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different time horizons (which may extend beyond an individual’s retirement
date) and risk profiles, where—

(C) Such models do not include or identify any specific investment
product or specific alternative available under the plan or IRA, except to
the extent that the fee to the person furnishing such models does not
vary on the basis of any investment product or alternative selected by
the plan participant or IRA owner; and

(iv) Interactive investment materials... .

(E) Except to the extent that the fee to the person furnishing such
materials does not vary on the basis of any investment product or
alternative selected by the plan participant or IRA owner, the
materials do not include or identify any specific investment alternative
available or distribution option available under the plan or IRA, unless
such alternative or option is specified by the participant, beneficiary or
IRA owner; and”

III. If the Department Does Not Include Asset Allocation Models that Identify Fee
Neutral Specific Investment Alternatives Within the Scope of “Investment
Education,” the Department Should Clarify the Limited Scope of Fiduciary Duties
Applicable to Such Asset Allocation Models.

The Questionnaire leads Plan participants through a number of basic, predetermined
questions. By its nature, Plan participant input leads to set outputs. It would be unreasonable to
expect the same type of fiduciary relationship with a Plan participant using the Questionnaire
that might exist in a full discretionary managed account or even in a formal non-discretionary
advisory relationship. Such tools are not designed or intended to be a replacement for these
fiduciary services. However, the Questionnaire provides valuable educational assistance at no
additional cost to Plan participants that may not want, or be able to afford, more extensive
services. Applying fiduciary status based on an online questionnaire at the same level as a
fiduciary in a traditional managed account or advisory relationship may lead service providers to
no longer offer these types of educational tools.

If the Department declines to include within the scope of “investment education” online
tools and asset allocation models that identify specific investment alternatives in cases where
such alternatives are fee neutral with respect to the service provider offering such tool, then we
respectfully request that the Department clarify that only limited fiduciary duties should apply,

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and interactive investment materials, such that these models and materials, in order to qualify as
investment education, could not “include or identify any specific investment product or specific
alternative available under the plan or IRA.”®

The Questionnaire provides valuable assistance at no additional cost to participants in
small Plans, participants that may not want, or be able to afford, a managed account relationship.
Because the asset allocation models generated by the Questionnaire are fee neutral with respect
to Fisher Investments, we are not concerned that use of the Questionnaire would involve any
prohibited transactions. However, if being a fiduciary involves more than simply not having a
prohibited transaction, some service providers may cease providing this type of educational tool,
or change such tools in ways that make them far less useful to Plan participants.

We understand that the Department is concerned that service providers can use asset
allocation models to effectively steer participants to a specific investment alternative? That is a
valid concern when a service provider can use such a tool to direct Plan participants to products
that generate additional fees for such service provider or their affiliate. However, we
respectfully request that the Department continue to include within the scope of “investment
education” online tools and asset allocation models that identify specific investment alternatives
in cases where such alternatives are fee neutral with respect to the service provider offering the
tool.

In this connection, we suggest revising portions of § 2510.3-21(b)(6) as follows
(suggested additions in bold):

“(ii) General financial, investment and retirement information. Information and
materials on financial, investment and retirement matters that do not address
specific investment products, specific plan or IRA alternatives or distribution
options available to the plan or IRA or to participants, beneficiaries and IRA
owners, or specific alternatives or services offered outside the plan or IRA, except
to the extent that the fee to the person furnishing such information and
materials does not vary on the basis of any investment product or alternative
selected by the plan participant or IRA owner, and inform the plan fiduciary,
participant or beneficiary, or IRA owner about—

(iii) Asset allocation models. Information and materials (e.g., pie charts, graphs,
or case studies) that provide a plan fiduciary, participant or beneficiary, or IRA
owner with models of asset allocation portfolios of hypothetical individuals with

© 80 Fed. Reg. 21928, 21958 (April 20, 2015).

780 Fed. Reg. 21928, 21945n.23 (April 20, 2015).

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matching the limited scope of such tools.’ We ask that the Department clarify that such tools
may base their results on a limited number of questions posed to the Plan participants and are not
required to gather extensive information. The Department should also clarify that the service
provider may rely on the information given by the Plan participant and has no duty to inquire as
to the accuracy or completeness of such information or to consider information about assets not
provided by the Plan participant.

IV. The Department Should Make Clear that Marketing Activities by an Investment
Manager of its own Services is Outside the Scope of the Proposed Rule.

