Daniel P. Condon

617.570.1128

dcondon@

goodwinprocter.com

Goodwin Procter LLP

Counselors at Law

Exchange Place

Boston, MA 02109

T: 617.570.1000

F: 617.523.1231

LIBB/1727092.1

February 3, 2011

VIA E-MAIL E-ORI@DOL.GOV

Office of Regulations and Interpretations

Employee Benefit Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

Re: Proposed Rule Regarding Definition of the Term “Fiduciary”

Ladies and Gentlemen:

This letter is submitted in response to the request for comments by the Employee Benefits

Security Administration (“EBSA”) in Release No. RIN 1210-AB32, regarding the proposed rule

published at 75 Fed. Reg. 65263 (Oct. 22, 2010) (the “Proposed Rule”).

The focus of this comment is the interaction of Section 2510.3-21(c)(ii)(A) of the Proposed Rule

(referred to in this letter as the “Acknowledged Fiduciary Provision”) and Section 2510.3-

21(c)(2)(i) of the Proposed Rule (referred to in this letter as the “Seller Exception”).

As relevant to this comment, the Seller Exception generally provides that a person will not be

considered to be rendering advice that will make him a fiduciary under ERISA if “with respect to

the provision of advice or recommendations ... such person can demonstrate that the recipient of

the advice knows or, under the circumstances, reasonably should know, that the person is

providing the advice or making the recommendation in its capacity as a ... seller of a security or

other property, whose interests are adverse to the interests of the plan ... and that the person is

not undertaking to provide impartial investment advice.”

The rationale underlying the Seller Exception is described in the preamble to the Proposed Rule:

“This provision reflects the Department's understanding that, in the context of selling

investments to a purchaser, a seller's communications with the purchaser may involve advice or

recommendations ... concerning the investments offered. The Department has determined that

such communications ordinarily should not result in fiduciary status under the proposal if the

purchaser knows of the person's status as a seller whose interests are adverse to those of the

purchaser, and that the person is not undertaking to provide impartial investment advice.” 75

Fed. Reg. at 65267.
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Employee Benefit Security Administration

February 3, 2011

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However, under the Proposed Rule, the Seller Exception does not apply “with respect to a

person ... described in [the Acknowledged Fiduciary Provision].” In this regard, the

Acknowledged Fiduciary Provision describes a “person either directly or indirectly (e.g., through

or together with any affiliate) who represents or acknowledges that it is acting as a fiduciary

within the meaning of [ERISA] with respect to providing advice or making recommendations” as

to (for example) “the advisability of investing in securities or the management of securities.”

The wording of these two provisions of the Proposed Rule is somewhat confusing and could lead

to uncertainty regarding the scope of the Seller Exception, as illustrated by the following

example. Assume that Company X is in the business of providing investment allocation advice

to its customers, including Plan A. In its agreement with Plan A, Company X acknowledges

that, in providing such advice to Plan A, it is acting as a fiduciary under ERISA. Company X

has an affiliate, Company Y, which is in the business of sponsoring and managing private

investment funds. Company Y offers an interest in one of its funds to Plan A, and in connection

with that offering has communications with Plan A in which Company Y urges Plan A to

purchase an interest in the fund. Under the relevant facts, the fiduciary acting on behalf of

Plan A with regard to the decision whether to purchase an interest in the fund knows that

Company Y is acting as a seller whose interests are adverse to Plan A and that Company Y is not

undertaking to provide impartial investment advice. It would seem that, under these

circumstances, Company Y should be able to take advantage of the Seller Exception. However,

two aspects of the wording of the Proposed Rule make that conclusion uncertain.

First, the persons described in the Acknowledged Fiduciary Provision literally include a person

who acknowledges fiduciary status “through or together with an affiliate.” This language is

unclear. The question might be raised whether, as applied to the example above, this language

describes Company Y (the seller of the interest in the private investment fund), as Company Y’s

affiliate (Company X) has acknowledged its fiduciary status with regard to the advice provided

by Company X. However, in context, it appears that the reference to “through or together with

an affiliate’ is intended to apply to a situation where affiliates act together in providing a

combination of services designed to provide fiduciary advice to the plan. The preamble to the

Proposed Rule states the Acknowledged Fiduciary Provision “relate[s] to the degree of authority,

control, responsibility or influence that is possessed, directly or indirectly, by the person

rendering the advice and the reasonable expectations of the persons receiving the advice.” 75 Fed

Reg. at 65266. In the example above, in connection with the sale of the interest in the fund,

Company Y does not have any control or influence over Plan A based solely on the fact that its

affiliate, Company X, provides fiduciary advice to Plan A. Further, given that the fiduciary

acting on behalf of Plan A in connection with the sale specifically knows that Company Y is

adverse to the plan and is not providing impartial advice, that Plan A fiduciary would not have a

reasonable expectation that Company Y would be acting in a fiduciary capacity with regard to its

recommendations that Plan A purchase an interest in the fund.
Office of Regulations and Interpretations

Employee Benefit Security Administration

February 3, 2011

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In light of the above, we would recommend that the language of the Acknowledged Fiduciary

Provision be modified to clarify that the reference to “through or together with an affiliate”

applies only to those affiliates of the person who has acknowledged fiduciary status that provide

assistance to that person in performing the advisory services with respect to which the person has

acknowledged it is a fiduciary (e.g., in the example above, the asset allocation services provided

by Company X).

The second aspect of the uncertainty in the Proposed Rule relevant to the issue addressed by this

comment relates to the manner in which the Seller Exception refers to the Acknowledged

Fiduciary Provision. As noted above, the Seller Exception does not apply where “with respect to

a person ... described in [the Acknowledged Fiduciary Provision].” The scope of this language is

unclear. However, the preamble to the Proposed Rule indicates that the intent is to make the

Seller Exception unavailable where the seller has acknowledged fiduciary status in connection

with the sale transaction with the plan: “if a person selling securities to a plan ... makes a

representation of ERISA fiduciary status in connection with the sale, orally or in writing, then

[the Seller Exception] would not be available.” 75 Fed. Reg. at 65268. We recommend that the

language of the Seller Exception be modified to expressly provide that the reference to the

Acknowledged Fiduciary Provision applies only where the seller has acknowledged fiduciary

status in connection with the sale transaction with the plan.

We believe that these two suggested clarifications to the Proposed Rule would be in the interests

of the plans and their participants and beneficiaries. Given the consolidation of the financial

services industry in recent years there are many situations where one entity may be providing

fiduciary advice to a plan and an affiliate of that entity may be selling securities or other property

that will be desirable for the plan to purchase. If the sales activities of the one affiliate are

unrelated to the advisory activities of the other, the seller should not have to be concerned that its

marketing effort could possibly be viewed as fiduciary advice. Lack of clarity with respect to

this issue in the rule defining fiduciary status could lead financial services companies to refrain

from providing advice to plans, or to refrain from marketing securities or other property to plans.

In that case, plans will be unnecessarily deprived of either valuable advisory services or

potentially beneficial investments.

Very truly yours,

/s/ Daniel P. Condon

Daniel P. Condon

DPC:kem