Recordkeeping Recommendations a Fiduciary Act?

By Nevin Adams • June 03, 2016 • 0 Comments
Many advisors — and advisory firms — have assumed that recommending a recordkeeper under the new fiduciary regulation wouldn’t constitute a fiduciary act. But that assumption may be wrong.

The final fiduciary regulation, as did the 2015 proposal, places a great deal of emphasis on investment recommendations as the heart of the fiduciary relationship with retirement accounts. Specifically, the regulation notes any individual receiving compensation for making investment recommendations (our emphasis) that are individualized or specifically directed to a particular plan sponsor running a retirement plan, plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary.

That specificity, coupled with the simplified platform exception included in the final regulation, led to a widespread assumption that the recommendation of a non-fiduciary service would not create a fiduciary tie.

While technically speaking the recommendation of a recordkeeper itself wouldn’t seem to constitute an investment recommendation, per se, there is an emerging sense among ERISA attorneys that when there are investment options tied to that recordkeeper — for example, the funds that are on the platform, the funds that constitute the default investment choice, or the fund families included in the target-date fund option(s) — the Labor Department is likely to consider the recordkeeper recommendation inherently an investment recommendation and as such, one that creates a fiduciary relationship.

“If this turns out to be the case, plan advisers going to have to carefully think through the due diligence mechanisms they use in helping plan sponsors choose recordkeepers,” noted Brian Graff, CEO of the American Retirement Association.