February 3, 2011 

Via e-mail to e-ORI@dol.gov 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Room N-5655 

Washington, D.C. 20210 

Re: Proposed Regulation Amending Definition of Investment Advice

BlackRock 1 is pleased to offer its comments on the Department of Labor’s (the 

“Department”) proposed rule setting forth the circumstances under which a person is 

considered to be a “fiduciary” for purposes of ERISA, by reason of providing investment 

advice to an employee benefit plan subject to ERISA (“Plan”) or a Plan’s participants and 

beneficiaries (the “Proposed Rule”)2

. 

The fundamental objective of the Proposed Rule is to impose fiduciary status and 

responsibility on entities that provide individualized investment advice to Plans, but 

currently are able to avoid characterization as a fiduciary because their activities do not 

satisfy one of the elements of the existing rule defining when the provision of investment 

advice will cause a Plan service provider to become a fiduciary (the “Current Rule”)3

. We 

share the Department’s goal of protecting Plans and their participants and beneficiaries 

and appreciate its desire to update the Current Rule to reflect changes in the financial 

services industry and to provide greater certainty regarding when persons providing 

“advice” are subject to ERISA’s fiduciary standards. However, we believe that the 

Proposed Rule reaches conduct far beyond the Department’s stated objective and lacks 

clarity in a number of key respects. Specifically, the Proposed Rule ensnares activities 

that have never been viewed as investment advice, confuses status with conduct, and 

eliminates important hallmarks of a fiduciary investment advisory relationship (e.g., that 

the advice be individualized to the needs of a Plan or its participants and beneficiaries and 

based on a mutual agreement or understanding). As written, the Proposed Rule threatens 

to increase costs to Plans, to adversely affect the quality of services to Plans and their 

participants and beneficiaries and to preclude Plans from participating in certain types of 

investments and strategies. 

Moreover, as the Department is aware, there are several other regulatory projects 

underway which involve financial services firms and their role in providing services or 

advice to Plans. In particular, Section 913 of the Dodd-Frank Wall Street Reform and 

 

1

 BlackRock is one of the world’s leading asset management firms, and one of the largest managers of assets of 

employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). We 

manage over $3.45 trillion on behalf of institutional and individual clients worldwide through a variety of equity, fixed 

income, cash management, alternative investment, real estate and advisory products. Our client base includes 

corporate, public, multi-employer pension plans, insurance companies, third-party mutual funds, endowments, 

foundations, charities, corporations, official institutions, banks, and individuals around the world. 

2

 75 Fed. Reg. 204 (Oct. 22, 2010). 

3

 29 C.F.R. 2510.3-21, et. seq. 
February 3, 2011 

Page 2 

Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires the Securities and 

Exchange Commission (“SEC”) and the Commodity Futures Trading Commission 

(“CFTC”) to promulgate business conduct rules for swap dealers and major swap 

participants when dealing with counterparties, with a specific focus on "special entities" 

such as Plans. The statutory language also includes a requirement that special entities 

have an independent representative, and if the entity is ERISA-regulated that the 

representative be an ERISA fiduciary. The CFTC has already proposed its business 

conduct rules, and the SEC is expected to do so shortly. It is possible that, without active 

coordination between the Department and the SEC and CFTC, financial services providers 

could find themselves having to comply with different sets of rules for the same transaction, 

or even that this compliance is not achievable due to conflicting requirements. Such a 

result is not in the best interests of Plans and their participants and beneficiaries, as these 

financial instruments are used both to enhance returns and manage liability risks for 

defined benefit plans. Failure to coordinate the differing regulatory projects could result in 

Plans being unable to engage in swaps and other derivatives. We urge the Department to 

coordinate its rulemaking with that of the other two agencies. 

BlackRock asks the Department to consider the following specific concerns and suggested 

modifications to the Proposed Rule. 

I. The Proposed Rule Will Have an Adverse Effect on Services to Plans at an 

Increased Cost 

In acting as a discretionary investment manager and ERISA fiduciary, asset managers, 

such as BlackRock, contract with entities to provide services that are necessary to 

manage the Plan’s assets, including brokerage, prime brokerage, custody and fund 

accounting, administration, record keeping, research, auditing and valuation. We are 

concerned that, given the breadth of the Proposed Rule, many service providers that 

asset managers engage to help manage Plan assets may be considered fiduciaries. 

