While it may be a marketing advantage to be a named fiduciary, many advisors aren’t permitted to do so, and there are instances where it doesn’t make sense. The law firm Lewis and Roca lays out guidelines on which activities make an advisor a fiduciary and how advisors can avoid liability if they desire. The definition is certainly in flux — the DOL plans to try to change the definition this year.
There are two types of fiduciaries:
• Designated “Investment Managers” under 3(38)
• Deemed fiduciaries based on certain activities
And there are four general rules a fiduciary must follow:
• Exclusive benefit
• Prudent man standard
• Diversification
• Documentation
If an advisor does not want to be a plan fiduciary, here are some do’s and don’ts to keep in mind:
• Do state in writing that you’re not acting as a fiduciary.
• Do delineate the limited investment services you’ll provide and those you won’t.
• Do provide diversified investment options.
• Do leave all final decisions to the plan’s fiduciary.
• Don’t act with discretion.
• Don’t take control of plan assets.
• Don’t provide individualized investment advice.
• Don’t provide specific recommendations regarding the purchase of individual investments.
