February 20, 2014
Authored by: Lisa Van Fleet
For some time now, there have been rumblings of imminent issuance of guidance to amend the definition of fiduciary under ERISA.
This saga first began in October of 2010 when the Department of Labor’s EBSA proposed a new rule that would broaden the current definition of the term fiduciary under ERISA and extend such status to “any person who provides investment advice to plans for a fee or other compensation.”
Although the proposed rule mirrored the current definition of a fiduciary as stated in Section 3(21)(A)(ii) of ERISA in many regards, the prior DOL regulations limit the meaning of the term “investment advice” with a five-part test; all elements of which must be met before a person will be considered a fiduciary. The specificity of this regulation eliminates investment advisers from being considered fiduciaries under ERISA if they do not meet all the elements of the test.
The proposed EBSA rule caused consternation among investment advisors and brokers because it states, among other conditions, that any person who is an investment advisor under the Investment Advisors Act of 1940 will be a fiduciary as long as he or she provides investment advice for a fee. Also, one part of the five-part test (the requirement that advice be provided on a regular basis) was removed; under the DOL proposal, a single instance would suffice for a person to be considered a fiduciary under the proposed rule. The breadth of this rule was met with strong opposition and assertions that