Some service providers may leave the market to avoid being considered fiduciaries. 

Others may increase their fees to compensate for the increased legal risk resulting 

from fiduciary status or seek to limit the services they provide (including information on 

markets, securities and other assets and valuation) to avoid fiduciary status. As a 

result, asset managers will have a more limited choice of service providers and/or 

trading counterparties, and may not be able to transact with entities that provide high 

quality services and/or the best prices to the Plan. 

 

Moreover, it is important for an asset manager acting as an ERISA fiduciary to know 

whether the entity that it is engaging to provide a particular service, or with whom it is 

transacting, may be considered a fiduciary. Asset managers need this information to 

facilitate compliance with their fiduciary and co-fiduciary obligations and to avoid 

breaching ERISA’s prohibited transaction rules. Under the Proposed Rule, it will often 

be difficult, or even impossible, for the asset manager to determine whether a 

particular entity is acting as a fiduciary with respect to a Plan client, unlike the relatively 

clear determinations that exist today under the Current Rule. The ambiguity in the 

Proposed Rule will require asset managers to significantly expand their compliance 

programs, so that they do not inadvertently deal with a fiduciary in circumstances 

where engaging or transacting with a fiduciary may be prohibited by ERISA or a 

condition of one of the many statutory, individual or class exemptions from ERISA’s 

prohibited transaction rules on which they rely on a regular basis in managing Plan 

assets. The revised compliance programs may force asset managers not to retain the 

services of, or engage in transactions (especially principal transactions) with, certain 

key financial institutions, even where those financial institutions would otherwise be the 
February 3, 2011 

Page 3 

 

best choice for the Plan. In addition, the significant cost of overhauling compliance 

policies and procedures and systems will likely be passed on to Plans and their 

participants and beneficiaries. Thus, the difficulty in identifying fiduciaries and the 

increased compliance burden that follows from that difficulty will likely increase costs 

for, and reduce the investment return to, Plans without any corresponding benefit.4

 

The breadth and lack of clarity of the Proposed Rule may also have an adverse impact 

on the relationships that we and other asset managers build with our ERISA Plan 

clients. When BlackRock provides individualized investment advice or acts as a 

discretionary investment manager to a Plan, we understand and embrace our role as 

an ERISA fiduciary. Further, if an asset manager provides consulting services 

pursuant to a mutual agreement with a Plan, and as part of that engagement the asset 

manager provides material individualized advice to assist the Plan in managing assets, 

fiduciary status may be appropriate. However, asset managers are constantly in 

communication and developing their relationships with their Plan clients. Plan clients 

are further generally interested in a broader dialogue with their asset managers than 

discussion with respect to a specific, existing mandate, including exploring the 

possibility of engaging them to manage additional Plan assets or to invest Plan assets 

across multiple asset classes. As currently drafted, the Proposed Rule could cause 

many of these ongoing communications and interactions between asset managers and 

Plans to be considered fiduciary advice. For example, under the Proposed Rule, 

discussions regarding new or different investment opportunities or strategies or regular 

updates on market conditions and the economic outlook could be considered 

investment advice. Even a casual conversation over coffee regarding new products 

could be construed as fiduciary investment advice. The breadth of the Proposed Rule 

coupled with the lack of clarity could have a chilling effect on communication between 

a Plan client and its asset manager. To avoid inadvertent fiduciary status, asset 

managers may restrict discussions with Plan clients other than formal and specific 

communications about a managed portfolio. 

