (3) provide examples of
situations where the Proposed Rule would limit investor choice.

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FRANKLIN TEMPLETON.
INVESTMENTS

The Definition of “Fiduciary” in the Proposed Rule Is Overbroad And Has Unintended Consequences

We are very concerned about the broad scope of the proposed definition of fiduciary in the Proposed Rule and
believe that it will sweep in communications where no reasonable expectation of a fiduciary relationship exists.
One example is where an asset management firm seeking to offer its investment products to a plan is asked by
the plan sponsor to respond to a “Request For Proposal” (“RFP”) describing its products. Under the Proposed
Rule, this communication could be deemed a “recommendation” and the firm, now deemed to be a fiduciary,
would have to fit the communication under a carve-out or an exemption so as not to run afoul of ERISA’s conflict
of interest prohibitions. Whether the firm can provide this communication in reliance on the Proposed Rule’s
seller's counterparty carve-out exclusion is not clear. And even if the firm could, an identical communication to
small or mid-size plans could not be provided, due to the exclusion’s minimum threshold requirements based on
plan size or number of participants.

Similarly, an asset management firm’s ability to provide plan participants and IRA owners with educational
materials, such as asset allocation and income generation tools that mention specific investment products, would
no longer be excluded from the definition of investment advice, due to the Proposed Rule’s narrowing of the
Department's prior interpretive guidance on investment education, and would therefore trigger fiduciary status
under the Proposed Rule. And a plan sponsor's ability to educate and communicate with participants about the
plan’s auto-features, such as auto-enrollment, auto-escalation and automatic mapping of certain investments to
QDIA options, may also trigger fiduciary status under the Proposed Rule for the same reason described above.

These types of communications should not give rise to fiduciary status. Neither plan sponsors nor investors would
reasonably expect that the firm would have been undertaking a relationship of loyalty merely by providing this
information. Accordingly, the definition of fiduciary should be amended so that it would only apply where there
exists a reasonable expectation that the communication constitutes investment advice that is being offered in a
fiduciary capacity. Alternatively, we urge the Department to expand the counterparty and investment education
exclusions to address the situations described above.

The Department Should Not Be Proscribing Or Endorsing Any Investment Product Or Strategy Over Another

We note that, based on the exemptions proposed in connection with the Proposed Rule, the Department appears
to favor certain investment strategies or products that can be offered to retirement investors. For example, in
order to rely on the "Best Interest Contract Exemption", a firm is only allowed to provide advice about an “asset”
as defined in the exemption. This definition excludes many types of investments and thus could, for example,
impact an asset manager's ability to offer institutional separately managed or unitized accounts to retirement
plans as an alternative to other types of investment vehicles. This would result in the inadvertent exclusion of an
otherwise appropriate and cost-effective product. The determination of whether an asset class, product or
strategy is appropriate for a client should instead reside with the client or the person or entity that the client
relies on for such advice.

Even more concerning, however, is the Department’s consideration of a special exemption for “high quality and
low fee” investments. While the Department does not define which investments would meet this standard, and
instead is seeking input about how such an exemption would work, we are very concerned that such an
exemption would effectively result in the Department determining whether a particular type of investment is
better than another. it would be both unprecedented and inappropriate for the Department (indeed, for any
governmental entity) to determine what constitutes a “high quality” or “low cost” investment.


FRANKLIN TEMPLETON.
ESTMENTS

Examples Of Where The Proposed Rule Limits Investor Choice

Another concern with the Proposed Rule is that it will impact the ability of a financial advisor to obtain certain
types of compensation, including commissions and trail fees, from a fund that the advisor recommends to its
clients. Under the proposal, for example, a financial advisor associated with a registered broker/dealer would be
required to rely on the Best Interest Contract Exemption in order to recommend a fund from which the advisor
receives a trail fee to an IRA client. Many such advisors are likely to decline to recommend these products due to
the onerous requirements of this exemption (as extensively detailed in the comment letters submitted to the
Department by the groups identified above), particularly the requirement to accept unlimited liability for any
conduct that breaches the fiduciary standard. This would result in fewer choices for investors, without any
meaningful increase in investor protection. (it is also important to note that these types of investment
communications and recommendations are currently subject to extensive regulation by FINRA and the SEC.)

In addition, many advisors may go further and seek to limit the number and types of clients to whom they make
investment recommendations. We note that recent rule changes in several jurisdictions outside of the U.S. that
ban the payment by asset management firms of inducements to sellers of investment products and services, such
as commissions or other compensation, have had this effect: recent studies have indicated that certain financial
institutions are moving away from providing services to smaller investors because they are not being adequately
compensated for such services, and consequently, many investors no longer have access to a broad range of
financial advice.’ In addition, studies have shown that smaller investors are unable or unwilling to pay directly for
advice.’ The Department’s overly broad proposal, thus, will likely also result in a similar chilling effect on advice
provided to U.S. retirement investors, particularly investors that do not have large enough account balances to
open a fee-based account with an advisor, or who otherwise choose not to do so.

Based on our views as well as those of the industry groups that we support, we urge the Department to consider
these comments and tailor the rule more appropriately to protect retirement investors while preserving investors’
access to valuable information about investments and ability to choose the types of products and services that are
right for them. Thank you for your consideration.

Sincerely,

Craig S. Tyle
Executive Vice President and General Counsel

* See, e.g, “Restrictin
Institute, Decembe

the Availability and Quality of Financial Advice for Individual investors”, CEA

1 Review: Post implementation Review”, Europe Economics, 16 December 2014

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