Fidelity Comments on DOLs Investment Advice Rule

The Department of Labor (DOL) has proposed a rule relating to the definition of investment advice that would
create a new regulatory structure for assisting retirement plans, participants and IRA owners with investment
decisions. Fidelity has a deep and long-standing commitment to working with the DOL on its rulemaking in this
area and has filed a comment letter in response to the rule proposal.
Summary of Fidelitys comments

Fidelity supports the application of a best interest standard when providing investment advice so long as broad
prohibited transaction relief is also available. Unfortunately, the proposals definition of advice is overly broad and
its exemptive relief is too narrow due to complex limitations and conditions. As a result, the proposed rule would
prevent firms like Fidelity from providing investment assistance that plans, participants and IRA owners need to
invest successfully for retirement.
A simpler alternative

We believe there is a straightforward way to accomplish the DOLs objectives while preserving existing
service models that provide valuable assistance to retirement investors. Our approach addresses two
foundational problems with the proposal the overly broad definition of investment advice and the
limitations and conditions of the best interest contract exemption.

Under this alternative, an investors agreement to the scope of an advisors services and compensation would
be established outside of the fiduciary relationship. Once this framework is established, all investment
recommendations made by the advisor within the framework would be subject to a best interest standard.

The DOL should also create a single exemption for regulated financial services firms that meet three basic
requirements: a legally enforceable commitment to act in the best interest of the customer, reasonable
compensation in light of the services provided, and disclosure of material conflicts, including compensation payable
to the advisor. DOL has expressed explicit support for this approach in proposed amendments to its own longstanding prohibited transaction exemptions. By implementing a single, principles-based exemption for regulated
financial institutions that act in the investors best interest, the DOLs regulatory goals are met in a manner that is
more meaningful to investors and more workable for financial institutions.
Problems that must be addressed to preserve access to investment advice

Fidelitys alternative resolves most of the key problems with the proposal as follows:

Replace the unworkable and unnecessary written contract requirement with a legally enforceable
unilateral best interest contract.
Simplify and improve disclosure through disclosure provided at the initiation of the advice relationship
that sets forth the best interest standard, scope of services, and compensation, and a link to a website where
more detailed information about the cost and compensation associated with the products and services is
available.
Give small plan sponsors access to advice by expanding the single principles-based exemption to cover
advice to plans of any size as well as individuals. Otherwise, the majority of small plans are left without
access to advice services.
Preserve the ability to identify investment funds as education. Without identifying investment
alternatives, the asset allocation discussion permitted under the education carve-out is largely an exercise
in investment theory and it is not concrete enough to be useful for most individuals.
Extend the effective date. The eight month applicability date is grossly insufficient to implement a
regulatory change of the magnitude proposed by DOL. We believe that a minimum of three years would be
needed to implement the rule.