II. The Proposed Rule Should Be Revised to Require that the Advice or 

Recommendations Must Be Individualized Before Fiduciary Status Can Be Triggered 

and that Education, Information and Tools for Plan Sponsors Should be Excluded 

from the Definition of Investment Advice 

Education for Plan sponsors as well as Plan participants and beneficiaries has been 

an important cornerstone of the Department’s mission. The Department has 

undertaken initiatives to educate the Plan community including making available 

publications and tools designed to enhance the knowledge of fiduciaries and 

participants. Indeed, the Department recognized the need of Plan participants and 

beneficiaries to receive investment education in adopting Interpretive Bulletin 96-1, 

which contains non-exclusive examples of investment education not considered to be 

investment advice. The Department’s new regulations on disclosure to defined 

contribution plan participants are intended to better educate and inform Plan 

participants about their investment choices.5

 The Proposed Rule expressly states that 

providing the services set forth in Interpretive Bulletin 96-1 will not be considered the 

provision of investment advice. 

4

 As the Department knows, for defined contribution plans, the fees and expenses incurred in connection with managing 

assets have a material impact on investment returns and are one of the most significant factors impacting the amount 

of money a participant will have for retirement. See 29 C.F.R. § 2550.404a-5, 75 Fed. Reg. 202 (Oct. 20, 2010). 5

 Id. 
February 3, 2011 

Page 4 

Plan sponsors or other service providers have sought and increasingly desire 

analogous investment education and tools whether to help think about designing a 

401(k) investment menu or funding liabilities in a defined benefit plan. However, in a 

break with more than 30 years of precedent and consistency with the federal securities 

laws, the Department has proposed deleting the concept that investment advice must 

be tailored to the individual needs of the client. Thus, instead of facilitating the flow of 

information to Plan sponsors, the Proposed Rule threatens to hinder these activities by 

imposing fiduciary status on entities that make available or provide generalized 

education and tools to Plan sponsors and other service providers. 

Asset managers provide Plan sponsors as well as other financial institutions with a 

variety of tools and services to assist in the process of designing Plans and investment 

strategies for Plans. For example, asset managers provide education through 

speaking engagements, webinars discussing trends, computer-based tools that assist 

in comparing and evaluating options and publications. Asset managers further provide 

thought leadership with respect to asset allocation and liability hedging, as well as data 

reporting, risk analysis and other information that is designed to assist the Plan and/or 

the Plan’s other service providers in thinking critically about issues. These activities 

and materials are not individualized to the needs of the Plan, or may not include any 

specific advice or recommendations. Often materials are not even directed to Plans. 

We are concerned that these types of educational activities and assistance could be 

considered “investment advice” because there is no requirement in Section (c)(i) of the 

Proposed Rule that the information or tools provide advice that is individualized to the 

needs of the Plan. We are also concerned that, as currently drafted, there is a risk that 

generalized information and advice not directed to a Plan, but which finds its way to a 

Plan sponsor or a participant or beneficiary could be considered fiduciary advice. 

However, education, information, data analysis and many other services do not create 

a fiduciary relationship. We believe that, to ensure that quality information and 

education regarding all aspects of Plan design and investment continues to be 

available, Section (c)(1)(i) should be revised to include the requirement that advice 

must be individualized to the needs of and directed to the Plan or its participants and 

beneficiaries before it can give rise to fiduciary status. 

Further, although Sections (c)(ii)(B) and (C) of the Proposed Rule include a limited 

exemption for marketing securities to Plan sponsors and the provision of general 

financial information and data to assist a Plan fiduciary in selecting and monitoring the 

investment alternatives chosen, these exclusions are too narrow and do not 

specifically carve out education, training and the provision of data with respect to Plan 

design alternatives, services available to Plans, information regarding market practices, 

risk and liability management and the impact that the choices made by the Plan 

sponsor can have on Plan participants and beneficiaries. Thus, in addition to adding 

to Section (c)(i) the requirement that any advice or recommendations provided must be 

individualized to the needs of and directed to the Plan, we suggest that additional 

exclusions be added to Sections (c)(ii) of the Proposed Rule for: (A) speaking 

engagements, webinars, publications and other forums where Plans sponsors receive 

training and information regarding plan design alternatives, market practices, liability 

management or other services; (B) the provision of computer-based tools to assist a 

Plan sponsor in selecting investment alternatives for a defined contribution Plan and 

assessing investment strategies and liability risks for a defined benefit plan; and (C) 

the provision of risk analysis, research and other data reporting to a Plan, where that 

analysis or other reporting is not accompanied by specific advice or recommendations 

regarding the purchase or sale of securities or other property or the management of 
February 3, 2011 

Page 5 

 

the securities held in a Plan’s portfolio (e.g., whether to tender securities in an offering 

or how to vote a proxy). 

