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July 21, 2015

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Conflicts of Interest Rule 

U.S. Department of Labor 

200 Constitution Avenue NW, Room N-5655 

Washington D.C. 20210

Re: Comments on Department of Labor Proposed Redefinition of “Fiduciary” (RIN 1210-AB32); Proposed 

Best Interest Contract Exemption (ZRIN 1210-ZA25); and Proposed Amendment to Prohibited 

Transaction Class Exemption 84-24 (ZRIN 1210-ZA25)

Dear Sir or Madam:

The Association for Advanced Life Underwriting (“AALU”) and the National Association of Independent 

Life Brokerage Agencies (“NAILBA”) appreciate the opportunity to provide these comments to the 

Department of Labor (“Department” or “DOL”) in response to the above-referenced proposed rule 

(“Rule” or “Proposal”) to redefine who is a fiduciary of an employee benefit plan under the Employee 

Retirement Income Security Act of 1974 (ERISA) and Section 4975 of the Internal Revenue Code of 1986, 

including individual retirement accounts (IRAs).

AALU is the leading organization of life insurance professionals who are a trusted voice on policy issues 

impacting Americans' financial security and retirement savings. Our 2,200 members are primarily 

engaged in sales of life insurance used as part of estate, charitable, retirement, and deferred 

compensation and employment benefit services. NAILBA is a nonprofit trade association with over 300 

member agencies in the U.S. Since 1981, NAILBA has represented independent wholesale life brokerage 

agencies, promoting financial security and consumer choice through the use of independent brokerage 

distribution.

As life insurance industry professionals, we work in the best interest of savers every day, enabling

individuals and families from all economic brackets to maintain independence in the face of potential

financial catastrophe and to secure their retirement. The products that our industry provides guarantee

the delivery of financial security at precisely the moment it is needed, while contributing significantly to 

the nation’s storehouse of savings and investment capital.

Seventy-five million American families rely upon the important financial security that life insurance 

products provide, and one out of every six dollars of long-term savings is invested in those products. 

Further, the life insurance industry is a key driver of the economy, serving as the largest institutional 
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source of bond financing for American companies in addition to creating 2.5 million jobs and devoting 

$5.6 trillion to investment in economic expansion.i

We appreciate the intent of the Department and support efforts to ensure savers’ best interests are 

being served, but this complex rule is unworkable as written and not compatible with current business 

models in the life insurance industry, which currently serve millions of Americans well. It imposes 

unreasonable limitations, requirements, and additional costs on life insurance companies and agents, 

making it difficult to provide advice and financial products to retirement savers that need them the 

most. Average Americans will bear the burden by having significantly less access to professional 

financial advice and fewer options to save for retirement, particularly through lifetime income products 

such as annuities. 

Our letter does not comment on all of the questions in the Proposal, but rather those that most directly 

impact our members and the families and businesses they serve. We have endeavored to provide 

detailed information in areas where we believe the AALU and NAILBA, based upon our members’ 

businesses and expertise, can be most helpful in furthering the Department’s understanding of the

marketplace for retirement savers.

Unfortunately, more time would have been helpful to evaluate the Proposal and provide even more 

thorough analysis. As the Department is aware, this Rule is much larger than the 2010 proposed 

fiduciary rule, with amendments to current PTEs, the establishment of a new exemption, and a lengthy 

regulatory impact analysis that wasn’t part of the previous proposal. Yet the comment period for this 

Proposal is 14 days shorter than in 2010, despite the increased length and complexity. It is therefore 

challenging to provide a comprehensive assessment regarding all of the practical effects of the Proposal 

and its long-term impact on American retirement savers. Given the unworkability of the Proposal, the 

AALU and NAILBA encourage the Department to provide stakeholders an opportunity to review the Rule 

after initial changes have been made—and a chance to provide further comment—to ensure the 

Proposal is not only compatible with business models in the life insurance industry but also serves the 

people whom it currently purports to serve.

The Current Regulation of Life Insurance Professionals and our Industry is Robust

Broker-dealers and their registered representatives are currently subject to strict supervisory, disclosure 

and consumer protection rules, and are regularly inspected for their compliance with all rules. Life 

insurance professionals affiliated with broker-dealers are overseen by the SEC (“Commission”), FINRA, 

DOL, and by state insurance departments and insurance carriers, who adopt and enforce additional 

standards of conduct. They must conduct a thorough ‘needs analysis’ and product underwriting for 

clients to ensure that their individual needs and goals are being met. Life insurance professionals

develop personal relationships with families, as well as an extensive knowledge of their specific 

situation, so they can ensure that their clients are getting the right products that best fit their needs.ii

The regulatory regime is particularly robust when it comes to the sale of variable annuities. Brokerdealers are subject to comprehensive SEC and FINRA requirements for the recommendation and sale of 

securities. FINRA Rule 2111 requires a broker-dealer to have a reasonable basis to believe that each 

securities transaction or investment strategy involving a security recommended by a broker-dealer is 

“suitable” for the customer based upon very specific information that the broker-dealer is required to 

gather from the customer and maintain, regarding the customer’s age, other investments, financial 

situation and needs, tax status, investment objectives, investment experience, time horizon, liquidity 
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needs, risk tolerance, and any other information the customer may disclose.iii As the SEC has 

acknowledged, specific suitability, disclosure, and due diligence requirements apply to certain securities 

products, including penny stocks, options, mutual fund share classes, debt securities and bond funds, 

municipal securities, hedge funds, variable insurance products, and non-traditional products, such as 

structured products and leveraged and inverse exchange-traded funds.iv

One such product-specific rule is FINRA Rule 2330, which sets forth extensive and detailed sales practice 

requirements for recommended purchases or exchanges of variable annuities, including: (1) detailed 

information that must be provided by the registered representative to the customer regarding the 

investment; (2) the registered representative’s thorough assessment that the particular variable annuity 

is suitable for the customer, based upon specified factors; (3) detailed due diligence that must be 

performed by the registered representative regarding the customer, including age, income, financial 

situation and needs, investment experience, investment objectives, intended use of the annuity, 

investment time horizon, liquidity needs, liquid net worth, risk tolerance, tax status, and other relevant 

information; (4) the requirement that the registered representative who recommends the variable 

annuity must promptly send a complete application package to supervisory personnel; (5) the 

requirement that a registered principal review and determine whether to approve the recommendation 

(only after making and documenting his/her own suitability analysis); (6) the requirement for enhanced 

supervisory procedures for variable annuity sales and exchanges; (7) specific training policies; and (8) 

other requirements regarding the depositing of funds prior to approval and other requirements. Nothing 

even approaching this level of due diligence, supervision, and standard of care exists for investment 

advisors.

