Department of Labor Issues Proposed Rule Broadening Types of Investment Advice Giving Rise to Fiduciary Status


The U.S. Department of Labor (the “Department”) recently issued a proposal that expands on and more broadly defines the circumstances under which a person is considered to be a “fiduciary” by reason of giving investment advice to an employee benefit plan or a plan’s participants.

The current rules, which date back to 1975, include limits on the types of investment advice relationships that give rise to fiduciary status—inappropriately in the Department’s view. This proposal is much anticipated, and it signals an important shift in the way that the Department views fiduciary status. It is also a part of a larger, multi-year effort by the Department to enhance transparency and accountability, particularly but by no means exclusively in the 401(k) plan market.

According to the Department, the proposed rule, “takes account of significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice.” It is designed to protect participants from conflicts of interest and self-dealing by giving a broader and clearer understanding of when persons providing such advice are subject to the fiduciary standards of the Employee Retirement Income Security Act (ERISA). Once adopted in its final form, the rule will affect sponsors, fiduciaries, participants, and beneficiaries of pension plans and individual retirement accounts, as well as providers of investment and investment advice-related services to such plans and accounts.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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