III. When Plan Assets Are Managed by Sophisticated Fiduciaries, Service Providers and 

Counterparties in Trading Relationships Should Not Be Considered Fiduciaries With 

Respect to Those Assets 

The Proposed Rule appears to be based on an assumption that certain service 

providers have too much influence on the decisions made by Plans or their asset 

managers. In situations where a sophisticated financial institution, such as BlackRock, 

has undertaken responsibility as an ERISA fiduciary, it is not in the best interests of 

Plans or their participants and beneficiaries to impose fiduciary status and 

responsibility on other service providers engaged by the investment manager (other 

than a subadviser who is engaged to assist in making investment decisions) to fulfil its 

mandate. Large and sophisticated asset managers, such as BlackRock, make their 

own investment decisions and do not look for investment advice from broker-dealers, 

counterparties in trading relationships and similar service providers. We suggest that 

the Department adopt a rule which provides that where assets are being managed on 

a discretionary basis by an entity that qualifies as a “qualified professional asset 

manager” or “QPAM”, the service providers that the QPAM engages to assist in the 

provision of its fiduciary services (other than a subadviser who is engaged to assist in 

making investment decisions) should not be considered fiduciaries to the extent they 

are providing services in connection with the QPAM’s management of the Plan’s 

assets. 

In addition, asset managers may enter into swaps, derivatives, forward and futures 

contracts, securities lending and other trading activities on behalf of Plan clients in 

reliance on a statutory, class or individual exemption from ERISA’s prohibited 

transaction rules, including PTE 2006-16, PTE 81-8 and PTE 75-1, Part II and Part V 

and the service provider exemption in Section 408(b)(17) of ERISA. As drafted, the 

Proposed Rule could restrict the ability of an asset manager to use these exemptions 

because one of the conditions in those exemptions is that the counterparty cannot be 

an entity that renders investment advice to the Plan. As set forth above, given the 

broad sweep of the Proposed Rule, in many cases, a discretionary asset manager 

could not determine whether exemptive relief is available because it could not 

ascertain whether the counterparty (or its affiliate) provided some “advice” (as defined 

under the Proposed Rule) that caused it to be a fiduciary with respect to the Plan 

assets the asset manager is otherwise managing. Considering a counterparty in a 

trading relationship to be a fiduciary is also inconsistent with the Dodd-Frank Act, 

where Congress expressly rejected provisions that would have imposed a fiduciary 

duty on swap counterparties.6

To address this issue, we suggest that the Department adopt a rule which provides 

that if a transaction is entered into on behalf of a Plan by an entity that qualifies as a 

QPAM, the counterparty to any transaction entered into on behalf of the Plan should 

not be considered a fiduciary under the Proposed Rule for purposes of determining 

whether a statutory, class or individual exemption from ERISA’s prohibited transaction 

rules is available to cover the transaction. 

6

 During the House-Senate conference, Congress struck a provision from the Senate version of H.R. 4173 that would 

have imposed a fiduciary duty on a dealer entering into a swap as a counterparty to a defined category of entities, 

including Plans. 
February 3, 2011 

Page 6 

IV. Advice Incidental to Asset Management or to Discuss Possible Engagements Should 

Require Both Mutual Agreement and Additional Compensation 

The Proposed Rule creates uncertainties about when fiduciary status attaches, and 

should include the requirement of a mutual agreement or understanding. As described 

above, Plan sponsors frequently have discussions with their asset managers regarding 

managing investment strategies and potential changes in asset allocation. The asset 

manager generally does not receive compensation for this exchange of information 

and ideas in addition to the compensation it is already receiving for managing a portion 

of a Plan’s portfolio. Asset managers should be able to continue to participate in this 

ongoing dialogue and to respond to requests from Plan sponsor clients for information 

about the Plan’s investment portfolio or related issues. 