Further, insurance producers who sell variable products, which are among the most highly-regulated 

financial products sold to retail customers, are subject to multiple layers of regulation and oversight—

by the Commission, FINRA, state securities regulators (including in each state in which they operate, 

which often results in oversight by multiple state securities regulators), and state insurance regulators 

(also in each state in which they are licensed and operate, which again results in oversight by multiple 

state insurance regulators). Insurance producers are subject to detailed requirements by the carriers 

who appoint them; robust internal supervisory procedures by the broker-dealers with which they are 

affiliated, and frequent and comprehensive regulatory examinations by the regulators who exercise 

jurisdiction over them. Indeed, the scope and level of regulation is significantly higher for variable life 

insurance products than for other securities under the existing standard of care. 

Registered Investment Advisors Face Much Less Regulatory Scrutiny 

Ironically, the Department asserts that fee-based business models are superior to commission-based 

models when it comes to serving clients’ best interest. However, if there are gaps in regulation or 

imbalances in customer protection, they exist in the investment advisor regime. To begin, investment 

advisors with less than $100 million in assets under management—those most likely to serve smaller 

customers—are subject only to state regulation and inspection. Further, even the SEC admits that its 

inspection cycle for advisors who register is woefully inadequate, inspecting advisors once every 11 

years on average—and 40% of current advisors have never received an audit.v

When becoming an investment advisor, there is no assessment by the SEC or any other regulator as to 

whether the investment advisor has a credible business, has adequate controls in place, or is qualified to 

advise investors concerning securities. If the advisor completes the required Form ADV and is not a felon 

or subject to other statutory disqualifications, then the applying individual or firm will be approved for 
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registration. Further, while registered representatives of broker-dealers are subject to requirements for 

training and continuing education, investment advisors are not. In each of these, as well as other, areas, 

the regulatory and oversight regime applicable to broker-dealers is far more robust in protecting 

investors than the investment advisor regime.

It is important to note that no standard of care is effective without a mechanism to monitor and enforce 

its application. Broker-dealers are inspected at least once every 18-24 months. The anticipation of a 

near-term examination has a deterrent effect on adverse behavior and creates a strong incentive for 

broker-dealers to continuously monitor and adhere to regulatory requirements, including the various 

disclosure requirements mentioned above.vi

The Commission and other regulators and self-regulatory organizations already devote the clear 

majority of their oversight and inspection resources to broker-dealers. Yet an investment advisor who is 

compensated based on assets under management can be just as likely to make an inappropriate 

recommendation. The inspection regime for registered advisors is far less rigorous, and we believe that 

few investors understand the significant disparity between the oversight of broker-dealers and the 

oversight of investment advisors. 

Rather than adopt a one-size-fits-all rule that significantly increases compliance burdens on sectors with 

already robust consumer protection laws, regulators should focus efforts on areas where protection 

may be inadequate. The current proposal does not reflect such narrow tailoring. 

The Department Failed to Analyze the Impact of Existing Regulations on Investor Understanding

The DOL has failed to show that its recent efforts to improve investor understanding in the ERISA

marketplace are not working, or that such initiatives could not be successfully refined to address any 

remaining issues in the marketplace. 

In February 2012, the DOL issued final 408(b)(2) disclosure rules requiring advisors to qualified plans to 

disclose to plan sponsors: 1) the services they provide, 2) whether these services are provided in a 

fiduciary or brokerage capacity, and 3) the fees charged for such services. This regulation was designed 

to improve transparency for retirement savers. 

Yet despite the considerable time and effort that both the DOL put into crafting these rules and that the 

financial services industry expended to comply with the regulation, the Department has not 

demonstrated that these rules have been analyzed to determine their effectiveness or the need for 

additional rules. 

This lack of analysis is concerning, especially considering initial indications from our Members. One 

prominent AALU member firm examined their business metrics from 2013—the first full business year 

following these final disclosure regulations—and 2014, and identified a clear trend towards advisors 

becoming fiduciaries and charging fees as opposed to selling services to plans as brokers for a 

commission. From year-end 2013 to year-end 2014, plans utilizing commission-based services grew by 

26% whereas plans using fee-based services grew by 114%, and for firms whose primary business is 

qualified plans the trend was even more prominent with broker relationships declining 85% as fiduciary 

relationships increased 21%.vii
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While this analysis is preliminary, it indicates that in the environment of enhanced disclosure under 

Section 408(b)(2) regulations there seems to be a move to fee-based services while at the same time 

some still choose to engage advisors in a brokerage capacity—especially when specialty solutions are 

needed that manage longevity risk and sequence of return risk.

It does not seem prudent for the Department to move forward with new sweeping regulation in the 

ERISA marketplace without a full examination of comparable rules recently issued in this same space.

Particularly given preliminary trends observed by our respective memberships, sufficient time should be 

given to fully evaluate Section 408(b)(2) rules. If this regulation is found to be insufficient, then it would 

seem appropriate to build on it rather than enacting a complex and unworkable set of new 

requirements.

The DOL Analysis Fails to Prove That Financial Markets are Harming Retirement Savers

Not only has the Department failed to analyze its own framework for improving investor understanding 

in the retirement savings marketplace, but despite years of study the Department has not developed a 

definitive analysis proving there are significant problems in financial and insurance markets that are 

currently harming retirement savers, or even that changes to current standards of conduct would 

improve the products, services, and advice provided to investors.

For example, a January 2015 White House Report (“Report”) asserts that conflicts of interest between

broker-dealers and investors cost savers between $8 billion to $17 billion a year, and the Administration 

and Department have repeatedly used this statistic as a central justification for the proposed fiduciary 

rule. Yet that figure is not found in any academically sound study; rather, it is a number calculated by the 

authors using methods and assumptions unsupported by any academic literature cited by the 

Department.viii

To take but one academic study (Bergstresser et al. (2009)) cited in the Report, the paper finds that 

some funds sold by brokers underperform those funds that are sold directly to investors, while some 

funds sold by brokers over-perform directly-sold funds. The study asserts that broker-dealers cost 

investors between 50bps-100bps but not with respect to the whole market. Yet the authors of the 

Report don’t take this data limitation into account when applying this study to their calculation—they 

simply apply the claimed losses to the entire market. The authors repeatedly use methods and 

assumptions that are not endorsed by academic materials supporting this Rule.

