2010-2011 

BOARD OF DIRECTORS 

OFFICERS 

President 

Nathan M. Perlmutter, CLU, ChFC 

122 E. 42nd Street, #2200 

New York, NY 10168

Immediate Past President 

Robert R. Carter, CLU, ChFC 

5501 Ravine Ridge Cove 

Austin, TX 78746 

President-elect 

Forrest G. Surles, CLU, ChFC, CFP®, AEP, MSFS 

2121 Sage Road, #355 

Houston, TX 77056 

Vice President & Treasurer 

David A. Culley, CLU, ChFC 

2100 RiverEdge Parkway, #200 

Atlanta, GA 30328 

 

Secretary 

Thomas J. Von Riesen, CLU, ChFC 

11516 Miracle Hills Drive 

Omaha, NE 68154 

Chief Executive Officer 

David J. Stertzer 

11921 Freedom Dr. Suite 1100 

Reston, VA 20190 

DIRECTORS 

Daniel B. Barry 

13860 Ballantyne Corporate Place, Suite 400 

Charlotte, NC 28277 

David F. Byers Jr., J.D., LL.M. 

2 Metroplex Drive, #111 

Birmingham, AL 35209 

William H. Damora, CFP, ChFC, CLU 

501 Broadway 

Pt. Pleasant Beach, NJ 08742 

Anthony J. Domino, Jr., CLU, ChFC, MSFS 

800 Westchester Avenue, N 407 

Rye Brook, NY 10573 

Chris Foster, CLU, CFBS, AEP 

300 N. Greene Street, #1650 

Greensboro, NC 27401 

Michael G. Goldstein, Esq, J.D., LL.M. 

2011 Yacht Mischief 

Newport Beach, CA 92660 

Eleanor I. Johnson, CPA, CLU 

1601 Fifth Avenue, #1800 

Seattle, WA 98101 

Timothy P. Malarkey, ASA, ChFC, CLU, MAAA 

22 Cassatt Avenue, Suite 100 

Berwyn, PA 19312 

Mark B. Murphy, CLU, ChFC 

4 Becker Farm Road, 2nd Floor 

Roseland, NJ 07068 

COUNSEL

Buchanan Ingersoll & Rooney PC 

Gerald H. Sherman, J.D. 

Stuart M. Lewis, J.D. 

Keith Mong, J.D. 

Ricchetti, Inc. 

Steven J. Ricchetti, J.D. 

Jeffrey Ricchetti, J.D. 

Federal Policy Group 

Kenneth J. Kies, J.D., LL.M. 

Matthew J. Dolan, J.D. 

PricewaterhouseCoopers, LLP 

Hon. Bill Archer, LL.B. 

Donald G. Carlson 

Arnold & Porter, LLP 

Martha L. Cochran, J.D. 

David F. Freeman, Jr., J.D.

February 3, 2011 

VIA EMAIL (e-ORI@dol.gov)

Mr. Fred Wong 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Definition of Fiduciary Proposed Rule 

Room N-5655 

Department of Labor 

200 Constitution Avenue NW 

Washington, DC 20210 

 

 Re: Definition of the Term "Fiduciary" (RIN 1210-AB32) 

Dear Mr. Wong: 

 This comment letter by the Association for Advanced Life 

Underwriting (AALU) is in response to your request for written comments 

on the proposed rule amending the definition of the term "fiduciary" 

issued on October 22, 2010 (Department of Labor RIN 1210-AB32). 

 

 AALU is a national trade association representing over 2,000 life 

insurance agents and professionals who are primarily engaged in sales of 

life insurance used as part of estate, charitable, retirement and deferred 

compensation and employment benefit services. AALU members 

facilitate responsible retirement saving through the use of life insurance 

products for thousands of Americans. Many AALU members specialize 

in supplementing a variety of qualified retirement plans, such as defined 

benefit and defined contribution plans, with life insurance benefits and 

other lifetime income producing products. AALU feels strongly about 

maintaining the ability of life insurance and annuity products to help 

provide a stable and sustainable retirement for millions of Americans. 