In addition, asset managers may discuss potential engagements with Plan clients 

including by responding to requests for proposals (“RFPs”) solicited by Plan sponsors 

or other service providers to evaluate potential managers. Ordinary requests for 

information or RFPs require asset managers to provide information regarding 

securities and other property, valuation, management or allocation of assets. The 

responses to RFPs, while tailored to the particular questions asked or investment 

mandate under consideration, are not intended to be a recommendation for an 

investment decision. By contrast, these discussions and exchanges of information 

serve a vital need for the Plan sponsor or other fiduciary to evaluate potential asset 

managers and enhance their knowledge in the process. If the asset manager is not 

ultimately hired, there should be no backward looking claim that the assistance created 

a fiduciary investment advisory relationship. If the asset manager is hired, it will take 

on fiduciary status and all of the attendant responsibilities. 

To avoid these activities from being considered investment advice, we recommend 

that the Department include a requirement that the advice be pursuant to a mutual 

agreement or understanding and that there must be specific additional compensation 

for the advice given before fiduciary status can attach. 

V. The Status of an Entity or an Affiliate as a Registered Investment Adviser Should Not 

Trigger Fiduciary Status 

Section (c)(1)(ii)(C) of the Proposed Rule creates a status based test, so that if a 

person or entity is providing information and is itself, or an affiliate is, a registered 

investment adviser, the person or entity meets that status-based test. Nearly all asset 

managers located in the United States or with clients located in the United States are 

either registered investment advisers or have affiliates that are registered investment 

advisers. Under the Proposed Rule, any entity that communicates with a Plan or its 

participants and beneficiaries and makes suggestions regarding Plan investments, 

even where those suggestions are not individualized, could be considered a fiduciary, 

simply because the entity has affiliates that are registered investment advisers. In our 

view, section (c)(1)(ii)(C) of the Proposed Rule should either be deleted or revised to 

reflect that status as a registered investment adviser is only relevant where the 

registered investment adviser is directly providing individualized advice or 

recommendations to the Plan for compensation. 

VI. Valuation

Under the Proposed Rule, valuing an asset of a Plan or fund where there is no 

generally recognized market value for the asset could make the person providing the 
February 3, 2011 

Page 7 

valuation an ERISA fiduciary, if the entity providing the valuation is a registered 

investment adviser or otherwise has a status described in Section (c)(1)(ii) of the 

Proposed Rule. Thus, many service providers (e.g., administrators, custodians, and 

prime brokers) and trading counterparties may become ERISA fiduciaries if they 

provide valuations or information regarding the value of a security or other asset. This 

could cause many such service providers to exit the market or increase their fees. In 

addition, as set out above, this rule could restrict Plans from engaging in many 

common transactions because the fiduciary status of the entity providing the valuation 

would cause the transaction to be prohibited under ERISA. 

Moreover, as currently contemplated in the Proposed Rule, if the investment manager 

(or an affiliate of an investment manager) of an investment vehicle that is not subject to 

ERISA (such as a registered mutual fund, hedge fund or private equity fund), provides 

valuation services for the investment vehicle, there is a risk that the investment 

manager or its affiliate would be considered a fiduciary with respect to the provision of 

valuation services to the non-plan asset vehicle and that all the investment activities of 

the vehicle would be subject to ERISA. This would stand on its head Congress’ and 

the Department’s long standing distinctions between investment products that are 

subject to ERISA’s fiduciary and prohibited transaction rules and those that are not. 

We do not believe the Department intended this result. Even if the Department 

determines that, in certain circumstances, entities that provide valuations should be 

considered fiduciaries, they should not be considered fiduciaries when they perform 

valuation services with respect to assets held by a vehicle that is not otherwise subject 

to ERISA, simply because Plans invest in the vehicle. 

Conclusion 

We share the Department’s resolve to assure a secure retirement for all Americans. 

However, as set forth above, we are concerned that the breadth and lack of clarity of the 

Proposed Rule will result in significantly greater harm than good for Plans and their 

participants and beneficiaries. Accordingly we recommend that the Department adopt the 

changes outlined above. 

BlackRock welcomes the opportunity to further discuss its views on this important topic 

with Employee Benefits Security Administration staff and others in the Department. 

Sincerely, 

Barbara G. Novick 

Vice Chairman