In another example, the Report relies heavily on a 2011 Government Accountability Office (“GAO”)

study to assert that financial professionals are recommending inappropriate rollovers into IRA’s. The 

GAO study explains that certain advisors could earn between $6,000 and $9,000 in commissions when 

advising a client to rollover a qualified plan into an IRA. But that GAO report relies upon only one

interview to make this assertion—hardly enough data to provide sound conclusions. 

Further, the GAO wasn’t asked to examine the benefits that IRA’s provide; rather, the study specifically 

focused on circumstances where there may have been conflicts of interest. IRA accounts provide 

important benefits for retirement savers, including access to a wide variety of financial instruments for 

diversification and a reduced burden for investors who need to keep track of funds in 401(k) plans from 

a number of employers.ix
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The Proposal Underestimates the Costs Imposed on the Financial Industry

The DOL also significantly underestimates the costs that the Proposal will impose. According to a recent 

U.S. Chamber of Commerce analysis, the DOL did not conduct adequate research to support their cost 

estimates—the Department failed to conduct sufficient experiments, sample surveys, and evaluations of 

comparable data that would be necessary to adequately estimate the resources for industry to comply 

with the Rule. Further, the DOL consistently underestimates the level of skill, training, and responsibility 

that would be necessary to comply with the many requirements of this Proposal, and frequently fails to 

provide any rationale for the assumptions and estimates presented in their supporting materials.x

These shortcomings result in mistakes such as the examples below:xi

 The six Information Collection Requests required by the Department under this Proposal are 

estimated by the DOL to cost industry $792 million over 10 years. Yet the U.S. Chamber of 

Commerce estimates that the actual costs would likely be 5 to 10 times that estimate. 

 In one calculation, the Department estimates that each financial institution would require inhouse attorney’s to expend 60 hours of time to draft and review the required disclosures related 

to compliance with the Best Interest Contract Exemption (“BICE”). Yet the Department provides 

no data or even rationale for the 60 hour figure. As the U.S. Chamber of Commerce pointed out, 

the DOL could have surveyed experienced attorneys about the time required to comply with this 

aspect of the rule, researched the necessary time parameters, or even had its own lawyers 

perform the task. Yet it seems the Department just guessed at the number. These types of 

assertions of time parameters without supporting evidence or rationale are prevalent 

throughout the DOL cost analysis. 

 The DOL asserts that roughly half of all brokers will utilize the Seller’s Carve-Out and the BICE. 

Yet there is no analysis or rationale presented for this assertion, and preliminary analysis from 

the life insurance industry indicates that a much larger percentage of firms and advisors would 

have to rely on these exemptions. Greater utilization of these exemptions would of course 

increase the overall costs to industry. In contrast, if the industry, as is likely, decides compliance 

is simply too costly and unworkable, then they will simply stop serving average retirement 

savers. In either case, the outcome hurts consumers. 

The Proposal Contains Unworkable Exemptions for Commission-Based Business Models

The DOL claims that the Proposal is business-model neutral, yet the restrictions and requirements in the 

Rule are not compatible with current commission-based business models which serve most Americans—

as FINRA CEO Rick Ketchum has himself noted.

xii

The AALU and NAILBA continue to support clear, concise disclosures about the roles and obligations, 

product offerings, and material conflicts for all financial advisors, including broker-dealers and life 

insurance professionals. Yet while it is important to alleviate any investor confusion in the marketplace, 

regulators must ensure that consumers have meaningful choice when making decisions about their 

investments and retirement savings. 

Unfortunately, this Proposal makes it difficult, if not impossible, for many life insurance professionals to 

continue offering valuable services and retirement products to investors. Most distressingly, average 
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Americans will bear the burden of this rule by having significantly less access to professional financial 

advice and fewer options to save for retirement. 

The Department currently provides workable exemptions for commission-based business models when 

determining who is a fiduciary of an employee benefit plan under ERISA. The Proposal modifies current 

exemptions and creates a new one, and the DOL maintains that financial professionals will still be able 

to offer commission-based services. Yet the new definition of fiduciary in the Proposal prevents advisors 

from offering a variety of important educational information, and the exemptions are completely 

unworkable for a number of reasons which are explained below. 

Definition of Investment Advice Fiduciary

The Proposal defines an “investment advice fiduciary” as a person who provides investment advice to 

any specified retirement plans, their fiduciaries or participants, or any IRA owners, and who provides the 

following types of advice:

 Makes investment recommendations, including recommendations to take distributions, or how 

to invest the distributions or rollovers, from a plan or IRA;

 Makes investment management recommendations including with regard to assets to be rolled 

over or distributed from a plan or IRA;

 Provides asset appraisals or similar valuation statements (verbal or written) in connection with 

the plan’s or IRA’s acquisition, disposition, or exchange of such assets; or

 Recommends another person who will also receive a fee or other compensation for providing 

any advice described above.

In addition, the definition applies to a person that receives a fee or other form of compensation for 

providing advice—directly or indirectly—as well as a person who either directly or indirectly:

 Represents or acknowledges that he or she is acting as a fiduciary within the meaning of ERISA 

with respect to the advice provided; or

 Renders the advice per a written or verbal agreement, arrangement, or understanding that the 

advice is individualized or specifically directed to the recipient for consideration in making 

investment or management decisions with respect to plan or IRA assets.

For fiduciaries, ERISA and the Internal Revenue Code (“Code”) generally classify, as a prohibited 

transaction, the payment of fiduciary compensation that varies based on their investment 

recommendations, which generally includes commission-based and revenue-sharing compensation. The 

DOL considered this to be “conflicted interest” compensation. 

