From: Michael Francis [mailto:Michael.Francis@francisinvco.com] 

Sent: Monday, January 31, 2011 6:45 PM 

To: EBSA, E-ORI - EBSA 

Subject: Definition of Fiduciary Proposed Rule - Comment

Date: January 31, 2011 

 

To: EBSA 

 

From: Michael J. Francis 

 President 

 Francis Investment Counsel LLC 

 www.francisinvco.com

 

Re: Definition of Fiduciary Proposed Rule - Comment 

 

1. BACKGROUND

Francis Investment Counsel LLC writes in support of the Proposed Rule (the “Rule”). We 

are an SEC registered investment adviser and provider of independent, conflict-free 

advice to plan sponsors and participants since 2004. The services we provide fall into two 

main categories: investment consulting to employers sponsoring retirement plans and 

investment education and individualized investment advice to plan participants. We exist 

to help retirement plan fiduciaries better fulfill their mission, and to assist employees 

build the financial assets necessary to retire comfortably. We consider it essential to our 

role that we remain free from all conflicts of interest so that we can always act in the best 

interests of our clients. We expressly acknowledge our status as an ERISA fiduciary in 

our written client contracts regarding our investment consulting and participant 

investment advice activities. Currently we serve approximately 40,000 ERISA plan 

participants with our conflict-free investment advisory services. 

2. SUPPORT FOR THE RULE
We support the Rule because we believe it serves the best interest of plan sponsors and 

participants to remove all conflicts from the investment adviser’s role. To the extent the 

Rule broadens the definition of a fiduciary, by eliminating any concept that the 

investment adviser must have “regularly” provided the advice and that such advice must 

have served as the “primary basis” for investment decisions, it necessarily increases the 

scope of ERISA’s protection. We believe that these changes will most assuredly be 

favorable to plan participants. We are especially supportive that under the Rule, those 

who provide fiduciary investment advice will be taken at their word and held to a duty of 

undivided loyalty to the plans for which they work. In sum, to allow an investment advice 

giver to operate within an ERISA environment with any conflict of interest present is like 

posting a fox to guard the henhouse. It is an all-too-common industry practice that this 

Rule will help stop. 

 

We acknowledge EBSA’S concerns in striving to establish a Rule that does not cause 

service providers to charge higher fees or limit or discontinue their services. 

We believe that this result is not likely for two reasons. First, the specific limitations 

proposed in the Rule for “platform” providers of investment options will allow the many 

institutions now offering these products and services to continue without undertaking 

fiduciary status, provided they make the specific written disclosure that they are not 

providing impartial investment advice. Secondly, there are already hundreds, if not 

thousands of independent firms (i.e. those that do not manufacture investment product or 

have any affiliation with existing funds) that are already providing (or have the ability to 

provide) conflict free fiduciary investment advice to the retirement plan marketplace. If 
the only sources of potential investment advice were financial institutions or the fund 

families whose employees and agents have inherent conflicts, the Rule might act to 

undesirably narrow the choices for advice, but this is not the case. Indeed, because of the 

proliferation of participant directed defined contribution plans as noted in the preamble to 

the Rule, the existence of suitable investment advice solutions under the new Rule is on 

the rise. 

3. APPLICATION OF THE RULE TO PLAN DISTRIBUTIONS.

Finally, with respect to whether and to what extent the final regulation should define the 

provision of investment advice to encompass recommendations relating to taking a plan 

distribution from a defined contribution plan, we believe the Rule should apply. Profit 

sharing and 401(k) plans often provide for distribution options in-service as well as at 

separation from service. In these individual account plans, where such advice will mean 

liquidation of the assets held within the participant’s account, the advice necessarily 

amounts to a recommendation of the selling of securities and hence should be included 

within the Rule. In some instances, such as defined contribution plans holding employer 

securities in a participant’s account or otherwise allowing an in-kind distribution (a rare 

occasion, in our experience), this reasoning would not apply and hence some limits on the 

application of the Rule may be appropriate. Under any circumstances, the decision by a 

defined contribution plan participant to take a distribution is a significant one relating to 

the participant’s retirement security and may be laden with new investment, lifestyle, tax 

and estate planning implications. It is difficult to imagine many circumstances under 

which such a decision by a participant would not rise to the level of a major investment 

decision and be deserving of the increased protections provided under the Rule. 
Thank you for your consideration of these comments.