Tax Law

Rendering Retirement Plan Investment Advice for a Fee

Every retirement plan governed by the Employee Retirement Income Security Act (ERISA) must be established and maintained pursuant to a written agreement that must provide for one or more "named fiduciaries" who have the authority to control and manage the operation and administration of the plan. Under ERISA, an entity is generally considered a fiduciary to the extent that it holds any discretionary authority or discretionary responsibility in the administration of an employee benefit plan.

Under... ERISA, an "investment manager" must acknowledge its status as a fiduciary in writing and must be a registered investment adviser, a bank, or an insurance company. An investment manager also must have "the power to manage, acquire, or dispose of any asset of a plan" and therefore exercises discretionary authority or control with respect to plan assets.

Regulations issued by the United States' Department of Labor (DOL) describe what constitutes investment advice.


While the ordinary functions of consultants and advisers to employee benefit plans (other than investment advisers [which are covered in subsection (ii) of the applicable statutory definition]) may not be considered as fiduciary functions, it must be recognized that there will be situations where such consultants and advisers may because of their special expertise, in effect, be exercising discretionary authority or control with respect to the management or administration of such plan or some authority or control regarding its assets. In such cases, they are to be regarded as having assumed fiduciary obligations within the meaning of the applicable definition.


In October 2010, the Department published a proposed rule expanding the definition of who is a fiduciary by virtue of providing investment advice. 75 Fed. Reg. 65263. Advice need not be provided on a "regular" basis, nor need there be the mutual understanding provided for in the existing regulation. Advice would include advice, 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. The Department requested comments on whether investment advice should encompass recommendations related to taking a plan distribution.

The proposal affects both ERISA plans and IRAs. The proposed effective date is 180 days after publication of the final regulation.

It is likely that the proposal will be finalized. Attorneys, CPAs and other advisors should refrain from inadvertently giving advice that could constitute investment advice under the expanded definition. Otherwise, they risk exposing themselves to fiduciary liability under ERISA.

LEXIS users can access the complete commentary here. Additional fees may apply. (Approx. 8 pages)



Discover the features and benefits of LexisNexis® Tax Center

For quality Tax & Accounting research resources, visit the LexisNexis® Store