September 24, 2015

Submitted Electronically - e-ORI@dol.gov and e-OED@dol.gov

Office of Regulations and Interpretations

Office of Exemption Determination

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue NW

Washington, D.C. 20210 

Re: Definition of the Term “Fiduciary” (RIN 1210-AB32);

Best Interest Contract Exemption (ZRIN 1210-ZA25)

Ladies and Gentlemen:

As a follow up to its comment letter of July 21, 2015, its testimony on August 13, 

2015 at the hearing held by the Department of Labor (the “Department”) and meetings 

with the Department, the IPA respectfully submits these additional comments. The IPA 

appreciates the Department’s willingness to engage in a dialogue with IPA regarding the 

inclusion of Public Products within the Best Interest Contract Exemption’s Asset list or 

through a separate prohibited transaction exemption, thereby potentially allowing IRA 

investors to continue investing in Public Products. 

EXECUTIVE SUMMARY

The IPA respectfully reiterates its belief that the promulgation of a list of 

approved Assets in connection with the availability of the BIC Exemption is not in the 

best interest of retirement investors. Such a list will deprive retirement investors of 

choice among many beneficial existing products which contribute to a broadly diversified 

portfolio and improved risk-adjusted returns. Such a list also will stifle innovation of new 

products to address the evolving needs of retirement investors and changing financial 

market conditions
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Nevertheless, if the Department determines to proceed with such an Asset list, the 

IPA proposes herein an expanded set of Policies and Procedures applicable solely to 

retirement plan investment in Public Products (publicly registered, non-exchange listed

REITs, publicly registered, non-exchange listed Business Development Companies, and 

Other Direct Participation Programs). These additional Policies and Procedures go 

beyond the existing requirements of federal and state securities law and industry practices 

regarding investor suitability and, IPA submits, are sufficient to justify either the 

inclusion of Public Products on any such Asset List or the formulation of a separate 

Prohibited Transaction Exemption for Public Products. 

These proposed enhanced Policies and Procedures would provide significant 

additional protections to retirement plan investors in that they would:

• reduce or eliminate the conflicts created by high up-front commissions to 

financial professionals and limit overall sales compensation to that charged by 

fiduciaries for similar investment products currently proposed for the Asset list;

• enhance the visibility of sales compensation to investors by requiring a 

straightforward disclosure of the amount and timing of such sales compensation

separate from the disclosures contained in lengthy and complex offering 

documents;

• require the financial professional to conclude and document in writing the 

appropriateness for the specific qualified account of the attributes of the Public 

Product being recommended, including: the issuer’s objectives; the degree of 

financial leverage; the primary form of financial return (income distributions vs. 

capital appreciation); and the anticipated holding period of the investment;

• require the financial professional to conclude and document in writing that the 

attributes of the investor support the appropriateness of the investment for the 

qualified account, including the investor’s existing and resulting portfolio 

diversification; the investor’s net worth and liquid net worth; the amount of 

investment being recommended; and the age of the investor;

• require as a condition for investment in a Public Product by an IRA or qualified 

account that the investor’s qualified accounts have a minimum required value at 

the time of the investment, such minimum intended to exclude from the pool of 

potential investors in Public Products retirement investors with relatively small 

holdings and who represent a substantial portion of the universe of retirement 

account holders; 

• require a qualified third-party independent of the investor’s financial professional, 

broker-dealer, the investment sponsor and the external manager of the issuer to 

perform product due diligence and conclude in writing in its report that the 

attributes of the investment are appropriate for IRA and other qualified account 
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investors, including: the degree of anticipated leverage; the anticipated 

diversification of the investment’s assets; the magnitude, timing of payment, 

subordinations and hurdle rates of return and alignment of interests of any 

incentive compensation payable to the issuer’s investment manager; and 

confirmation of the investment product’s inclusion of provisions requiring (a) 

annual valuations conducted or confirmed by independent third-party valuation 

experts; and (b) availability of limited liquidity no less frequently than quarterly at 

a redemption price equal to the net asset value (to the extent such redemptions 

would not impair capital or adversely affect the anticipated investment returns or 

tax considerations for non-redeeming investors).

The IPA respectfully submits that these enhanced Policies and Procedures provide 

significantly more retirement investor protections than any other product on the Asset 

list. When considered in light of the existing extremely rigorous federal and state 

regulatory regimes and the transparency provided via public filing requirements 

applicable to Public Products, the IPA submits that these enhanced Policies and 

Procedures for qualified accounts more than justify either the inclusion of Public 

Products on any BIC Exemption Asset list or a separate PTE for Public Products.

