DoL Intends To Rule on Definition of Fiduciary/Investment Advice
In December, the Department of Labor’s Employee Benefits Security Administration (EBSA) opened rulemaking to define who is giving investment advice under ERISA. Specifically, the rulemaking would amend the regulatory definition of “fiduciary” to more broadly define as a fiduciary any “persons who render investment advice to plans for a fee.” This would expand significantly the definition of fiduciary under ERISA, says Roberta Ufford.
The DoL stated that this rulemaking is needed “to bring the definition of ‘fiduciary’ into line with investment advice practices and to recast the current regulation to better reflect relationships between investment advisers and their employee benefit plan clients. The current regulation may inappropriately limit the types of investment advice relationships that should give rise to fiduciary duties on the part of the investment adviser.”
Are You a Fiduciary?
The ERISA definition of “investment advice” is different from the definition of “investment advice” under federal securities laws, says Ufford. ERISA does not preempt federal securities laws, she says, so advisers can be SEC registered investment advisers and not be giving ERISA investment advice. Thus, she says, a retirement plan adviser may not be a fiduciary, even if he is providing investment advice as defined under federal securities laws.
Ufford says ERISA advisers may be fiduciaries if they: 1) make recommendations; 1a) regarding securities or plan asset investments; 1b) on a regular basis; 2) those recommendations are the primary basis for investment decisionmaking by the plan; 3) the recommendations are individualized for the plan; 4) receives a fee; and 5) there is mutual agreement.
Thus, says Ufford, whether or not an adviser is an ERISA fiduciary is a facts or circumstances test. For example, providing generalized, investment education, says Ufford, does not make an adviser a fiduciary under ERISA.
Pop Quiz
If you agree with any of these statements, you are likely to be found to be a fiduciary to a client:
- I provide advice to a client that relates only to that plan.
- I make recommendations as to which investment options a client should have on its plan’s fund lineup.
- I review investment fund options and make recommendations to add or drop funds.
- I charge for my services.
Elayne Robertson Demby