Is suggesting investment policies a fiduciary act? How about providing an investment policy statement? And will the fiduciary regulation change that?
Well, according to a recent blog post by ERISA attorney Fred Reish, while it is not clear under current rules whether “suggesting” investment policies is a fiduciary act, nor is it clear that providing a sample investment policy statement (IPS) is a fiduciary act. However, according to Reish, that is about to change.
When the new fiduciary regulation takes effect on April 10, 2017, the recommendation of investment policies, strategies or portfolio composition will be fiduciary activities, Reish points out. “Specifically, the final rule includes text that describes management of securities or other investment property, as including, among other things, recommendations on investment policies or strategies, portfolio composition, or recommendations on distributions, including rollovers, from a plan or IRA,” he notes.
“And, a mere suggestion to use certain investment policies can result in fiduciary status,” Reish says, noting that the DOL defines a fiduciary recommendation as “a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.”
Thus, he says, if you don’t want to be a fiduciary for that purpose, the safest bet is to avoid suggestions of investment policies or providing a sample IPS. If, on the other hand, you are willing to be a fiduciary for this purpose, Reish says you should make sure that you are a fiduciary (that is, that the recommendations/IPS are prudent under the circumstances).
Furthermore, he notes that you should keep in mind that ERISA’s prudent process rule is based on generally accepted investment theories and prevailing investment industry standards, and that the policy recommendations should be based on those concepts (absent an explicit instruction from the investor to the contrary).
Reish also cautions that, beginning April 10, these rules also apply to IRAs.