As drafted, the Proposed Rule would extend fiduciary status to persons that provide
certain investment “recommendations” for a fee or other compensation, whether direct or
indirect, to, among others, plan fiduciaries. These include, under Section 2510.3-21(a)(1)(iv) of
the Proposed Rule, “[a] recommendation of a person who is also going to receive a fee or other
compensation for providing [fiduciary investment advice].”

We are concerned that this provision could be read to make our marketing of our own
investment management services to a Plan sponsor (and thus a plan fiduciary) itself fiduciary
investment advice under the Proposed Rule.” If marketing of one’s own services is fiduciary
investment advice, the exemption for provision of services under ERISA Section 408(b)(2)
(which the Department has clarified only provides an exemption from prohibited transactions
under ERISA Section 406(a) and not the fiduciary self-dealing prohibited transactions under
ERISA Section 406(b)) would be of no value.

We believe that the Department may have intended to capture only those service
providers that provide third-party recommendations of products or services and that receive a fee
specifically for providing those recommendations. Unintended effects can be avoided by
adopting either, or both, of the following solutions: (1) the Department could clarify that the fee
triggering fiduciary status under the Proposed Rule must be a separate fee specifically for
providing the recommendation and does not include the fee (such as an asset-based management
fee) a service provider would receive for providing the services once hired; or (2) the
Department could clarify that a recommendation triggering fiduciary status includes only a
recommendation of another's product or services and not the marketing of one’s own.

* The Department has previously recognized that certain fiduciaries, such as directed trustees, should only have
limited fiduciary responsibilities that match the scope of their fiduciary authority. Field Assistance Bulletin 2004-
03 (Dec. 17, 2004).

° We note that the “seller’s carve-out” in paragraph (b)(1)(i) of the Proposed Rule is not designed for the marketing

of services. Further, Fisher Investments markets the Program to small and mid-sized companies, which often have
less than 100 employees, where the seller’s carve-out may not be applicable.

6

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July 21°, 2015
VIA ELECTRONIC MAIL to e-ORI@dol.gov

Office of Regulations and Interpretations
Employee Benefits Security Administration
Attn: Conflict of Interest Rule (RIN 1210-AB32)
U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Ladies and Gentlemen:

This letter responds to the request by the Department of Labor (“Department”) for
comments on the Department’s proposed regulations on the Definition of the Term “Fiduciary”;
Conflict of Interest Rule—Retirement Investment Advice (the “Proposed Rule”). We appreciate
the opportunity to comment on the Proposed Rule and related questions raised by the
Department.

As a registered investment adviser who has continuously operated under a fiduciary
standard for our clients, we concur with the sentiment that retail consumers should not have to
worry about whether the advice they get is unduly influenced by the pecuniary or monetary
interests of those offering the advice. That said, there are significant differences between the
“broker-dealer” and the independent investment adviser model, which is why they have operated
under two distinct statutory frameworks for more than 70 years. We are concerned that, however
well-intentioned the Department’s efforts may be, express efforts to conflate or harmonize these
statutory differences will lead to the eventual demise of the independent investment adviser
business model.

Because we operate our business with the philosophy that plan participants and IRA owners
should be protected from conflicts of interest, and particularly fee-based conflicts by Plan
Fiduciaries, we want to offer these comments to share our view on targeted, but critical
modifications that would significantly improve the Proposed Rule.

+80 Fed. Reg. 21928 (Apr. 20, 2015).

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IV. Conclusion

In light of the foregoing, Fisher Investments respectfully urges the Department to clarify
the scope of the Proposed Rule as requested and retain within the scope of “investment
education” asset allocation models and interactive investment materials that identify specific
investment alternatives in cases where such alternatives are fee neutral with respect to the service
provider offering such tool.

If there is any additional information or assistance that Fisher Investments can provide to
the Department in connection with the Department’s consideration of the comments and issues
raised in this letter, please let us know.

Sincerely,

) are

Nathan Fisher
Managing Director

Fisher Investments 401(k) Solutions

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I. Introduction

Founded in 1979, Fisher Asset Management, LLC (“Fisher Investments”) is an
independent, privately-owned money management firm with more than $65 billion under
management. Fisher Investments is a registered investment adviser with the Securities and
Exchange Commission (“SEC”) and provides asset management services to institutions and
individuals throughout the United States. Among Fisher Investments’ clients are many
employee benefit plans (“Plans”) subject to the Employee Retirement Income Security Act of
1974, as amended (“ERISA”).

