DAVID PRICE
4TH DisTRICT
NorTH CAROLINA

ComMITTEE ON APPROPRIATIONS
RANKING MemBer, HOMELAND SECURITY
TRANSPORTATION & HOUSING AND

2162 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON, DC 20515
(202) 225-1784

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RALEIGH, NC 27603,
(919) 859-5999

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Miirary CoNsTRUCTION &

ares CONGRESS OF THE UNITED STATES oo1GaKen sreeeT, sures
ane Conse HOUSE OF REPRESENTATIVES ESTEE Neos
; WASHINGTON, DC 20515

September 24, 2015

www.price.house.gov

The Honorable Thomas Perez
Secretary

United States Department of Labor
200 Constitution Avenue NW
Washington, DC 20210

Dear Secretary Perez:

I was pleased to be able to talk with you at the White House about the Department of Labor’s
(DOL) pending rulemaking regarding the fiduciary responsibilities of financial advisors. As
promised, I am writing to highlight several concerns that have been expressed to me by a range
of advisors and firms serving a variety of clients in my district, which I believe merit careful
attention. I appreciate your assurance that the Department will be giving such concerns serious
scrutiny before issuing a final rule.

Perhaps the most common concern I have heard, particularly from advisors serving clients of
modest income, was that advisors would find it necessary to move toward an up-front, fee-based
compensation model, which would have the unintended effect of preventing conversations and
advice from ever getting off the ground, particularly for less sophisticated investors or retirement
savers of low or moderate income.

More specifically, several aspects of the Best Interest Contract (BIC) Exemption seem
problematic. Section II(a) of the proposal requires that an advisor and financial institution enter
into a written contract with the retirement investor prior to recommending the purchase or sale of
an asset. Many firms and their advisors have interpreted this section to preclude them from even
communicating with potential clients unless a contract is signed beforehand. In addition, there is
anxiety about the possible administrative burdens associated with the written contract
requirement as currently drafted. Although further guidance from the Department might address
some of these concerns, I urge you to seriously consider alternative options that could place a
legally enforceable commitment on the part of advisors to act in the best interest of their clients
while preserving access to investment services.

Small businesses and retirement advisors in North Carolina have also questioned the exclusion of
certain employer-sponsored retirement plans from the BIC Exemption. Under the existing
proposal, the exemption only applies to non-participant-directed ERISA plans with fewer than
100 participants. As you know, this distinction would exclude participant-directed 401(k) plans
offered by many small businesses. If DOL believes the BIC Exemption could be expanded to
cover 401(k) and other types of plans without jeopardizing the core investor protections
envisioned in the proposal, I would encourage you to adopt such a change.


Several financial and insurance professionals in my district have also raised concerns that, in
order to satisfy the requirements of the BIC Exemption, the advisor must provide advice
“without regard to the financial or other interest of the advisor, financial institution, any affiliate
or other party.” They have interpreted this language to mean that financial professionals must
have no interest in a transaction, rather than simply make recommendations that are in the
client’s best interest. As a result, these advisors warn they would be effectively prohibited from
selling proprietary products or receiving various forms of differential compensation, such as
commissions. I believe additional clarification from DOL could prove helpful in alleviating
these concerns.

The proposed rule also changes existing regulations regarding investment education. Although
discussions about the mix of assets a person should have based on age, income, or other qualities
does not rise to the level of fiduciary advice under the proposal, any discussion that references
specific investments or proprietary products would trigger a fiduciary duty. Advisors have
concerns that investment education without specific examples would largely be an exercise in
investment theory, leaving clients less informed. I encourage DOL to revisit this part of the
proposal and consider whether existing or additional disclosure requirements in this context
could protect investors while facilitating continued access to investment education.

Finally, many firms and advisors have expressed considerable apprehension about complying
with a final rule within eight months of publication. These firms believe they may need as many
as two or three years to come into full compliance with the DOL proposal, depending on its final
form. If the Department cannot reasonably accommodate a delay in the rule’s applicability date,
I would encourage you to explore the feasibility of establishing a period of limited or
probationary enforcement, contingent upon a firm’s good faith efforts to comply with the new
rule. This would allow for the Department to move forward with implementing important
investor protections while affording some measure of certainty to firms and advisors.

Again, thank you for the opportunity to share these concerns as DOL works to finalize the
fiduciary rule. I appreciate your careful consideration of these issues in the weeks and months
ahead. Should you have any questions or concerns, please do not hesitate to let me know or
contact Sean Maxwell (Sean.Maxwell@mail.house.gov or 202-225-1784) of my staff.

Sincerely,

Liouid Price
DAVID E. PRICE
Member of Congress