The definition of investment advice fiduciary is problematic because it will make it more difficult for life 

insurance producers to work with average retirement savers. Under the current five-point test for 

determining fiduciary status under ERISA, an advisor would be considered a fiduciary if they are 

providing advice or recommendations on a regular basis; pursuant to a mutual agreement, arrangement 

or understanding, with the plan or a plan fiduciary that the advice will serve as a primary basis for 

investment decisions with respect to plan assets, and that the advice will be individualized based on the 

particular needs of the plan. 
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The drastic changes made to this current test will result in less education and guidance for average 

retirement savers. The elimination of the “mutual understanding” metric could trigger ERISA liability 

unbeknownst to the provider of investment advice, even if he or she has taken adequate and reasonable 

steps to inform the recipient of the advice that he or she is not acting an in ERISA fiduciary capacity. 

Additionally, the changing of the “primary basis” standard for decisions following from investment 

advice creates an unreasonably low standard. Under this standard, advisors to qualified plans, plan 

participants, and IRA holders may be unwilling or unable to provide basic information about investment 

options—an outcome that would diminish participant access to professional financial services and 

deprive plans and individuals of much needed investment education.

In addition, the new definition expands the scope of fiduciary status under ERISA to apply to rollovers 

and distributions from qualified plans for the first time. In our view, which is supported by DOL 

guidance, distribution proceeds are no longer plan assets and therefore fall outside the framework of 

ERISA, which is of course designed to cover qualified retirement plan assets and participants.

Making matters worse, there is no exemption for advisors receiving commissions when it comes to 

rollovers and distributions. The BICE, which is discussed in detail below, “relates to the purchase, sale, 

and holding of certain assets.”xiii By using an asset-based approach, life insurance providers are 

prevented from providing critical education to average retirement savers facing one of the most 

important investment decisions of their lives. When investors nearing retirement age contact insurance 

professionals with questions about options for their qualified plan, they will no longer be able to provide 

important information but will simply have to refuse to answer questions or serve those needing 

guidance. 

For many working Americans, qualified plans are one of their only sources of retirement savings. 

Frequently, their money is invested in a Qualified Default Investment Alternative (QDIA), which means 

they have never really made investment decisions on their own. Under the Proposal, when average 

savers are at the most critical point of their retirement life cycle, when their account balances are 

typically at or near their apex, many financial professionals will be unable to provide any guidance to 

novice investors. The inevitable outcome for investors without access to professional advice is more 

lump sum withdrawals from qualified plans—a poor investment decision that will result in smaller nest 

eggs for average retirement savers.

PTE 84-24

The Department has asserted that advisors can still provide commission-based services and advice

under this Rule through the use of exemptions. Yet in practice, this will not be the case. 

Under current law, advisors selling life insurance products and annuities can use an exemption—PTE 84-

24—that allows them to serve retirement savers while continuing to receive commissions and other 

third party payments. Unfortunately, the modifications to this exemption in the Proposal do not fit with 

marketplace realities, and will therefore make this exemption unusable for most life insurance 

producers. 

First, it is unclear why it was necessary to exclude the sale of variable annuities from PTE 84-24 

exemption. As documented above, the sale of variable annuities is strictly regulated by a variety of 

institutions at both the federal and state level. The Department has not come close to proving that the 
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sale of variable annuities is causing problems in the marketplace that would require such transactions to 

be excluded from this exemption, and PTE 84-24 should continue to apply to variable annuities. 

Second, the proposal amends PTE 84-24 to add a specific definition of “insurance commission” to mean 

a sales commission paid by the insurance company or an affiliate to the insurance agent or broker or 

pension consultant for the service of effecting the purchase or sale of an insurance or annuity contract, 

including renewal fees and trailers. However, this new definition does not include revenue sharing 

payments, administrative fees or marketing payments, or payments from parties other than the 

insurance company or its affiliates.xiv

This definition is problematic because it is not consistent with the market for life insurance products. In 

part due to the unique structure of life insurance products and the need to make these products 

affordable for average savers, life insurance companies use a variety of compensation formulas that 

require differentiated payments, including compensation excluded from the definition of insurance 

commission in PTE 84-24. Further, insurance companies use a variety of different terms to describe 

similar activities, so it is important for the Department to provide a broad definition that will encompass 

common and appropriate compensation practices.

The AALU and NAILBA understand the need to ensure compensation practices are in keeping with 

services provided to savers, and we support efforts to address practices that are not in line with this 

approach. Yet this definition goes far beyond that goal, prohibiting compensation structures that allow 

average retirement savers to access critical retirement savings products, including lifetime income 

products. 

Best Interest Contract Exemption (“BICE”)

For life insurance producers who don’t qualify for an exemption under PTE 84-24 as modified by the 

Proposal, there is a new exemption available referred to as the BICE. Yet like the modifications to PTE

84-24, this exemption is highly problematic. 

Financial institutions seeking to rely on the BICE must ensure compliance with several requirements, 

including the execution of a pre-advice, pre-sale contract. This might sound reasonable in theory, but is 

unlikely to work in the real world. For example, when a current or prospective client contacts a life 

insurance professional, he or she can currently answer any questions and provide guidance about 

investment options, including examples of assets or asset classes. Under this proposal, before any advice 

is provided to a saver or specific products to help them in retirement are discussed, they would have to 

sign a complex legal document. 

The idea that investors would sign such a contract shows a serious misunderstanding about how 

financial markets work—in fact, it shows confusion about how consumer markets work in general. 

Consumers don’t simply purchase products and services when they don’t understand the options they 

have available or the benefits that can be provided by the products and services being offered—

particularly regarding items for which they need education and professional guidance.

The AALU and NAILBA memberships have extensive knowledge about the functioning of financial and 

insurance markets, and they have made it clear that in their experience very few people will ever sign 

such a contract unless an advisor can specifically talk about how they can help the client beforehand. 
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The idea that most average retirement savers would sign a complex contract without a full 

understanding of what services are being offered is not based in reality. 

In addition, the BICE requires a financial institution to warrant that it has adopted written policies and 

procedures reasonably designed to mitigate the impact of “material conflicts of interest” with respect to 

the provision of investment advice to investors and to ensure that individual advisors adhere to the 

impartial conduct standards outlined in the rule. This warranty must state that in formulating its policies 

and procedures, the financial institution specifically identified material conflicts of interest and adopted 

measures to prevent those material conflicts of interest from violating the impartial conduct standards.

Specifically, one aspect of the BICE requires a financial institution and affiliates or related entities to

warrant that they will not use quotas, appraisals, performance, bonuses or other differentiated 

compensation or incentives that tend to encourage individual advisors to make recommendations not in 

the investors’ best interest (“conflicted interest compensation”).