At Fisher Investments, we understand the conflicts of interests that fees can raise,
especially within the retirement industry. To address those conflicts of interests, we charge our
clients a simple and transparent, competitive fee calculated as a percentage of assets under
management. We do not earn brokerage commissions.

Fisher Investments’ approach is focused on “goals-based” investing, looking to a client’s
long-term goals and needs. Our goals-based approach may require us to provide our clients with
some additional education but it is, in our experience, well worth it.

In recognition of the fact that smaller companies—those with fewer than 200
employees—often struggle to find the specialized knowledge, resources and time necessary to
successfully manage a 401(k) plan, Fisher Investments established the “401(k) Solutions”
program (the “Program”). Building on our decades of experience working with institutions and
individuals, the Program is designed to provide investment fiduciary services and retirement plan
consulting services that meet the needs of small and mid-sized companies.2 Once hired by a
Plan, Fisher Investments serves as an “investment manager” within the meaning of Section 3(38)
of ERISA and a fiduciary with respect to selecting and monitoring a menu of investment options
available to Plan participants. In this connection, Fisher Investments also designs “Model
Portfolios” comprised of the available investment options. Fisher Investments receives only a
Plan-level fee calculated as a percentage of assets using the Program. It does not receive fees for
advising the underlying investment options, and the Plan-level fee does not vary if a participant
selects one investment option over another.

As part of the Program, Fisher Investments provides educational and enrollment services,
including enrollment meetings, to assist Plan participants. Fisher Investments offers materials in
both English and Spanish, and other languages as requested. The Program is designed to address
the needs of Plan participants across the range of knowledge and experience levels. Plan
participants who would like to select their own investments may choose from the available
investment options or, if they want additional flexibility, may make use of a self-directed

? The typical company using the Program has assets between $1 million and $10 million. Reflecting our emphasis on
expanding participation through education and enrollment activities, the median participant account balance is
relatively small—approximately $5,000. The average account balance is approximately $73,000.

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brokerage account For Plan participants who take no action and fail to select investments,
Fisher Investments designates a Model Portfolio as a qualified default investment alternative
based on the Plan participant’s age.

For Plan participants who want more help with selecting their investment options, Fisher
Investments has developed an online questionnaire (the “Questionnaire”). The Questionnaire is
designed to provide “investment education” within the meaning of the Department’s interpretive
bulletin relating to participant investment education.> It provides information on basic
investment concepts, such as the effects of compound interest and how different factors may
affect the amount of money available to a Plan participant in retirement. It also asks participants
several questions about their investment goals and retirement plans. Based upon a Plan
participant’s answers provided online, the Questionnaire identifies a Model Portfolio, which is an
asset allocation model available within the Plan that might be appropriate for someone with
similar investment goals, risk profiles, and time horizons. The Questionnaire also provides
information on all of the other Model Portfolios available under the Plan. No matter which
Model Portfolio the participant chooses (or if no Model Portfolio is chosen), Fisher Investment’s
fee remains the same—a percentage of plan assets using the Program. Fisher Investments is thus
not incentivized to steer Plan participants to any particular investment option in connection with
the asset allocation models generated by the Questionnaire.

As stated above, we want to offer these comments because we operate our business with
the philosophy that plan participants and IRA owners should be protected from conflicts of
interest, and particularly fee-based conflicts by Plan Fiduciaries. However, as discussed further
below, we request clarification on certain aspects of the Proposed Rule that could have the effect
of limiting educational activity sorely needed by Plan participants, particularly in the
underserved community of smaller Plans. In addition, we request certain clarifications of the
scope of the Proposed Rule that have the, likely unintended, impact of potentially restricting non-
fiduciary marketing activity.

II. “Fee Neutral” Asset Allocation Models that Identify Specific Investment
Alternatives Should Remain Within the Scope of “Investment Education.”

As discussed above, Fisher Investments currently provides investment education through
the Questionnaire to assist Plan participants in understanding their investment options. Although
the Questionnaire is designed to comply with the Departments interpretive bulletin relating to
participant investment education, the Proposed Rule would remove and replace that guidance. In
particular, the Proposed Rule would alter the guidance with respect to asset allocation models

* Fisher Investments does not charge Plans any fees based on assets in self-directed brokerage accounts. Plan
participants using such accounts may be subject to separate fees, such as asset management fees, charged directly by
the investment manager selected by the participant.

°29 CFR § 2509.96-1.

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