A Summary of the Final Rule Skip Summary
Under the Final Rule, fiduciary status is generally triggered where a person provides a recommendation to a plan, plan fiduciary, participant, IRA or IRA holder concerning either
- The advisability of buying, holding, or selling securities or other investments, including the investment of amounts rolled over from a plan or IRA, or
- The management of securities or investment property including recommendations of investment policies or strategies, third-party investment advice providers or investment managers, investment account arrangements (e.g., brokerage vs. advisory) and recommendations of rollovers, transfers or distributions from a plan or IRA including their amount, form and destination.
Readers may wish to note the decided emphasis placed on rollover recommendations in both of these covered advice prongs; regulating the IRA rollover industry is a core DOL objective that is advanced through the Final Rule.
A "recommendation" is defined as a communication which, based on context, content and presentation, would reasonably be viewed as a suggestion to the recipient to engage in or refrain from engaging in a particular course of action. Communications that are general in nature and that a reasonable person would not regard as an investment recommendation, such as general marketing materials, general market data, or other research and news reports prepared for general distribution are excluded from the Final Rule’s definition of recommendation. Individually tailored communications to specific advice recipients about particular investments or investment strategies would likely give rise to a recommendation; the more individually tailored the communication, the more likely it will be viewed as a recommendation.
In addition to general communications, the Final Rule also lists two other categories of informational services that do not give rise to “recommendation” as follows:
1. Marketing or making available a “platform” of investment alternatives. While the Final Rule does not define the term “platform”, it indicates that providers who make available an array of investment alternatives from which a plan fiduciary may select the plan’s menu of investment options
- do not act as fiduciaries so long as the platform itself is not marketed in a manner that is individualized to the needs of the plan or its participants,
- the platform provider discloses to the plan fiduciary responsible for selecting the plan’s investment option menu that it is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity, and
- any selection and monitoring assistance made available to the plan sponsor is limited to identifying investment alternatives on the basis of objective criteria specified by the plan sponsor (e.g., stated parameters concerning expense ratios, fund size, asset type or credit quality);
2. Investment Education. The Final Rule preserves much of DOL’s original 1996 Interpretive Bulletin guidance for distinguishing between investment education and fiduciary advice.* Plan information, general financial, investment and retirement information, asset allocation models and interactive investment materials may continue to be made available without triggering fiduciary status on the part of the provider. However, where a plan’s asset allocation or interactive educational materials identify a specific investment option, they must also identify each other plan investment option with similar risk and return characteristics and include a statement about where additional information on those other investment options may be obtained. In the case of an IRA, the educational materials generally may not identify any specific investment alternative.
The Final Rule also contains a "seller’s exception". It is configured to exclude persons who are providing recommendations as sellers to independent plan fiduciaries with financial expertise, from being categorized as investment advice fiduciaries. To fit within the seller’s exception, the person providing the recommendation must refrain from representing or acknowledging fiduciary status and must know or reasonably believe that the fiduciary representing the plan in the transaction is either a bank, an insurance company, a registered investment adviser, a broker-dealer or a fiduciary that holds or has under management or control, total assets of at least $50 million. To take advantage of the exception, the seller must know or reasonably believe that the independent plan fiduciary is capable of evaluating investment risks independently of the seller, must provide disclosures that the seller is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity, and must also provide disclosures about the nature of the person’s financial interests in the transaction.