PANC 2012: The Future for Fiduciary Advisers

The Department of Labor’s (DOL’s) re-proposal of the definition of fiduciary is another indication that fiduciary responsibilities are increasing, and broker/dealers in particular could be impacted.

The DOL’s proposal, if finalized, will expand the definition of fiduciary advice and cause many service providers under current practices to be fiduciary investment advisers. Following comments received after its initial proposal last year, the DOL’s Employee Benefits Security Administration (EBSA) withdrew its proposal from 2010 and announced it would solicit more information before creating a new one (see “EBSA to Re-Propose Definition of Fiduciary Rule”).  

More attention has also been given to fiduciary issues because of the 408(b)(2) fee disclosure regulation, requiring disclosure of both fiduciary status and compensation; Securities and Exchange Commission (SEC) activity for the Dodd-Frank fiduciary provision; and the Financial Industry Regulatory Authority (FINRA) “guidance” about best interests of investors.

“I don’t think there’s any doubt that the big trend is a fiduciary trend,” Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath LLP, told attendees at the 2012 PLANADVISER National Conference.

Possible changes to the DOL’s re-proposed regulation involve IRAs; re-affirming prior guidance; “individualized” advice; arm’s length commercial transactions; and brokerage commissions. Reish said he predicts the DOL’s final regulation will say that those who give individualized advice are fiduciaries. In addition, he predicts the final rule will have exemptions from expanding fiduciary liability for companies that sell and service IRAs, but he also will not be surprised if the DOL expands examples of prohibited transactions for IRAs. In addition, he predicts the DOL will make it clear that brokerage commissions are prohibited transactions. “That’s an odd one because brokerage commissions have never been prohibited,” he pointed out.


In addition, if offering individualized advice continues to be a requirement for an entity to be considered a fiduciary, as Reish predicts, he stressed that it is difficult to create an asset allocation model that is not considered “individualized” to a person’s needs, which would result in fiduciary status.

Investment policy statements are another issue because Reish said he does not think IPS’s can be written without “recommendations,” which would fall under the proposed fiduciary definition. Reish said that upon an investigation, the DOL would first ask the broker/dealer if it makes recommendations for plans.

He cautioned that both the DOL and the SEC are increasing their activity, as recent court cases like USI Advisors (see “USI Advisors Settles DOL Suit Over Fees”) have underscored. “There is an increased level of activity,” he warned.