Unfortunately, this requirement is not compatible with business models in the life insurance industry. 

Compensation structures involving differentiated payments are both common and necessary to ensure 

retirement savers can obtain affordable life insurance products. Yet given the uncertain meaning of key 

terms that relate to compensation in the BICE, it could be difficult to warrant that the use of certain 

compensation structures would not constitute conflicted interest compensation. These rules are likely to 

require a wholesale reevaluation and restructuring of compensation practices for life insurance 

companies looking to rely on the BICE—in addition to the enormous burdens of establishing and 

administering the systems for monitoring producer activities—which will in turn make it harder for 

average retirement savers to access critical life insurance products.xv

Further, the BICE contains unnecessary and burdensome disclosure and data requirements. Some 

examples are provided below:

 Before executing a purchase, an advisor must give investors a chart that provides, with respect

to each asset recommended, the total cost to the plan, participant or beneficiary account or IRA 

of investing in the asset for one-, five- and ten-years periods.

 An advisor must provide investors, within 45 days after the end of each year, a single disclosure 

containing a list of each asset bought or sold during the year and the purchase or sale price, a 

statement of the total dollar amount of all fees and expenses paid by the plan, participant or 

beneficiary account, or IRA with respect to each asset purchased, held or sold during the year, 

and a statement of the total amount of all compensation received by the advisor and financial 

institution directly or indirectly from any party as a result of each asset purchased, held or sold 

during the year.

 Financial institutions must maintain a web page that is freely accessible to the public showing

the direct and indirect material compensation payable to the advisor, financial institution and 

any affiliate for services provided in connection with each asset (or each class of assets) that an 

investor is able to purchase, hold or sell through the advisor or financial institution, and that an 

investor has purchased, held or sold within the last 365 days.

 Financial institutions and advisors must agree to retain documents and data relating to 

investment recommendations regarding assets. Specifically, for a period of six years, the 
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financial institution must maintain records of inflows, outflows, holdings and returns that would 

enable it to satisfy data requests that may be made by the DOL or requests for examination by 

the DOL, the IRS, an investor, or any employer who maintains a plan covering its employees that 

engaged in a transaction under the BICE.

As shown above, the Department significantly underestimates the expense of the Proposal’s provisions.

These data request and recordkeeping requirements, in addition to the pre-transaction and annual 

disclosure requirements, will likely require the creation and maintenance of data files not currently 

preserved by insurance companies and insurance producers under their current systems—likely at 

substantial effort and costs.xvi

Further, these costs will fall disproportionately on smaller life insurance businesses. Many life insurance 

professionals, though they may be affiliated with large insurance companies, either operate or are 

employed by small firms. While the requirements of the BICE will place tremendous burdens on even 

the largest life insurance companies, it is hard to envision a scenario where small life insurance firms 

could bear these costs and still provide affordable services and products to average American savers. 

Proprietary Products

Under the Proposal, a financial institution must generally offer, and the advisor must make available, a 

range of assets that is broad enough to enable the advisor to make recommendations with respect to all 

the asset classes reasonably necessary to serve the best interests of investors in light of their objectives, 

risk tolerance and specific financial circumstances. 

A financial institution may offer a limited range of investment options based on whether the assets are 

proprietary products, generate third party payments, or for other reasons, provided: (a) the financial 

institution makes a specific written finding that the limitations do not prevent the advisor from 

providing best interest advice, (b) the compensation received for the services is reasonable and not in 

excess of fair market value, (c) the investor is given written notice of the limitations that may be placed 

on the assets the advisor may offer, and (d) the advisor notifies the investor if the advisor does not 

recommend a sufficiently broad range of assets to meet the investor’s needs.

Whether intended or not, the clear implication of this provision of the BICE is that life insurance 

professionals offering proprietary products cannot work in the best interest of clients. The requirement 

to notify retirement savers that their needs can’t be fully met is particularly troubling. Not only is such a 

statement factually incorrect, but requiring such a disclosure up front will discourage investors from 

getting critical retirement savings products, particularly lifetime income products. 

Many life insurance companies and producers offer a suite of proprietary products that have 

consistently provided a diverse set of quality investment options, allowing retirement savers to meet 

their needs. Life insurance companies, which proudly provide proprietary products, stand behind the 

quality of their products—offering a guarantee that the benefits they offer will be delivered. Life 

insurance professionals have a detailed knowledge of the proprietary products they are offering, and 

have been trained to explain them to retirement savers. Limiting access to proprietary products could 

prevent retirement savers from obtaining outstanding products that best fit their situation. 

In addition, the Seller’s Carve-Out in the Proposal will impinge on the sale of proprietary products. 

Unlike the Seller’s Rule in the 2010 DOL proposal, the new carve-out isn’t nearly as broad—applying only 
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to qualified plans that have 100+ participants or at least $100 million in assets. Under the 2010 DOL 

proposed rule, life insurance professionals could avoid fiduciary status when it is clear that they are 

selling products and not offering advice. Yet given the narrow scope of the Seller’s Carve-Out in the 

Proposal, life insurance professionals would be fiduciaries even when clearly selling products. Activities 

that are clearly marketing or sales in nature, where neither the advisor nor the customer intends to have 

a fiduciary relationship, should be permitted. A simple disclosure form making the clear the nature of 

the relationship should be sufficient to remove any confusion. 

Increased Liability

The Proposal imposes additional liability on life insurance producers which will increase the cost of 

products and discourage them from serving average retirement savers–both by increasing the likelihood 

of legal action and by the vague nature of many terms in the Rule. 

Under the BICE, the contract may not contain exculpatory provisions disclaiming or limiting the liability 

of the advisor or financial institution for a violation of the contract’s terms, or a provision under which 

the plan, IRA or investor waives or qualifies its right to bring or participate in a class action or other 

representative action in court in a dispute with the advisor or investor. Even with the ability to use 

binding arbitration, it is anticipated that a new fiduciary standard will increase the frequency of legal 

matters associated with expanded customer litigation and arbitration.

In addition, the Proposal contains a variety of terms such as “reasonable compensation” that are not 

well-defined and could be interpreted in a number of ways. Attempting to meet the many requirements 

in the Proposal would involve highly subjective determinations, opening a producer to second-guessing 

and liability, often years after the sale of a product. The ultimate result of this increased liability and illdefined terminology will be fewer, more expensive products and reduced access to financial advice. 

