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Employee Benefits Security Administration
February 3, 2011

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concerns referenced herein. We look forward to a further dialogue on these issues at the
March 1, 2011 hearing.

We appreciate the opportunity to provide our views. If you have questions, please
contact the undersigned at (215) 665-6596.

Sincerely,

Ronald A. Holinsky
Vice President &
Deputy General Counsel

Member New York
Member See



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Employee Benefits Security Administration
February 3, 2011

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commenters that most plan sponsors and IRA owners will see the absence of this
information as harmful to their plans and their participants, not protective of them.

Application to IRAs. We believe it is inappropriate to subject IRAs to the
fiduciary standard as currently set forth in the Proposal. The application to IRAs would
likely discourage firms from providing investment advice to IRA clients due to the risks
and costs. Most IRAs are established by individuals as an alternative to retirement or
pension plans and are not sponsored by an employer. As such, it is critical for IRA
clients to be able to access the services and advice that firms provide, particularly as the
importance of IRAs and other participant-directed retirement accounts continues to
increase. Implementing any changes that would create impediments to this advice for
IRA clients would not be a desirable outcome. We agree with commenters that the
Department should consider issuing more comprehensive guidance that addresses key
topics in the context of retail IRAs.

Principal Trading. We are also concerned with the impact the Proposal may
have on our ability to engage in principal trades for client accounts. In servicing retail
customers’ needs, Janney relies on fixed income inventory and execution services
provided by our fixed income trading desk and to provide for the efficient and cost-
effective construction of customer fixed income portfolios using principal trades. Under
current broker-dealer and certain advisory rules, Janney is able to provide principal
executions efficiently with its retail customers receiving full protection of fair pricing
rules. In the absence of any applicable prohibited transaction exemption, we are
concerned that we would no longer be able to offer this valuable service to retirement
plan clients and IRAs.

Custodial Valuations. Asa “non-bank” custodian for IRAs, we may have
difficulties in obtaining appropriate pricing or valuation information for alternative
investments and other “difficult to value” holdings in IRA accounts. As a result, the
Proposal may significantly limit investment choices for IRAs and plans at a time when
standard industry model asset allocations include a certain percentage for alternative
holdings that may fall within these categories.

Janney respectfully urges the Department to reconsider its proposed changes to
the definition of fiduciary regulation, to confer with FINRA and the SEC on the
interaction of these changes with the requirements of the Dodd-Frank Act, the new
suitability rules and the recommended uniform fiduciary standard for investment advisers
and broker-dealers, and to consider modifications to address and clarify the broad



1801 Market Street
Philadelphia, PA 19103,

800.526.6397 ¢ 215.665.6000

wwwjanney.com
Trusted Advisors for Generations

February 3, 2011

The Office of Regulations and Interpretations
Employee Benefits Security Administration

Attn: Proposed Definition of Fiduciary Regulation
Room N-5655

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, DC 20210

Re: Proposed Definition of Fiduciary Regulation

Ladies and Gentlemen:

Janney Montgomery Scott LLC (“Janney” or “we”) appreciates the opportunity to
provide comments regarding the Department of Labor’s (“Department”) proposed
regulation (“Proposal”) under the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), that will redefine the term “fiduciary” under section 3(21)(A) of
ERISA and section 4975(e) of the Internal Revenue Code of 1986, as amended (“the
Code”)! In particular, the Proposal would significantly expand the circumstances in
which a firm or individual is considered to offer “investment advice” subject to ERISA’s
fiduciary responsibilities and the wide range of consequences that would result.

As the largest full-service securities brokerage firm headquartered in
Pennsylvania, we provide a broad range of financial advice and services to both retail and
institutional investors including financial planning, equity and fixed income investing,
portfolio management, wealth management, fixed income sales and trading, equity
research and underwriting and retirement planning. We have nearly 1,900 employees in
over 100 offices across 17 states primarily in the Eastern United States. We serve more
than 350,000 retail-oriented customer accounts and over 400 institutional account
relationships. We have over 120,000 retirement and pension plan relationships, a
majority of which represent individual retirement accounts (“IRAs”). We have built our
business by focusing on our clients’ best interest. We are registered with the U.S.
Securities and Exchange Commission (“SEC”) as a broker-dealer under the Securities
Exchange Act of 1934 and as an investment adviser under the Investment Advisers Act of
1940. We are also a member firm of the Financial Industry Regulatory Authority
(“FINRA”).

} See Definition of the Term “Fiduciary,” 75 Fed. Reg. 65263 (Oct. 22, 2010).

