Who Is A Fiduciary?


Who Is A Fiduciary?

Insider fiduciaries are often overwhelmed by regulations, typically receive inadequate training, insufficient or ill-considered advice, and operate in the shadow of conflicts in interest that may, while not always obvious to sponsors, are glaringly obvious to regulators.

Anyone can claim not to be a fiduciary.  A person is considered a fiduciary based on their actions not by title.  Record-keepers and TPAs are not typically fiduciaries unless they are exercising discretion over the plan.

Do you perceive your financial advisor’s investment expertise as one of the primary values it provides, by recommending the plan’s investment menu, suggesting changes to investments and plan features over time and serve as the go to person for plan participants?  If the advisor is paid a commission from 12b-1 fees a distinction must be made as to whether the advisor’s advice is a one time event that is incidental to the sale of a security or if it meets the following definition of investment advice.

Functional Fiduciary Five Prong Test

ERISA provides that a person is also deemed to be a plan fiduciary even if not acknowledged as such, to the extent the person renders “investment advice” for a fee or other compensation with respect to plan assets.

Under the regulation, a person is deemed to be rendering investment advice if:

  1. renders advice as to the value of securities or other property;
  2. such person makes investment recommendations on a regular basis;
  3. pursuant to a mutual agreement or understanding with the plan, written or otherwise;
  4. that such services will serve as a primary basis for the plan’s investment decisions and
  5. that such person will render individualized advice based on the particular needs of the plan. The DOL has taken the position that “investment advice” may also include advice provided to a participant in a defined contribution plan with participant-directed investments.1

To learn more, please read “How Plan Sponsors Use Advisors.”

If you have come to the conclusion that your advisor may be operating in a fiduciary capacity, are you adequately overseeing their interaction with participants ensuring no prohibited transactions are taking place?

We’ve Got Your Back!

We oversee all of your other plan service providers.  As an alternative professional plan sponsor solution and Registered Fiduciary™ we acknowledge our fiduciary status in writing.

1Section 2509.96-1(c) of DOL regulations 

Section 2510-3.21(c) of the U.S. Department of Labor (“DOL”) regulations further clarifies the meaning of the term “investment advice.”