On October 21, 2010, the Department of Labor issued a proposed regulation that could significantly expand the categories of persons considered fiduciaries as a result of their providing investment advice to plans subject to ERISA or to participants or beneficiaries of such plans. This proposed regulation was issued under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which subjects fiduciaries to standards of prudence and loyalty to the plans for which they are fiduciaries as well as to conflict of interest rules, referred to as the “prohibited transaction rules”.

Because of the far-reaching nature of the proposed regulation, financial institutions and service providers such as broker-dealers, investment managers, consultants and appraisers should consider evaluating their relationships with employee benefit plans now to determine whether this regulation could cause them to be considered fiduciaries for ERISA purposes. This evaluation should be conducted together with the analysis that many broker-dealers are currently undertaking regarding their activities and services in light of the pending SEC study (required by Dodd-Frank) on the standard of care, including the application of a fiduciary duty for broker-dealers.