Bert M. Carmody, CPA, CIMC®, AIF®

 Principal

 2166 Eldorado Drive NE

 Atlanta, GA 30345-3415

bertcarmody@comcast.net

(404) 325-0125

April 4, 2011

Office of Regulations and Interpretations 

Employee Benefits Security Administration Via e-ORI@dol.gov 

U.S. Department of Labor 

200 Constitution Avenue NW Room N-5655

Washington, DC 20210

Re: Definition of “Fiduciary” – Proposed Rule as provided in the October 22, 2010 Federal 

Register

Southeastern Fiduciary Services, LLC (“SFS”) forwards the below comments regarding the 

definition of Fiduciary. The current definition, while adequate in 1975, has become outdated 

given the increasing sophistication of advisors and service platforms and the decreasing 

sophistication of plan sponsors....particularly in the small to mid-sized plan markets. We

commend the Department for the work to update this important definition. 

SFS is an independent consulting firm whose sole practice focuses on qualified retirement plans 

concentrating on plan governance, fiduciary performance and operational effectiveness. The 

founder’s experience comes from all parts of the industry: investment management, service 

provider front and back offices, participant education, ERISA compliance and improvement of 

plan sponsor duties. While SFS serves all plan market segments, it has recently has had 

assignments in the small-to-mid-sized plan markets where plan asset sizes range up to $100 mm 

for the midsized and below $10 mm in the small sized segment. This is a market segment known 

for poor investment selections, high fees, significant potential (and actual) conflicts of interest 

and where investment advice is often proffered by sales representatives and not by persons 

trained in fiduciary duties. Moreover, this is a marketplace significantly underserved by qualified 

fee-for-service independent fiduciary firms. 

SFS goes in the opposite direction of many consulting and advisory firms by actively embracing

ERISA fiduciary duties. We believe that it is in the best interests of the plan sponsor for a 

provider to be a fiduciary; it facilitates real ownership and commitment to see that the interests 

of the participants and beneficiaries are maintained. Too many firms have espoused “fiduciary” 

words or provide fiduciary related materials but are clear that they do not intend to actually 

commit to or become a fiduciary. 
Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

April 4, 2011

Page 2

In reviewing the proposed new definitions to ERISA 3(21), SFS presents the following 

observations: 

In (c)(1)(ii), SFS sees potential loopholes in the direct or indirect actions of an advisor. 

In (A), many broker/advisors may not want to represent or acknowledge that they are 

fiduciaries and many plan sponsors, particularly in the smaller sized plan markets will not 

know the difference. This was seen in the Ellis v. Rycenga Homes, Inc. 1:04-CV-00694-JGS 

(W. Mich) case where plan investment advice was readily provided but characterized as 

“sales pitches” when, as the court found, was clearly fiduciary advice. 

In (B), who is going to know what an ERISA 3(21) fiduciary is? Most small-to mid-sized plan 

sponsors are only going to know what their broker/advisor tells them. SFS has heard from 

many brokers that the only agreement they need is a “broker of record”1letter and that their 

services do not need any further contracts or definition of what they are supposed to do. 

In (D), similar to (A), advice can be provided pursuant to an agreement, written or otherwise. 

Does an advisor or broker-dealer representative who gets a “broker of record” letter from a 

client sufficient agreement? Certainly so if the broker/advisor wants to get paid. SFS sees 

often the interesting paradox: If broker/advisors are getting paid – are they providing advice? 

If yes, then they are de facto fiduciaries regardless of what their compliance departments say 

otherwise. If they are not providing advice, why are they getting paid? This happens way

too much in this industry and the small and mid-sized plan sponsor would never know. SFS 

views a broker of record letter as tantamount to becoming a fiduciary. SFS rarely sees 

written service agreements covering services provided and what fees to be paid. Many 

Registered Investment Advisors and other firms focused on fiduciary excellence view service 

agreements as a fundamental part of their relationship with a plan sponsor client. However, 

these arrangements are still in the vast minority of relationships. 

In (c)(2)(i), the role of the advice provider is not clear. The larger sized plan sponsor may draw a 

straightforward distinction between what is advice, recommendations, opinions or comments 

regarding a security, not leading to fiduciary status....particularly when the advice giver has an 

adverse position to the interests of the plan. The smaller sized plan sponsor often does not have 

the level of sophistication and would not know how to make those distinctions. In essence: they 

do not know what they do not know. What may be non-fiduciary observations to the larger size 

plan sponsor becomes fiduciary advice to the smaller sized one...regardless how it is packaged. 

