DoL Proposes Expansion of “Fiduciary” Definition

The Department of Labor has proposed a new two-part test for the ERISA definition of “fiduciary” that would expand the persons included. The first prong would require the provision of advice concerning the value of a security, making purchase/sale recommendations, or advising on the management of securities, which would include proxy voting and the selection of managers. The second prong would encompass any person acknowledging it is acting as a fiduciary, exercising discretionary authority, providing individualized investment advice, or being a registered investment adviser. This proposed two-pronged test is significantly broader than the current test that requires regular advice that serves as the primary basis of investment decisions pursuant to a specific agreement. The proposed rule would apply to IRAs and HSAs. The proposal excludes educational materials provided under 96-1 and offering investment platforms.

OUR TAKE: An ERISA fiduciary has significantly more responsibilities, liability, and restrictions. Newly registered advisers (especially hedge fund and private equity fund managers required to register under the Dodd-Frank Act) should note that mere registration as an investment adviser would make such adviser an ERISA fiduciary if the adviser provides one of the enumerated services, which are broadly defined.

http://webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId=24328&AgencyId=8&DocumentType=1