DOL Issues Proposed Rule Broadening Definition of "Fiduciary"

Earlier today the U.S. Department of Labor issued a proposed rule that, upon adoption, would significantly broaden the circumstances under which a person providing investment advice to an employee benefit plan (or plan participants) would be considered a “fiduciary” under Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Of particular note, the proposed rule (i) expands the types of investment advice relationships that may result in fiduciary status to cover, among other advisory services, the provision of appraisals and fairness opinions concerning the value of securities or other property and advice and recommendations as to the management of securities or other property (including, for example, the voting of proxies in respect of shares of stock held by a plan), (ii) eliminates current requirements that the advice be provided on a “regular basis” and form a “primary basis” for the plan’s investment decisions in order for a fiduciary relationship to exist, and (iii) no longer requires, in all circumstances, that the investment advice be individually tailored. The proposed rule does provide certain limitations with respect to its application--most notably that a person will not be a fiduciary if the plan knows or reasonably should know that the person providing advice is doing so in connection with a purchase or sale of securities or other property where such person’s interests are adverse to those of the plan. Below is a copy of the proposed rule for your information below and the firm will be issuing a more detailed alert memo addressing the intricacies of the proposed rule in the coming days.