Overview

 On October 22, 2010, the Department of Labor ("DOL") issued 

proposed regulations that would significantly modify the definition of the 

term "fiduciary" for purposes of the Employee Retirement Income 

Security Act of 1974 ("ERISA"). The DOL cited a number of reasons for 

proposing a new definition at this time, including, but not limited to, that 

the current definition was promulgated in 1975 and since that time the 

retirement plan community and the financial marketplace have changed 

significantly, as well as concerns that there are persons providing advice, 

recommendations and other information who are currently outside of the 

11921 Freedom Dr. 

Suite 1100 

Reston, VA 20190 

T: 703.641.9400 

T: 888.275.0092 

101 Constitution Ave NW 

Suite 703 East 

Washington, DC 20001 

T: 202.772.2495

F: 202.742.4479

(1) 
definition of a fiduciary, but who significantly influence the decisions of plan fiduciaries and 

may have conflicts of interest that the plan fiduciaries may not be aware of. For these reasons, 

the DOL indicated that it believes there is a need to re-examine the types of advisory 

relationships that should give rise to fiduciary status under ERISA. 

Comments

 AALU understands and appreciates the DOL's objectives of updating the definition of 

fiduciary to reflect the current market and to better protect plan participants and beneficiaries 

from conflicts of interest and self-dealing. However, AALU has the following concerns 

regarding the rule as proposed: 

Modification of the Current Five-Part Test

 Under the current regulation, in the case of an adviser who does not have discretionary 

management authority over plan assets, the adviser is considered a fiduciary only if, for a direct 

or indirect fee or other compensation, the adviser satisfies each of the conditions in the following 

"five-part test." The adviser - 

(1) renders advice as to the value of securities or other property, or makes recommendations as 

to the advisability of investing in, purchasing or selling securities or other property, 

(2) on a regular basis, 

(3) pursuant to a mutual agreement, arrangement or understanding, with the plan or a plan 

fiduciary that, 

(4) the advice will serve as a primary basis for investment decisions with respect to plan assets, 

and that 

(5) the advice will be individualized based on the particular needs of the plan. 

 The proposed regulations make three significant changes to this five-part test. First, the 

new test would no longer require the advice to be provided on a regular basis. Any advice that 

would otherwise satisfy the new test, even if provided with respect to a single transaction, would 

fall within the new definition. Second, the proposed regulations eliminate the reference to a 

"mutual" agreement, arrangement or understanding, suggesting that if only a plan fiduciary or 

participant had the requisite understanding, the advice would fall within the new definition. 

Third, the advice would no longer have to serve as a "primary basis" for an investment decision. 

Instead, under the new standard, there would only have to be an understanding that the advice 

"may be considered in connection with making" an investment decision. 

 

 These proposed changes to the five-part test would significantly expand the type of 

"advisers" who would be considered ERISA fiduciaries. AALU is particularly concerned with 

the second two changes - namely, the elimination of mutuality in the parties understanding of the 

arrangement and the lowering of the primary basis standard to a simple consideration standard. 

(2) 
A person should not be an ERISA fiduciary unless the applicable parties have the same 

understanding or the person providing the advice should reasonably have had such an 

understanding under the circumstances. At the very minimum, a reasonableness standard should 

be added with respect to both the adviser's and the plan fiduciary's understandings of the 

arrangement. 

 In addition, the lowering of the primary basis standard to a simple consideration standard 

establishes too low of a standard. The parties should have to reasonably understand that any 

advice would (as opposed to may) be taken into account in a material manner by the plan 

fiduciary in making investment decisions. A "may be considered" standard is too low and would 

have a chilling effect on advisers' willingness to provide general information to plan fiduciaries 

and participants. 

Sellers' Exception

 The proposed regulations provide an exception for those who buy and sell securities and 

other property, provided the person providing the advice or recommendation can demonstrate 

that the recipient knows or, under the circumstances, reasonably should know that: (i) the person 

is providing the advice or making the recommendation in its capacity as a purchaser or seller of a 

security or other property (or as an agent of a purchaser or seller), (ii) the person's interests are 

adverse to the interests of the plan or its participants or beneficiaries, and (iii) the person is not 

undertaking to provide impartial investment advice (the "sellers' exception"). With respect to a 

particular transaction, this exception is available to any person, including any plan fiduciary, 

other than a person who has acknowledged or represented his fiduciary status with regard to the 

transaction. It is important to note that, under the proposed rule, the burden of proof is on the 

person making the recommendation or providing the advice to prove what the recipient knows or 

reasonably should know about the nature of the arrangement (e.g., the person is a seller whose 

interests are adverse). 