Small Business Retirement Plans

In addition, both the definition of investment advice fiduciary and the restrictions in the BICE will make 

it much harder for small businesses to offer their employees—who make up almost half of all private 

sector workers—affordable retirement savings vehicles. 

Many businesses are unable to meet the expense and administrative burden of traditional qualified 

plans, and rely on simpler plans such as SEP IRAs and SIMPLE IRAs to provide their employees with 

affordable retirement options. According to the U.S. Chamber of Commerce, these types of plans make 

up nearly 10% of all IRAs, covering more than 9 million households and $472 billion of retirement 

savings.xvii

Yet due to the restrictions imposed by the Proposal, advisors would be prevented from activities such as 

providing marketing materials containing examples of potential investments, or referencing specific 

investments that are available. This is troubling because many small business owners don’t have the 

time or expertise to sift through the thousands of potential investment options that are available to 

them, and rely on professional advice to find quality options that will benefit their employees. Without 

access to affordable advice, it will be much harder for employers to provide these critical savings 

vehicles.
13

The Proposal Will Result in Reduced Choice and Access for Average Retirement Savers

The Proposal’s lack of compatibility with commission-based business models, its restrictions on 

educational information, its lack of workable exemptions, and its onerous disclosure and data keeping 

requirements will result in reduced choice and access to professional financial advice for average 

retirement savers. 

When protecting their families and saving for retirement, individuals must be able to choose what is 

right for them. It is essential for retirement savers to fully understand their options, and AALU and 

NAILBA support clear and simple disclosure that provides investors with information about the roles, 

obligations, product offerings, and material conflicts of financial advisors. But choice must be preserved, 

and average savers may prefer a commission-based relationship with an advisor over a fee-based 

relationship in various situations. 

For example, long-term investors may prefer a single point-in-time payment over an ongoing, annual 

obligation that increases as does the value of their investment account. For many investors, the annual 

fee can add up to far more money paid than a point-in-time commission. To take away the right of 

consumers to choose how and when advisors are compensated for the services they provide in not in 

the best interest of average retirement savers. 

Other markets do not restrict choice. Consumers are afforded the independence and freedom to make 

decisions about purchases based on their own determinants of value—including items that have a 

significant impact on retirement savings such as a home. Great platforms like standardized disclosures, 

data conformity, good faith estimates, consumer reports, and social media feedback exist to help better 

inform consumers. But in the end, what is preserved is consumer choice.

One concerning aspect of this Proposal is what seems to be the presumption that the cheapest products 

are the best products. While it is certainly important to ensure that fees being charged to retirement 

investors are appropriate, it is not necessarily true that a product with lower fees is superior to a 

product with high fees. For example, IRAs and 401(k) plans are different products and could be right or 

wrong for an investor depending on their objectives. The additional products and services available to 

IRA holders typically cost more, but that does not mean they are bad investments for every retirement 

saver. Many investors may choose to pay more for individualized advice and a wider variety of products 

that can help diversify a portfolio. Under the Proposal, judicious advice from life insurance professionals 

could still be considered a prohibited transaction. 

Further, the restrictions on commission-based advice will significantly limit the ability of investors to 

access critical retirement savings products. For example, commission-based advice represent the most 

inexpensive option for small retail investors to receive education and access to life insurance products—

in fact, it is the only compensation that makes sense for lifetime income products such as annuities. 

Further, qualified plans provide limited access to lifetime income products; the lack of an exemption for 

advice about rollovers and distributions is problematic for a number of reasons, but the reduced access 

to lifetime income products is particularly disturbing. Instead of the ability to secure guaranteed income 

in retirement, many average retirement savers will not even know about the option to access these 

products. 

Through lifetime income products such as annuities, life insurance professionals provide the only 

choices consumers have for managing longevity risk and the risk of retiring just before or during a major 
14

market crisis. Because of the restrictions in the Proposal, two of the biggest risks that cause retirement 

savers to run out of money in retirement are unlikely to be transferred to third parties.

This loss of access to lifetime income products is particularly troubling because Americans are 

increasingly unprepared for retirement. In fact, many experts feel that we are facing a retirement crisis.

Americans that reach retirement age are living longer than ever, yet many Americans have very little 

savings at all—in fact, 40 million households have saved literally nothing for retirement.xviii Further, 57% 

of workers reported that the total value of their entire household’s savings and investments—not just 

for retirement—was less than $25,000, and 28% had less than $1,000.xix

Unfortunately, the steep decline in defined benefit pensions means that guaranteed income in 

retirement is becoming less available and reliable, and Americans are increasingly shouldering more of 

the risk involved in providing for their retirement security. Survey after survey shows that retirement 

security is one of the top concerns for Americans.xx This is exactly the wrong time to be restricting access 

to products that provide lifetime income. 

In fact, it feels like the Administration and the DOL are sending conflicting messages. Over the last few 

years, the Treasury Department has recognized the need to offer lifetime income streams in qualified 

plans, acknowledging that with the steep decline in traditional defined benefit plans many retirees have 

no access to guaranteed income in retirement. This realization culminated in the finalization of Treasury 

regulations in 2014 which promoted the use of Qualified Longevity Annuity Contracts (QLACs). 

Unfortunately, this Proposal directly contradicts these Treasury regulations by making it much more 

difficult, if not impossible, for life insurance professionals to provide these products.

Fee-Based Advisors Don’t and Won’t Serve Average Investors

Unfortunately, while life insurance agents and other financial professionals will be forced to significantly 

cut back on the products and services they can provide to average retirement savers, it is unlikely that 

other advisors will emerge to serve those customers. This is because registered investment advisors 

receiving flat fees don’t typically serve small accounts—where investment returns cannot support the 

flat fee—but rather focus on wealthier clients who can afford the fees. In fact, even advisors touted by 

the DOL, such as Wealthfront, are only able to provide advice to small accounts by limiting consumer 

choice—in Wealthfront’s case, by offering only ETF-based products.xxi

The marketplace reality is that under a fee-based model, providing service to small accounts costs 

basically the same amount as providing service to larger accounts–so it is not cost-effective to serve 

smaller retail investors. For example, fee-based advisors typically charge investors a flat fee of 1% of the 

assets in their account, so for an IRA with a $5,000 balance the advisor would get $50 in fees, not 

enough to cover the costs of providing round-the-clock fiduciary service and the attendant liability. 

