PSCA Supports Clarifying the Definition of Fiduciary Advisor

Plan sponsors hiring advisors to help with the selection and monitoring of plan investments believe that the advisor’s interest is the same as theirs—what’s best for plan participants. Under changes proposed by the Department of Labor, any confusion about whether or not a recommendation concerning the investment of plan assets is a fiduciary activity is greatly reduced. This should be beneficial to both the advice provider and the recipient.

Under current regulations plan sponsors can easily mistake a sales proposal for advisory activity. A plan fiduciary making decisions regarding the investment of plan assets pursuant to a sales proposal is not acting in response to impartial investment advice and could be liable for a fiduciary breach. Doing so unknowingly is not acceptable. PSCA applauds the Department of Labor’s effort to make it easier for plan sponsors to differentiate between sales proposals and investment advice from someone held to the same fiduciary standard as plan sponsors.

PSCA also recommends that the Department of Labor reverse its position in Advisory Opinion 2005-23A that a recommendation concerning a distribution is not advice. It is advice. A recommendation to roll over is a recommendation to sell plan assets. For example, a 401(k) participant who rolls his/her account into an IRA must first convert the current plan investments into cash by selling all the plan assets. A participant’s retirement distribution decision could be one of the most important choices that a participant makes, and those advising participants should be held to the “best interest of the participant” standard. At the same time, PSCA urges the DOL to carefully discriminate between advice and valuable educational financial information provided to plan sponsors and participants by service providers and investment managers.

The proposed changes to the current regulations will reduce uncertainty for plan sponsors, participants, beneficiaries, and advisers. More importantly, under the proposal, plan sponsors can be confident that advice provided to plans and participants is unbiased and provided solely for the benefit of the recipient. PSCA will testify at a March 1st hearing on the proposed rule. You can link to PSCA’s comment letter at: PSCA Comment Letter on the Proposed Definition of a Fiduciary Adviser.