 The requirement that a seller demonstrate that its customer knows or reasonably should 

know that the seller's interests are "adverse" to the customer's interests and that the advice is not 

intended to be impartial is too harsh of a standard and it is not necessary to address the DOL's 

concerns about plan fiduciaries not understanding potential conflicts of interest. Rather, the 

DOL's concerns can be addressed by requiring the seller to demonstrate that the seller has 

disclosed the role in which he or she was acting, and that the buyer knows or reasonably should 

have known that the seller was not an ERISA fiduciary with respect to the transaction and that 

the seller was not acting solely in the interests of the participants or for the exclusive purpose of 

providing benefits to the participants. 

Advice Regarding Plan Distributions

 In Advisory Opinion ("Adv. Op.") 2005-23A, the DOL took the position that a 

recommendation to a plan participant to take an otherwise permissible plan distribution does not 

constitute investment advice within the meaning of ERISA Reg. § 2510.3-21(c). Additionally, 

because distribution proceeds are no longer considered plan assets, any recommendations 

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regarding the investment of such proceeds is not considered investment advice for purposes of 

determining fiduciary status. 

 Although the DOL has not proposed a rule modifying its position in Adv. Op. 2005-23A, 

in the preamble to the proposed regulations, the DOL explained that it is considering whether 

and to what extent the final regulation should define the provision of investment advice to 

encompass recommendations related to taking a plan distribution. The DOL indicated that it is 

considering this issue because of concerns that plan participants may not be adequately protected 

from advisers who provide distribution recommendations that subordinate participants' interests 

to the advisers' own interests. Specifically, the DOL is seeking information on other laws that 

apply to the provision of these types of recommendations, whether and how those laws safeguard 

the interests of plan participants, and the costs and benefits associated with extending the final 

regulation to these types of recommendations. 

 It is AALU's view that, at this time, the DOL should not modify its current position that 

advice regarding plan distributions is not investment advice within the meaning of ERISA Reg. § 

2510.3-21(c). A key fact considered in Adv. Op. 2005-23A should continue to guide the DOL’s 

approach to this issue—that distribution proceeds are no longer considered plan assets. 

Distribution is the natural termination of DOL oversight, where extensive oversight, 

requirements and consumer protections of other regulatory organizations take over. If there is 

any final responsibility of the DOL in this area it should be limited to disclosures that should be 

provided by plan fiduciaries about any potential risks or adverse consequences that should be 

considered by participants before proceeding with a plan distribution. 

 AALU members and many of the other professionals that are providing advice to plan 

participants regarding plan distributrions are already subject to various layers of federal and state 

regulation designed to protect consumers. Imposing additional, costly, and overlapping 

regulations through ERISA would not necessarily lead to greater protection for plans and their 

participants. 

 To provide additional background on the nature of business conducted by AALU 

members, please note that AALU members are engaged primarily in sales of life insurance and 

annuities used as a part of estate, charitable, retirement, deferred compensation and employee 

benefit plans. Some members sell life insurance primarily to business clients to finance and 

secure employee benefits. However, many members work primarily with individuals who often 

retain attorneys, accountants and other professionals to assist in developing products and services 

for their long-term life insurance protection and retirement needs. 

 In addition, other than associate members who are non-sales professionals such as 

attorneys, accountants and actuaries, all AALU members are licensed insurance producers. 

Many are registered representatives of an SEC/FINRA-registered broker-dealer, and many also 

are associated persons of an SEC-registered investment adviser. Many AALU members own 

insurance agencies. Some of these agencies own or are affiliated with registered broker-dealers 

or investment advisers. Thus, AALU members are subject to state insurance laws of each state 

in which they operate. Those who sell registered products are, in addition, subject to SEC, 

(4) 
FINRA and state securities regulation. Those who operate or are associated persons of registered 

investment advisers are subject to SEC regulation of investment advisers. 

 Many AALU members have served the same individual clients and their families for 

decades. Their customers are of primary importance to AALU members and, for that reason, 

they work closely with them to understand their needs and objectives in connection with the 

insurance investment products the members are authorized to sell, within the framework of their 

contracts with carriers and other obligations under all of the laws and regulations to which the 

members are subject. 

