Coming soon: Broader definition of fiduciary under ERISA

The Labor Department is planning to expand its definition of fiduciary under ERISA — a move that would have implications for all financial advisers that work on retirement plans. According to an agenda item posted on the Employee Benefit Security Administration's website on Dec. 7, the agency wants to broaden the definition because “the current regulation may inappropriately limit the types of investment advice that should give rise to fiduciary duties on the part of the investment adviser.” The agency plans to publish proposed regulations to amend the definition in June 2010. While more guidance on what defines a fiduciary is good for the adviser community because it provides clarity, experts are concerned about how this might play out. “Right now it's easy for an investment adviser to be second-guessed if they are acting as a fiduciary,” said Greg Ash, head of the Employee Retirement Income Security Act litigation group at Spencer Fane Britt & Browne LLP. “But the proof is in the pudding about what position the DOL is going to take. Are they just going to clarify it or are they going to make it very expansive?” Advisers who work with 401(k) plans with a self-directed brokerage window could find themselves under heightened fiduciary responsibilities under the rule change, cautioned Matthew Hutcheson, an independent pension fiduciary. Employee brokers selling their firms' products might also find themselves vulnerable, he said. “Everybody who works with retirement plans should presume that they will owe a fiduciary duty or they will owe a duty for loyalty to those who they service,” Mr. Hutcheson said. “Brokers who haven't viewed themselves as fiduciaries need to ask what they might need to do differently.”