In commission-based business models, the compensation received by brokers and advisors is often 

determined by the amount involved in the transactions, which means smaller investors pay less than 

larger investors. This allows advisors that receive commissions to provide quality, affordable service to 

average retirement savers. Because brokers are prevented from serving investors in same capacity

under the Proposal, average retirement savers will have significantly less choice of retirement products 

and access to professional financial advice. Thus, these one-size-fits-all rules will lead to one-size fits all 

advice—with equally bad results. 
15

The United Kingdom banned commissions in 2013, and it serves as example of what the Proposal would 

portend if adopted. In a study on the impacts of the Department’s Proposal on U.S. life insurers, Oliver 

Wyman found that, “While commission structures will still exist in the US, we believe that the trajectory 

of change is close enough to that in the UK and Australia that similar impacts will occur here. These 

changes will significantly affect competitive dynamics in a manner that could have profound impacts on 

market participants.”

xxii

In the wake of the U.K. commission ban, the largest banks have significantly raised the minimum 

account balances required before they will offer financial advice to investors. For example, HSBC now 

only provides face-to-face advice to investors with at least an $80,000 account balance, while Lloyd’s 

requires a $160,000 balance to provide face-to-face advice. In addition, Aviva and AXA have stopped 

providing advice all together. In the year before the commission ban went into effect, the number of 

advisors serving retail accounts plunged by 23%.xxiii

British leaders have expressed concern about the effect of the commission ban on small savers. Martin 

Wheatley, the CEO of the Financial Conduct Authority, stated, “People who have...below £50,000 or 

£100,000 [$78,000 - $156,000 USD] are not getting the same service they were getting. That is a 

concern.”xxiv

Unfortunately, experts predict that the restrictions in the Proposal will have a similar effect in the U.S.—

with the end result being that average retirement savers will have significantly less choice of retirement 

products and access to professional financial advice.

Average Investors Have Better Investment Performance When Using Professional Advisors

The Department has chosen to focus on one area related to saving for retirement: costs. And it is 

certainly worthwhile to ensure that investors are best served by their professional advisors. But besides 

ignoring other risks faced by retirement saves such as longevity risk, the Department creates a new one: 

the risk that many more investors will be making investment decisions on their own. 

The prospect of average retirement savers facing critical retirement savings decisions without access to 

professional financial advice is disturbing, because documented studies have repeatedly concluded that 

investors who do not have an investment professional consistently achieve lower returns than investors 

who use a professional advisor.

For instance, a recently released study by Oliver Wyman found that investors using professional advisors 

have a minimum of 25% more assets than investors without professional advisors. Additionally, 

investors with professional advisors have a more balanced portfolio and stay more invested in the 

market rather than holding cash. Further, small businesses are 50% more likely to provide retirement 

savings plans if they work with a financial advisor. In fact, the Wyman report explains that, “advised 

individuals are more sophisticated and diligent long term investors who achieve better investing 

outcomes.”xxv

As another example, according to a 2014 LIMRA study, investors receive important benefits from 

working with professional financial advisors. Investors who work with financial advisors are more likely 

to contribute to qualified plans, and are more likely to contribute 10% or more to their qualified plan. In 

addition, investors receiving professional advice are significantly more likely to have completed key 
16

retirement planning activities. Further, many consumers—particularly younger investors—desire 

additional advice and guidance about decisions related to their financial and retirement security.xxvi

Recommended Changes

The proposed rule needs substantial modification to ensure that it is compatible with the commissionbased models used by the life insurance industry. This would include an exemption for life insurance 

products under PTE 84-24 that has a broad definition of insurance commissions that consistent with the 

workings of the marketplace, and that covers the sale of variable annuities.

In addition, the proposed rule needs a workable Seller’s Carve-Out that recognizes the distinction 

between selling and offering advice. Advisors that make clear they are selling products rather than 

offering investment advice should be allowed to serve customers without becoming fiduciaries. Further, 

the rule needs to make clear that advisors can sell proprietary products, and remove the impediments 

that make it difficult for those selling proprietary products to serve their clients.

It is also important that the Rule allows advisors to continue providing education to retirement savers. 

The restrictions in the Proposal make it difficult for advisors to provide basic information to investors to 

guide them in their investment decisions. It is particularly crucial to allow advisors to provide basic 

education around rollovers and distributions. Such advice should be subject to a workable exemption so 

advisors receiving commissions can continue providing valuable information to retirement savers.

The Department Needs to Appreciate the Impacts of its Proposal and Fundamentally Rethink Its 

Approach

This rule will significantly limit the ability of life insurance professionals to provide educational 

information, professional financial advice, and critical savings products to retirement savers that need 

them the most. 

The life insurance industry provides unique benefits—only life insurance products protect against risk of 

early death or a debilitating injury or illness, provide guaranteed income, and provide the flexibility to 

address different protection and retirement security needs at different stages of life. Further, the life 

insurance industry is an important component of the economy, serving as the largest institutional 

source of bond financing for American companies in addition to creating 2.5 million jobs and devoting 

$5.6 trillion to investment in economic expansion. 

Unfortunately, the Department does not appear to have a firm understanding of the operational 

realities of the retirement savings marketplace. The Proposal makes a number of questionable 

assumptions that will significantly restrict the ability of average retirement savers to access professional 

advice and critical retirement savings products. 
17

Given the many problems with the Proposal, we ask you to work with our industry to fundamentally 

revise this Rule to ensure that investors can continue to get the advice and retirement savings products 

they need, and to share with the public changes to the rule before making them final. 

Sincerely,

David J. Stertzer

Chief Executive Officer

AALU

Jack Chiasson

Chief Executive Officer

NAILBA

www.AALU.org

Washington, DC: 101 Constitution Avenue NW, Suite 703 East, Washington, DC 20001 T: 202.772.4638 

Virginia: 11921 Freedom Drive, Suite 1100, Reston, VA 20190 T: 703.641.9400 

www.NAILBA.org

11325 Random Hills Road, Suite 110, Fairfax, Virginia 22030 T: 703.3833.3081
18

Endnotes

 

i

Secure Family.Org, “Senate Finance Committee Working Groups Submission,” April 2015. Accessed July 21, 2015. 

