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Case of the Week: Defining an ERISA Investment Advice Fiduciary

The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in Ohio is representative of a common question about client scenarios under which the advisor would become a fiduciary to a plan based on the services he or she provides. The advisor asked:

“I’ve heard a lot of mutter about changes to the circumstances under which a financial advisor would be considered a fiduciary of a 401(k) plan. What are the rules as they currently stand, and what do you know about any proposed changes?”

Highlights of Discussion

• The current 38-year-old definition of investment advice fiduciary still stands (as of April 29, 2013) as it was established under the Employee Retirement Income Security Act of 1974 (ERISA) and supporting DOL regulations [DOL Reg. 2510.3-21(c)]. The original rule follows a five-part test under which a person is considered an investment advice fiduciary if he or she gives investment advice:
— About the value of or advisability of investing in securities or other property
— On a regular basis
— Pursuant to an agreement or arrangement with the plan
— With the understanding that the advice will serve as a primary basis for investment decisions
— That is individualized to suit the needs of a specific plan

Note that the individual must satisfy all five of the criteria to be considered an investment advice fiduciary.

• In October 2010, the DOL proposed to broaden the circumstances under which investment advisors would become subject to the fiduciary standard through amendments to existing fiduciary regulations. The DOL suggested doing away with the five-part test and, instead, subjecting investment advisors to a fiduciary standard if they received fees or compensation for “... advice appraisals or fairness opinions concerning the value of securities or other property; recommendations as to the advisability of investing in, purchasing, holding or selling securities or other property; or advice or recommendations as to the management of securities or other property.” But, in the face of severe congressional and industry opposition, the DOL withdrew its 2010 proposal to allow more time for input, reflection and consideration of the regulations’ financial impact. The DOL expects to redesign its fiduciary definition and repropose it in 2013.

• The Securities Exchange Commission (SEC) is simultaneously pursuing the idea of establishing a separate investment advice fiduciary standard. On March 1, 2013, the SEC requested data and other information from the industry on such a uniform fiduciary standard of conduct, and it also requested comments on proposed concepts for such a uniform standard for broker-dealers and investment advisers. Comments are due on or before July 5, 2013.


The DOL has said it will repropose its investment advice fiduciary rules in 2013 after a further cost/benefit analysis. Stay tuned for further developments. Financial advisors who understand the importance of any potential changes to the definition of investment advice fiduciary set themselves apart from the average advisor and, thereby, are better positioned to support their clients.

The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.