The U.S. Department of Labor will re-propose its rule that defines when a person providing investment advice becomes a fiduciary under the Employee Retirement Income Security Act (“ERISA”). According to the Department of Labor, the decision to re-propose the regulation, announced on September 19, was made in part in response to requests from the public and members of Congress for the agency to provide more opportunity for comments on the revised rule. The agency announced that the revisions to the proposed rule would clarify that the concept of fiduciary advice is limited to advice directed to specific individuals, which responds to concerns about the potential application of the rule to routine appraisals of assets. The revisions are also expected to clarify the limits of the rule’s application to arm’s length transactions, such as swap transactions, between a benefit plan and a third party. In addition, the agency said it expects to revise the proposed rule to provide exemptions that address concerns about the impact of the new rule on the current fee practices of brokers and advisers, and to clarify the continued applicability of existing exemptions that allow brokers to receive commissions in connection with purchases and sales of mutual funds, stocks and insurance products.
Nutter Notes: The Department of Labor announced a proposal on October 21, 2010 to more broadly define the term “fiduciary” for ERISA purposes. The proposed definition sparked concerns among financial professionals that it was too broad, would subject many individuals to fiduciary duties who were not intended to be ERISA fiduciaries, and cause a reduction in services for benefit-plan participants and IRA investors, among others. ERISA requires employee benefit plan fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries, prohibits self-dealing, and provides for remedies if the fiduciary standards are violated. ERISA defines a fiduciary to include any person who gives investment advice for a fee or other compensation with respect to any money or other property of an employee benefit plan that is subject to ERISA, or has any authority or responsibility to do so. The Department of Labor’s current rule, issued in 1975, uses a 5-part test for the term “investment advice” to determine when a person can be held to ERISA’s fiduciary standards with respect to advice the person provides. The new proposed rule is expected to be issued in early 2012.