The U.S. Department of Labor (DOL) recently issued three advisory opinions considering fiduciary or prohibited transaction issues arising in the management of ERISA plans.

Asset Manager’s Selection of Remotely Affiliated Broker-Dealer

In Advisory Opinion 2011-06A (February 4, 2011), an asset manager (AAM) as a matter of policy would not execute trades for ERISA-covered plans through a remotely affiliated broker-dealer (Mitsubishi Group Brokers) even if that broker-dealer offered best execution or a unique investment opportunity. AAM was concerned that if it selected a Mitsubishi Group Broker while acting as an ERISA fiduciary, it might commit a non-exempt prohibited transaction – either a violation of the per se rules of §406(a) or the conflict of interest rule of §406(b)(2) – because the parent company of Mitsubishi Group Brokers:

-Owned 19.9% of AAM’s corporate parent, and

-Appointed one of the 11 directors to the board of AAM’s corporate parent. That director did not have veto or other special authority, and that board did not make any decisions with respect to AAM’s trading partners, policies or procedures. The parent of Mitsubishi Group Brokers did not appoint any directors of AAM’s board.

DOL opined that selection of a Mitsubishi Group Broker would not violate §406(a) because of PTE 84-14, the exemption for qualified professional asset managers (QPAM). The key question was whether AAM was “related to” Mitsubishi Group Brokers within the meaning of the exemption, which would preclude PTE 84-14 relief. DOL reiterated its view that the “related to” definition was concerned only with the ownership interest between the QPAM and the party with which it is dealing, and not with their affiliates. Accordingly, AAM was not “related to” Mitsubishi Group Brokers because:

-AAM owned no interest in Mitsubishi Group Brokers;

-Mitsubishi Group Brokers owned no interest in AAM;

-No entity that controlled, or was controlled by, AAM exercised control over the management or policies of Mitsubishi Group Brokers; and

-The parent of Mitsubishi Group Brokers neither owned directly or indirectly 20% or more of AAM nor exercised control over the management or policies of AAM.