Available at:

http://www.securefamily.org/wp-content/uploads/2015/04/Americans-to-Protect-Family-Security-SenateWorking-Group-Submission.pdf.

ii For a more detailed discussion of the extensive regulation of life insurance professionals, see Letter from David J. 

Stertzer, Chief Executive Officer, AALU, to Marcia E. Asquith, Senior Vice President and Corporate Secretary, FINRA 

(Dec. 22, 2010), available at: www.finra.org/Industry/Regulation/Notices/Comments/P122714 (“AALU-FINRA 

Letter”); see also Letter from David J. Stertzer, Chief Executive Officer, AALU, to Elizabeth M. Murphy, Secretary, 

SEC, File No. 4-606, (Aug. 30, 2010), available at: http://www.sec.gov/comments/4-606/4606-2631.pdf (“AALU-SEC 

Letter”); see also Letter from David J. Stertzer, Chief Executive Officer, AALU, to Elizabeth M. Murphy, Secretary, 

SEC, File No. 4-606 (July 1, 2013), available at: http://www.sec.gov/comments/4-606/4606-3092.pdf.

iii FINRA Rule 2111 (Suitability). 

iv See AALU-SEC Letter.

v

Stuart Armstrong II, “Your Investment Adviser Needs an Annual Inspection,” Time, November 19, 2014. Accessed 

July 21, 2015. Available at: 

http://time.com/money/3546392/your-investment-adviser-needs-an-annual-inspection/.

vi See AALU-SEC Letter.

vii This member would be pleased to meet with the staff to share his firm’s calculations and discuss each element of

the analysis. 

viii Dr. Jeremy Berkowitz, Dr. Renzo Comolli, and Dr. Patrick Conroy, “Review of the White House Report Titled ‘The 

Effects of Conflicted Investment Advice on Retirement Savings’,” NERA Economic Consulting, March 15, 2015. 

Accessed July 21, 2015. Available at: 

http://www.nera.com/content/dam/nera/publications/2015/PUB_WH_Report_Conflicted_Advice_Retirement_Sa

vings_0315.pdf.

ix Ibid.

x U.S. Chamber of Commerce, “Letter to Office of Management and Budget; RE: Proposed Information 

Collection Requests and burden estimates under the Paperwork Reduction Act (PRA) of 1995 associated 

with the Department of Labor Conflict of Interest Proposed Rule and new/proposed amendments to 

Prohibited Transaction Exemptions (PTEs) notices,” May 10, 2015. Accessed July 21, 2015. Available at: 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00116.pdf.

xi Ibid.

xii Melanie Waddell, “FINRA’s Ketchum Criticizes DOL Fiduciary Plan,” Think Advisor, May 1, 2015. Accessed July 21, 

2015. Available at: 

http://www.thinkadvisor.com/2015/05/01/finras-ketchum-criticizes-dol-fiduciary-plan.

xiii “DOL Issues Proposed Regulation Revising the Definition of Fiduciary and the Prohibited Transaction Exemptions 

for Adviser Compensation,” AALU Washington Report Marketplace, June 4, 2015. Accessed July 21, 2015. Available 

at: http://www.nailba.org/sites/default/files/documents/WRMarketplace_15-20fv.DOL%20Fiduciary.pdf.
19

 

xiv Ibid.

xv Ibid.

xvi Ibid.

xvii Bradford P. Campbell, “Locked Out of Retirement: The Threat to Small Business Retirement Savings,” U.S. 

Chamber of Commerce, 2015. Accessed July 21, 2015. Available at: http://www.centerforcapitalmarkets.com/wpcontent/uploads/2013/08/US-Chamber-Locked-Out-of-Retirement-White-Paper.pdf.

xviii United States, Senate Finance Committee, “Testimony of John C. Bogle Founder of the Vanguard Group Before 

the Finance Committee of the United States Senate,” September 14, 2014. Accessed July 21, 2015. Available at: 

http://www.finance.senate.gov/imo/media/doc/Testimony%20-%20John%20Bogle.pdf.

xix United States, Senate Finance Committee, “The Role of Social Security, Defined Benefits, and Private Retirement 

Accounts in the Face of the Retirement Crisis,” AARP, December 18, 2013. Accessed July 21, 2015. Available at: 

http://www.finance.senate.gov/imo/media/doc/AARP%20Final%20Social%20Security%20SubCommittee%20Testi

mony.pdf.

xx Robert Garvy, “The Crisis of Retirement Income Security,” InTech, May 2012. Accessed July 21, 2015. Available 

at: 

http://www.ncpers.org/files/2012_crisis_of_retirement_income_security.pdf.

xxi “Full Disclosure,” Wealthfront, May 2015. Accessed July 21, 2015. Available at: 

https://www.wealthfront.com/legal/disclosure.

xxii Mick Moloney, Ramy Tadros, David Clarkson, and Anthony Bice, “Distribution Disruption: Impacts of the 

Department of Labor Fiduciary Standard for U.S. Life Insurers,” Oliver Wyman, 2015. Accessed July 21, 2015. 

Available at: http://www.oliverwyman.com/content/dam/oliverwyman/global/en/2015/jun/Oliver_Wyman_Distribution_Disruption.pdf.

xxiii Kent Mason, “SaveOurRetirment.Org: Missing the Key Issue,” Davis and Harman LLP, February 3, 2015. 

Accessed July 21, 2015. Available at: 

http://saveourretirement.com/MissingTheKeyIssue.pdf.

xxiv Michelle Abrego, “FCA Chief Wheatley Admits Concerns Over Advice Gap,” New Model Advisor, September 10, 

2013. Accessed July 21, 2015. Available at: 

http://citywire.co.uk/new-model-adviser/news/fca-chief-wheatley-admits-concerns-over-advice-gap/a701957.

xxv “The role of financial advisors in the US retirement market,” Oliver Wyman, July 10, 2015. Accessed July 21, 

2015. Available at: http://fsroundtable.org/wp-content/uploads/2015/07/The-role-of-financial-advisors-in-the-USretirement-market-Oliver-Wyman.pdf. 

xxvi “Matters of Fact: Consumers, Advisors, and Retirement Decisions (and Results),” LIMRS Secure Retirement 

Institute, May 2015. Accessed July 21, 2015. Available at: 

http://www.limra.com/uploadedFiles/limra.com/LIMRA_Root/Posts/PR/_Media/PDFs/Facts-about-retirementdecisions.pdf.