 BIC Exemption & the “Legal List” of Assets

The IPA restates its conviction that the principles-based fiduciary obligations 

which result from application of the proposed BIC Exemption without the construct of a 

list of approved Assets is sufficient to achieve the Department’s objectives for retirement 

investors. As the IPA observed in its comment letter dated July 21, 2015, the 

incorporation of a list of Assets in the BIC Exemption will deprive retirement investors of 

choice among many beneficial existing products and will stifle innovation of new 

products to address the evolving needs of retirement investors and changing financial 

market conditions. Further, the IPA respectfully submits that upon thorough review and 

understanding by the Department of the extraordinarily rigorous federal and state 

regulatory regimens and disclosure requirements which apply to Public Products, 

including extensive requirements to confirm the suitability of each Public Product 

investment for an individual retail investor, the appropriateness of including Public 

Products on any such list of Assets with no additional restrictions beyond those embodied 

in the fiduciary principles of the BIC Exemption is appropriate. Finally, the IPA notes 

that as a result of FINRA RN 15-02, the market for Public Products is moving rapidly 

toward products with significantly reduced front-end commissions and additional 
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valuation transparency. For example, new share classes for public non-listed REITs have 

front-end loads which have been significantly reduced. It is also noteworthy that through 

the first eight months of 2015 compared with the same period in 2014, the fundraising of 

full up-front load Public Products has declined by 43% whereas the fundraising of no and 

low load Public Products has increased 66%. 

Additional Policies and Procedures for Placement of Public Products in IRA and 

Qualified Retirement Accounts 

Notwithstanding these observations, the IPA proffers the following additional 

investor protection policies and procedures relating to the sale of Public Products to IRAs 

and other qualified accounts for consideration by the Department as sufficient additional 

investor safeguards to include Public Products among the BIC Exemption Assets or to 

fashion a separate Prohibited Transaction Exemption relating to Public Products. 

The IPA respectfully proposes that a publicly registered, non-exchange listed 

REIT, publicly registered, non-exchange listed Business Development Company or Other 

Direct Participation Program (as defined in FINRA Rule 2310) shall be deemed an Asset 

for purposes of the BIC Exemption or shall be the subject of a separate Prohibited 

Transaction Exemption where:

(i) the compensation received by the investor’s financial professional shall be 

similar to the level of compensation deemed reasonable for the placement of 

other similar covered Assets held in fiduciary accounts, and the majority of 

such compensation is not paid at the time of investment but rather is paid over 

a multi-year period; 

(ii) the financial professional or broker-dealer shall provide to the qualified 

account investor prior to the date of sale of the investment a separate 

disclosure, distinct from the offering documents, which includes the following 

information for the specific investment being recommended:
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Financial 

Professional 

Compensation 

Paid At Time of 

Investment 

(% of Investment)

Financial 

Professional 

Compensation 

Paid Over Time 

(% of Investment)

In addition, the financial professional shall confirm not only that the investor 

is qualified for such investment based on the existing suitability standards 

promulgated by the Securities and Exchange Commission, the Financial 

Industry Regulatory Association, and the requirements of the investor’s state 

of domicile, but shall also provide the following additional investor 

protections for any investment made by an IRA or other qualified account:

(iii) The financial professional shall conclude, and document such conclusion in 

writing, that based upon the disclosures in the public offering document the 

following attributes of the investment, taken as a whole, are appropriate given 

the personal and financial profile of the qualified account investor:

a. the investment objectives;

b. the anticipated use and degree of financial leverage;

c. the intended primary form of financial return (income distributions vs. 

capital appreciation); and

d. the intended holding period prior to liquidation of the issuer.

(iv) The financial professional shall conclude, and document such conclusion in 

writing, that the following attributes of the investor at the time of the 

investment, taken as a whole, make the investment appropriate for the 

investor’s IRA or qualified account:
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a. the investor’s existing and resulting portfolio diversification;

b. the investor’s net worth (excluding home and personal property);

c. the investor’s liquid net worth;

d. the amount of investment being recommended; and

e. the age of the investor. 

(v) Investment in a Public Product by an IRA or qualified account shall only be 

permitted when the total value of the investor’s qualified accounts exceeds 

$50,000 at the time of the investment; and

(vi) A qualified third-party independent of the investor’s financial professional, 

broker-dealer, the investment sponsor and the external manager of the issuer 

performs product due diligence and concludes in its report in writing that the 

following attributes of the investment are appropriate for IRA and other 

qualified account investors:

a. the degree of anticipated leverage;

b. the anticipated diversification of the investment’s assets based on the 

amount of securities being offered;

c. the magnitude, timing of payment, subordinations and hurdle rates of 

return and alignment of interests of any incentive compensation payable to 

the issuer’s investment manager; and

d. confirmation of the investment product’s inclusion of the following 

provisions:

i. valuations of the investment shall be determined and disclosed to 

investors no less frequently than annually, and following the 

conclusion of the original offering such annual valuations shall be 

conducted or confirmed by independent third party valuation 

experts; and

ii. Except as limited by SEC rules and regulations, liquidity shall be 

offered to investors in exigent circumstances no less frequently 

than quarterly following the conclusion of the original offering 

period at a redemption price at that time equal to the net asset 
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value of the investment to the extent such redemptions would not 

impair capital or adversely affect the anticipated investment returns 

or tax considerations for non-redeeming investors.

Conclusion

The IPA also notes that the products covered by this request are not sold as 

principal transactions.

The IPA again thanks the Department for its attention to this issue. Should you 

have any questions, please contact Sara Pikofsky at 202 879 3781.

Respectfully submitted,

Kevin Shields

Chairman, Investment Program Association