Corporate Governance

Department of Labor Proposes Change to Definition of "Fiduciary"

By Anthony F. Maul

The U.S. Department of Labor recently proposed a rule change broadening its definition of ?fiduciary? under the Employee Retirement Income Security Act (?ERISA?).  The Labor Department surmised that the existing definition, which hasn?t been updated since 1975, provides employee beneficiaries with inadequate protections against potential conflicts of interest on the part of investment advisors.  Specifically, the current definition is so old it predates the creation of 401(k) plans.  The proposal notes that, compared to traditional pensions, the 401(k) marketplace presents a high danger of conflicts of interest among those hired to provide investment advice to employees.

Under the new definition, ?fiduciary? would include those who provide ?[a]dvice, appraisals or fairness opinions concerning the value of securities or other property; recommendations as to the advisability of investing in, purchasing, holding, or selling securities or other property, or advice or recommendations as to the management of securities or other property.?

If adopted, the proposed rule change could have effects not only on enforcement actions initiated by the Department of Labor?s Employee Benefits Security Administration, but could also potentially broaden the scope of private actions brought under ERISA against investment advisors.

Full post as published by PomTalk on October 27, 2010 (boomark / email).