Broker as Fiduciary on retirement plan???

[Guest skim3011]

If a broker (non-RIA) helps a plan sponsor to narrow down investment choices in a participant directed plan, will the broker be considered a fiduciary on the plan? For example, a broker offers a multiple fund family mutual fund based participant directed 401(k) plan. The program allows the plan sponsor to offer up to 12 investment choices in the program from a list of over 1,000 different mutual funds. If the broker provides a list of "mutual funds for consideration" to the plan sponsor, would this constitute providing investment advice thus becoming a fiduciary on the plan? Would it make a difference how many mutual funds the broker would be showing (would it make a difference if the list of "mutual funds for consideration" listed 12 choices vs multiple choices per investment category)?

Any thoughts would be appreciated!!

[Guest greggi39]

I don't think so as long as he/she is not selecting the plan investment vehicles or making recommendations to buy specific securities

[Guest greggi39]

sorry,

I don't think he/she is a fiduciary in the above example

[Guest skim3011]

Thanks for the quick reply. This is what I thought too. However, I have talked with another individual who thought that the broker may be considered to be giving investment advice based on the definition of investment advice within the DOL I.B. 96-1. In it, a person is defined as giving investment advice if "the person, either directly or indirectly ... renders the advice on a regular basis to the participant or beneficiary, pursuant to a mutual agreement, arrangement or understanding (written or otherwise) with the participant or beneficiary that the advice will serve as a primary basis for the participant's or beneficiary's investment decisions with respect to plan assets and that such person will render individualized advice based on the particular needs of the participant or the beneficiary."

The individual is making the argument that by assisting the plan sponsor in narrowing down the investment options to be used in the plan, that this is a form of "indirect" investment advice. I am trying to find any sort of documentation, rulings, court cases, etc. that might help defend my position, if correct.

[E as in ERISA]

ERISA Section 3(21)(a) definition of fiduciary includes: "...(ii) he renders investment advice For a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan...." I assume he is not receiving a fee for the recommendatins but is there any way that he could be considering as "indirectly" being compensated for the recommendations? Will the amount of compensation that he receives vary based on which investments are included on that list?

[Guest skim3011]

Although the broker would not be compensated directly by the plan sponsor in any capacity, he would receive compensation on the mutual funds via 12-b1 fees. Unless I am mistaken, I believe that the DOL would consider commissions as an indirect form of fees. I believe the real question is whether or not the broker would be considered giving indirect investment advice by helping to narrow down the investment choices for the plan sponsor even though the plan sponsor would ultimately be responsible for makin the final investment decision.

[Guest greggi39]

it seems he/she is not making recommendations on what to invest in, only the vehicles the plan will offer.

take this a step further, if a broker tries to offer his proprietary funds(eg he works for putnam). Putnam has 600 different funds . is he a fiduciary b/c he narrowed down the mutual fund investments from 7000 funds available to the 600 putnam funds ?