 

1 A Broker of Record letter enables the advisor or broker to receive fund platform fees such as 12b-1, shareholder 

service, administrative fees or incentive fees on the existing assets or “new money” which could be new 

contributions into particular investments or new assets on conversion into particular investments. It also entitles the 

broker or advisor to receive commission or any other transaction remuneration. It is the primary vehicle on how 

most brokers and advisors get paid. 
Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

April 4, 2011

Page 3

This remains a high abuse area for the small and mid-sized plan sponsors. Accordingly, we

request the Department clarify this section recognizing the smaller plan sponsors often do not 

possess the ability or opportunity to discern non-fiduciary observations and fiduciary advice. 

Regarding (c)(2)(ii)(B) the Department commented (p. 65268 middle column): 

In some instances, the provider and the plan fiduciary clearly understand that the 

provider is offering investments as to which the provider has financial or other 

relationships, and is not purporting to provide impartial investment advice regarding 

construction of the plan’s investment menu. 

In other instances, the plan fiduciary is relying in the provider’s impartial expertise in 

selecting an investment menu for the plan. Also, to assist......available through the 

provider. 

This commentary may be applicable to the larger, more sophisticated plan sponsor. Not so to the 

smaller one. We continuously see the following: 

Advisors/brokers limiting investment options and recommending certain investments to the 

smaller plan sponsor but eschew any implication of becoming a fiduciary; 

Advisors/brokers or service providers sending out fiduciary compliance and governance 

related materials but leave the plan sponsor out to dry when any fiduciary and liability issues 

arise; 

Advisors/brokers or service providers still not interested in providing full fee disclosure. 

While the Department has taken action in revising the 408(b)(2) regulations, the real issues 

are: 

Are plan sponsors getting the proper information from their advisor/broker or 

provider? 

Are plan sponsors sophisticated enough to interpret the information they receive with 

an eye towards loyalty to the participants and beneficiaries?

Do they know what is right or wrong in the information they receive? 

Are they sophisticated enough to challenge fee and service disclosures if they suspect 

their information is incorrect or misleading? 

 We believe that regardless of the implementation date (be it on July 11th or now effective 

January 1, 2012), the 408(b)(2) regulations will not improve disclosure: The smaller sized plan 
Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

April 4, 2011

Page 4

sponsors will not know what questions to ask and continue to not understand what their duties 

are. One would think that given all the advance notices of the new disclosure rules

broker/advisors and service providers would be quick to tout their transparent disclosure products

and processes. We are not optimistic that fee disclosure will significantly improve plan sponsor’s 

visibility over fees and improve governance. Even when disclosure is provided, opportunity for 

abuse remains high when the smaller sized sponsor asks if the disclosed fees are OK. The 

broker/advisor controls the flow of information to the plan sponsor and can easily manipulate

any benchmark/baseline comparisons so that a smaller plan sponsor paying 500 basis points 

overall is shown that this is an industry norm for plans of that size. We see continued opaqueness 

and dancing around fee disclosure issues and related conflicts of interest regardless of the 

implementation of the new regulations. The question remains: how will the small to mid-sized 

plan sponsor know what is sufficient and what is not? 

Providers offering sub-advised funds and change the investment sub-advisor and notify the plan 

sponsor afterwards, a common practice; are they fiduciaries? SFS thinks they should be. Does 

the absence of proper disclosure (fee, investment descriptions) affect the operations and 

investment management of the plan? We think it does and that steps into the scope of fiduciary 

duties. 

In (c)(iii)(5), SFS believes that this should be clarified. The distinction between investment 

advice for a fee with respect to those options a broker/advisor controls versus those investment 

options not controlled by a broker/advisor visor is vague. In the small and mid-sized market 

segments there is little distinction between the two. Actions (and revenue) will favor the former 

but any dispute or disagreement will see broker/advisors running towards the latter...regardless 

of the reality...that in many/most cases they are controlling both and getting paid for it. This 

clause should be re-considered given the perspective of the small to midsized plan sponsor. 

SFS thanks the Department for extending the comment period and appreciates your 

consideration of these comments. We look forward to further conversations on these issues. 

Sincerely, 

Bert M, Carmody