When is a Broker an Advisor?

[Guest RIA]

In a recent 401(k) plan review, a securities broker (who was receiving a commission for delivering an annuity contract to a 401(k) client) stated he was not acting as an advisor or as a fiduciary to the plan sponsor and the plan participants for the reasons below. I was under the impression that the DOL intended general information and computer generated models to not qualify as advice and that this exemption did not apply to anyone other than participants (not the plan sponsor for the purpose of choosing plan funds and writing policy statements. Comments please!! The broker's comments are shown below

"We provide Investment Management Consulting Services to THE CLIENT. As such, we provide a customized Investment Policy Statement to the client. This document is presented to the client for comment and review, and is adopted by the client after making any changes relevant to their plan. It is a collaborative effort, and the document belongs to the client. As part of our ongoing monitoring services, we also provide fund specific advice to the Trustees, Investment Committee, and ultimately to Plan Participants However, I want to be clear that under this is not considered Investment Advice as defined in ERISA section 3(21)A(ii) or regulation 29 CFR 2510.3-21© and clarified in FINAL-REG, ERISA-REG [¶14,746C], §2509.96-1 Interpretive Bulletin relating to participant investment education §2509.96-1"

[JRN]

I see two problems here. First, "if it walks like a duck, and quacks like a duck, it's a duck." What I mean by this is that the definition of "fiduciary" under ERISA is a functional defintion. If the individual is performing fiduciary functions, he/she is a fiduciary regardless of his/her title or what some document says. Once the broker starts providing "customized" information, he/she crosses the line and becomes a fiduciary. Second, I don't think the broker can legally provide "ongoing monitoring services", "customized Investment Policy Statement", or "fund specific advice" unless he/she has taken the next step and become a Registered Investment Adviser. So, (1) the broker is a plan fiduciary, and (2) he/she is doing something he/she is not licensed to do.

[QDROphile]

Read the regulation yourself (not the one about investment education) and see if you want to engage a broker with the level of reading comprehension that your broker has displayed. Or perhaps it is not a reading problem, perhaps is is a professional integrity and resposibility problem.

One of the problems with being misled is that fiduciaries must be bonded. If you don't identify fiduciaries, you won't comply with the bonding requirements.

Another way to look at it is that the broker is using the disclaimer to define what the broker will do. By saying that the broker is not a fiduciary, the broker may be saying that, despite the apparent description of services in the contract, the broker really won't be providing any services described in the regulation. What services do you think you are getting?