May 5, 2010 

U.S. Department of Labor 

Employee Benefits Security Administration 

Public Disclosure Room 

200 Constitution Avenue, NW, Suite N-1513 

Washington, DC 20210 

Dear Regulators, 

In regards to the final proposal for the Participant Investment Advice regulations, I would like to 

offer my comments based on my ten years of professional experience focused in the qualified 

plan marketplace. I think the Department has done a great job of clarifying its position on the 

various concerns expressed by previous comments in this version. I thank you for your extensive 

efforts in getting this right. I only have a few points that I would like for you to keep in mind as 

you move forward in finalizing this effort. 

First and foremost, please do not conclude your efforts in the area of the provision of investment 

advice to ERISA plans with this regulation. As you know, this regulation is solely focused on the 

arrangement when investment advice is offered to participants and beneficiaries. While I agree 

that is of great concern, it is quite minimal in comparison to the investment advice being 

delivered at the fiduciary and plan sponsor level. That area has been plagued with widespread 

abusive practices since before ERISA was passed. It has never been effectively addressed nor 

deterred and it has cost pension plan sponsors and participants billions of dollars over the years. 

Investment advice is delivered to plan sponsors across the nation on a regular basis which is 

more focused on service provider revenue and market-share goals and less focused on the best 

interests of the plan. These arrangements oftentimes escape fiduciary status by arguing that the 

information was delivered as a suggestion and for illustration purposes only. When in reality it 

was a recommended fund line up for the fiduciary to agree to and then followed by a mapping 

strategy. 

Most of the industry’s most prominent consulting firms are participating in costly conflicts of 

interest that are not disclosed. These arrangements are structured to meet the interests of the 

incestuous financial industry and not the plans or plan sponsors. This problem has made front 

page news time and time again, resulted in fines and litigation, yet has never been properly 

addressed by the Department and therefore allowed to continue. I encourage this administration 

to finally take a stand on “true” independence and stop allowing this to go on if it is really 
committed to protecting employee benefit plans. The wolves should no longer be allowed to 

dress as sheep and escape liability for their professional misconduct. 

That said, in regards to the current investment advice proposal I would like for you to consider 

the following very logical points: 

1. Who will more than likely be delivering this service on a widespread basis? 

Answer: Large Bundled Service Providers 

2. Who lobbied the heaviest for this provision and exemption? 

a. Answer: Large Bundled Service Providers 

b. Answer: And the industry associations that lobby for them while claiming to 

lobby for millions of participants. 

3. Why do you think the large service providers are so concerned with this issue? 

Answer: Not because they are sincerely concerned about the well-being of 

the everyday American worker as marketed, but in reality because they 

stand to make money from the outcome of this service. 

4. How do the big service providers make money from providing this service? 

a. Answer: One way is to set up a computer model internally or to partner with a 

service that has already designed one and then charge participants for the 

service. 

b. Answer: The other way is by stacking the deck. It is not rocket science to 

figure out what the model is going to suggest in terms of fund allocation. Any 

professional can do a back of the napkin calculation on which asset classes 

will receive the bulk of the assets and then put their proprietary and/or higher 

revenue producing vehicles into those classes. This is done every day behind 

the scenes in these big institutions and any insider could tell you that, off the 

record of course. This regulation just makes it that much easier. 

5. Is there any real standard for mandating that quality investment options are all 

that make up the investment menu? 

Answer: Well, look at the Deere case and you have your answer. The 

industry has long bluffed the plan sponsor world and regulatory agencies 

into believing that asset allocation is really all that matters and so therefore 

it is irrelevant that their managers repeatedly fail to meet reasonable 

performance standards. Service providers routinely bury proprietary funds 

into these plan menus, some even brand new with no performance history 

and others that regularly underperform benchmarks and peer groups. They 

get away with this by distracting decision makers and regulatory agencies 

away from performance and focusing on asset allocation. This is flawed 

for countless reasons; however, the most obvious is that no one invests 

money without one and only one concern – to earn a return. As long as we 

continue to allow junk to be buried inside 401(k) plans, this computer 
model approach works just as it is designed to do – it predicts allocation 

and ensures profit models are achievable. 

6. How does this affect the investment advice that is prevalent, yet not admitted to 

occur, in the call centers? 

Answer: First, it must be acknowledged that in fact, investment advice is 

occurring every day in call centers when participants and beneficiaries are 

coerced into rolling over into proprietary products and or purchasing other 

products offered. Call centers are a profit machine for the big providers 

and do not always provide participants with products that are in the best 

interests of the callers. The commissions and performance bonuses offered 

to call center representatives are undoubtedly playing a key roll in their 

aggressive sales tactics. 

I cannot emphasize enough how critical it is to always “chase the buck” when the Department is 

trying to improve the experience for participants. Keep in mind you are usually doing so in 

response to lobbying efforts which are not financed without the hopes for huge industry rewards. 

I will state that the least of my concerns is the investment advice services that will be offered 

through independent advisors and onsite personal education programs staffed by independent 

advisors. However, it is not likely this arrangement will be commonly adopted as the industry is 

dominated by the larger bundled providers. The Department should be very mindful of the 

lacking independence that is prevalent in the industry. The creation of a separate entity to offer a 

computer model designed to produce the allocation the sales team desires does not mitigate this 

issue. 

The only way to fix the issues outlined above in this situation is to follow this regulation up with 

a brand new focus, a sincere focus on raising the bar for investments that are offered to our 

American workers. We need higher standards, independence requirements, defined minimum 

processes and improved imposition of liability. 

I look forward to seeing new efforts on behalf of the Department to address long running issues 

that this regulation will only make easier on those who are participating in such schemes. 

Respectfully submitted by, 

Jessica R. Flores 

Managing Partner 

Fiduciary Compliance Center, LLC