We’ll Know an Investment Advice Fiduciary When We See One
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- The Department of Labor (“the DOL”) has promulgated a final prohibited transaction exemption that permits financial institutions that accept and acknowledge status as an investment advice fiduciary under Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to receive consideration in connection with rendering investment recommendations to ERISA-covered plans (“Plans”) and individual retirement accounts (“IRAs”).
- In the accompanying preamble, the DOL has added significant new guidance regarding the application of the five-part investment advice test that will result in greater uncertainty as when a person is an investment advice fiduciary.
- The net result of the DOL’s actions is that institutions will either have to embrace fiduciary status to avail themselves of the benefit of the new exemption or risk the potential consequences of being found retroactively to have been a fiduciary in light of the uncertainty created regarding when the conditions of the five-part test are satisfied.