Janney Montgomery Scot LIC Member; NYSE ¢ FINRA © SIPC


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Employee Benefits Security Administration
February 3, 2011

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For over 178 years, we have provided clients with a full range of investment
products and services used to develop investment portfolios to meet a variety of financial
objectives for every stage of a client’s personal and professional life, including
retirement. With respect to our retirement services, we provide such products and
services in our client’s best interest consistent with the Department’s guidance and
industry best practices established over thirty-five (35) years, allowing us to establish a
flexible suite of retirement products and services. We are greatly concerned with many
aspects of the Proposal and its impact on our clients and our business as described below.
In light of these concerns, we support commenters’ propositions urging the Department
to withdraw the Proposal, conduct a comprehensive review and analysis, including an
enhanced cost analysis, and if necessary, re-propose a regulation that is more targeted and
not nearly as far reaching as the Proposal.

Our concerns with the Proposal include, but are not limited to, the following
broad observations:

Costs. We believe that the significant costs of the Proposal, particularly with
respect to small pension and retirement plans and IRAs, likely will far outweigh any
intended benefits to clients related to retirement investment advice. Some of these costs
include litigation expenses, amending client agreements, modifying model forms, training
of personnel, additional legal and compliance resources, and fiduciary insurance. These
cost increases will likely be passed on to retirement clients. These significant cost
increases may also result in limited or curtailed investment choices for investors in such
plans and accounts. As such, we believe the Department should engage in a more
comprehensive cost analysis related to the Proposal that should also take into account all
relevant costs to plans and IRAs and those costs associated with changes in legal,
compliance, operational and business structures for firms.

Fiduciary Standard. The SEC recently released its “Fiduciary Study” as
required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the “Dodd-Frank Act”). Section 913 required the SEC to conduct a study
on the appropriate standard of care for retail accounts and, if necessary, issue regulations
implementing a uniform standard of care for investment advisers and broker-dealers
when providing personalized investment advice to retail clients. SEC Staff recommended
a “uniform fiduciary standard” for investment advisers and broker-dealers in these
circumstances, which would subject advisers and brokerage firms to a “fiduciary”
standard that is not inconsistent with the current ERISA regulation defining the term
“fiduciary.” Of significance, the SEC’s recommended uniform standard would permit
commission-based arrangements, sale of proprietary products and principal trades, and no

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Employee Benefits Security Administration
February 3, 2011

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continuing duty following provision of advice.” We note that the “fiduciary” standard as
described in the Proposal goes far beyond the uniform standard that the SEC would
propose for advisers and broker-dealers and may apply in circumstances where the firm
would already be subject to a fiduciary standard under applicable SEC rules and
regulations. This likely will result in an unworkable or confusing structure where varying
standards of care will apply in different circumstances creating additional pressures on
firms potentially causing significant changes in business models that could be adverse to
retail clients. We agree with commenters and urge the Department to defer to the
conclusions and recommendations of the SEC, particularly with respect to investment
advice provided by brokerage firms and advisers and reconsider its proposed standard
that well exceeds what the SEC will likely propose with respect to retail accounts.

Applicability to Registered Investment Advisers. The Proposal would subject
registered investment advisers to the enhanced fiduciary standard when providing
investment advice. For firms like Janney that are registered as both a broker-dealer and
investment adviser, this may subject them to the fiduciary standard simply as a result of
their status as a registered adviser even though the services are provided through a
brokerage relationship or some other non-advisory relationship. This may create an
unfair competitive landscape where certain firms are subject to the enhanced standard
while others may not for the same services. Moreover, this may lead to further confusion
for the investing public as to which standard of care applies to a particular relationship or
circumstance. As such, we urge the Department to reconsider its proposal to subject all
registered advisers to an enhanced ERISA fiduciary standard and to clarify the impact of
the Proposal on dually registered entities that provide retirement services through both
brokerage and advisory relationships.

Ability to Effective Provide Retirement Services. We are concerned that our
ability to provide critical investment tools, information and services to retirement plan
participants and IRA clients may be curtailed or can only be accomplished with
significant added costs. Any limitation on providing critical investment products and
services or access to markets may decrease competition and likely result in higher costs
and spreads, which likely will be passed on to retirement clients. We agree with

e Dodd-Frank Section 913 Study, available on the SEC website at

://www.sec.gov/news/studies/201 1/9 13studyfinal.pdf (the “Fiduciary Study”), In connection with the
Fiduciary Study, the staff conducted a detailed cost analysis in determining that these activities should be
permitted and, consistent with recommendations from FINRA, determined that the standard should be
business-model neutral and flexible to allow different types of compensation arrangements. Both the SEC
and FINRA appreciate the potential harm to retail accounts if there are significant changes to existing
business models.

Member Securities Inve