Castle Rock Investment Company

Independent Guide, Trusted Partner.

New Definition of Fiduciary

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On October 22, 2010 EBSA issued proposed regulations that would more broadly define the circumstances under which a person is considered to be a fiduciary when providing investment advice to an employee benefit plan or a plan’s participants for a fee or other compensation.  The definition includes:  advice, appraisals or fairness opinions concerning the value of securities or other property; recommendations as to the advisability of investing in, purchasing, holding, or selling securities or other property; or advice or recommendations as to the management of securities or other property.

What was added?

Fiduciary Status will be given to:

  • Anyone rendering advice that claims fiduciary status orally or in writing
  • Anyone rendering advice with discretionary authority or control with respect to management of the plan, its assets, or administration of the plan
  • Those excluded from the definition of investment adviser in section 202(a)(11) of the Advisers Act including banks, lawyers, accountants, engineers, teachers, brokers, dealers, publishers, government security analysts and advisers, and rating agencies

What was removed?

From the old definition requirement:

  • Advice be provided on a “regular basis” (the significance does not diminish merely because advice was rendered only once)
  • A mutual understanding that the advice will serve as a primary basis for plan investment decisions (when a service provider is retained to render advice, the plan should generally be able to rely on the advice without regard to whether the parties intend it be a primary or lesser basis in the fiduciary’s decision-making)
  • The required fulfillment of all conditions of the current 5-part test (satisfaction of any condition of the new definition may result in fiduciary status)

EBSA is currently accepting comments and we expect final regulations to be issued in the spring of 2011 with an effective date following six months after.