Blogging Employee Benefits

January 22, 2006

Independent Financial Advice Can Bring Fiduciary Obligations

Filed under: DOL, Investment — Fuguerre @ 2:03 pm

Investment advice and asset management services provided by independent financial planners or advisors directly to participants of a participant-directed individual account plan are subject to ERISA fiduciary standards. However, other fiduciaries of the plan are not liable as fiduciaries for either the selection of the investment advisor or investment manager, nor for the results of decisions made by those other fiduciaries. [Advisory Opinion 2005-23A, 12/7/05] Thus, the established plan fiduciaries do not lose protection against liability under ERISA 404(c) for participant-directed accounts by making independent external investment advice and investment management available to participants, although those external advisors and managers themselves would be liable for any fiduciary violations arising from their own actions.

Also discussed in the same DOL advisory opinion –

  • A recomendation to a participant to roll over an account balance to an individual retirement account (IRA) in order to take advantage of investement options that are not available under the plan does not constitue investment advice as defined for purposes of ERISA. However, a plan officer or fiduciary who responds to plan participant queries about distributions or investment of withdrawn amounts is exercising discretionary authority in plan management, and must act prudently and solely in the interest of the participant. Moreover, if withdrawn plan assets are invested in an IRA managed by the fiducary who has given advice to the participant, then the fiduciary may be using plan assets in self-interst in violation of ERISA 406(b)(1).
  • An advisor who earns management or other investment fees with respect to an IRA is not engaging in a prohibited transaction by recommending that a participant withdraw plan assets to invest in the IRA, provided the advisor is not otherwise a plan fiduciary. However, as indicated above, such advice given by a plan fiduciary would be subject to ERISA’s fiduciary standards.
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