 AALU, in our August 30, 2010 comment letter1 to the Securities and Exchange 

Commission regarding the Commission’s request for information to inform their study regarding 

the obligations of brokers, dealers, and investment advisers, commented extensively on the 

existing legal and regulatory standards applied to life insurance agents who are engaged in the 

sale of variable life insurance products to retail customers and who provide personalized 

investment advice about securities to those customers. AALU’s submission to the SEC 

rigorously detailed AALU members’ obligations under state insurance laws and to carriers by 

whom they are appointed to transact with retail and other customers, as well as their 

requirements under a multitude of applicable federal and state securities laws and regulations 

enforced by FINRA, the SEC, and states securities regulators. A copy of AALU’s August 30 

submission to the SEC is enclosed as an attachment to this letter to the DOL. 

 AALU’s commentary and analysis of the existing legal and regulatory requirements of 

AALU members demonstrates that brokers, dealers, registered investment advisers, life 

insurance agents and many of the other persons who advise plan participants with respect to plan 

distributions are already subject to comprehensive federal and state regulation and supervision, 

and therefore, additional federal regulatory requirements with respect to advice regarding plan 

distributions is not necessary to protect plan participants. 

Summary

 In summary, AALU requests that the DOL consider the following comments before 

taking any further action on its proposed regulation expanding the definition of fiduciary. 

(1) Modifications to Current Five-Part Test

 Two of the proposed changes to the current five-part test should be modified before the 

regulations are finalized. 

 First, the elimination of mutuality in the parties understanding of the arrangement should 

be modified to provide that a person would not be an ERISA fiduciary unless the applicable 

 

1 See AALU Comment Letter from David J. Stertzer, Chief Executive Officer of AALU, to Elizabeth Murphy, “Re: 

Request for Comment to Inform Study Regarding Obligations of Brokers, Dealers, and Investment Advisers 

(Release No. 34-62677; IA – 3058; File No. 4-606),” August 30, 2010 (AALU Letter), available at 

http://www.sec.gov/comments/4-606/4606-2631.pdf. The AALU Letter is included as an attachment in this 

submission to the Department. 

(5) 
parties have the same understanding or the person providing the advice should reasonably have 

had such an understanding under the circumstances. At the very minimum, a reasonableness 

standard should be added with respect to both the adviser's and the plan fiduciary's 

understandings of the arrangement. 

 Second, the lowering of the primary basis standard to a simple consideration standard 

should be modified to require the parties to have a reasonable understanding that any advice 

would (as opposed to may) be taken into account in a material manner by the plan fiduciary in 

making investment decisions. 

(2) Sellers' Exception

 The requirement that a seller demonstrate that its customer knows or reasonably should 

know that the seller's interests are "adverse" to the customer's interests and that the advice is not 

intended to be impartial is an overly harsh standard and should be replaced with a requirement 

that the seller demonstrate, through appropriate disclosure of his or her role and professional 

responsibilities, that the buyer knows or reasonably should know that the seller was not an 

ERISA fiduciary with respect to the transaction and that the seller was not acting solely in the 

interests of the participants or for the exclusive purpose of providing benefits to the participants. 

(3) Advice Regarding Plan Distributions

 At this time, the DOL should not modify its current position that advice regarding plan 

distributions is not investment advice because AALU members and many of the other 

professionals providing advice to plan participants regarding plan distributions are already 

subject to various layers of rigorous federal and state regulation designed to protect consumers2

. 

Imposing additional, costly, and overlapping regulation through ERISA and the additional costs 

of complying would not necessarily lead to greater protection for plans and their participants. 

 AALU appreciates the opportunity to provide comments in response to the DOL's 

proposed regulations and would welcome an opportunity to provide additional comments in the 

future as the DOL further considers this important matter. 

 If you have any questions regarding our comments, please contact Anthony Raglani at 

202-742-4589. 

Sincerely, 

David J. Stertzer 

Chief Executive Officer, AALU 

Attachment: AALU Letter from David Stertzer, CEO to Elizabeth Murphy, August 30, 2010. 

 

2 See Id. 

(6)