Legal Blog

How To Ensure You Don’t Cross The Line Between Investment Education and Investment Advice


On June 9, 2017, the landmark Department of Labor rule to protect pension investors went into partial effect.  The “fiduciary rule” requires that investment advisers meet certain standards in advising 401(k) participants and IRA owners.  The investment adviser must give advice that serves the best interest of the retirement investor, charge reasonable compensation and not make misleading and false statements.   Other requirements of the fiduciary rule take effect on January 1.

One of areas of the fiduciary rule that requires the attention of plan sponsors, plan administrators, plan fiduciaries and plan vendors is the important line between investment advice and investment education.  Here’s why this is critical.  If a plan sponsor tries to offer investment education and inadvertently crosses the line and starts giving investment advice, the plan sponsor becomes a fiduciary with respect to advising plan participants and beneficiaries and IRA owners on investment recommendations.  That could open up the plan sponsor to DOL enforcement or private investor lawsuits for breach of fiduciary duty.  This could occur even if the plan sponsor and plan administrator have taken steps to delegate the investment advice function to a third-party investment adviser.   Also, it is important that any vendor hired to provide investment education know the boundaries between education and advice and that the plan sponsor seek a written acknowledgement from the vendor that it knows what investment education is and will be responsible if it crosses the line and causes a problem for the plan sponsor.

The general rule is clear:  If a party provides investment advice for a fee to plan participants and beneficiaries and IRA owners relating to specific investment recommendations, that party is a fiduciary under the rule.  The final rule discusses four areas of investment education that do not render the provider a fiduciary:  (1) plan information, (2) financial, investment and retirement information, (3) asset allocation models, and (4) interactive investment materials.  Here’s the caveat: Proceed with caution.  The devil is in the details.  Know what investment education is and what it isn’t.

As part of my practice, I advise companies, their pension plans and their plan trustees on ERISA and related legal matters.  If you have a question, call me.

 

Questions about the fiduciary rule?
Contact Ted Stein at tstein@offitkurman.com or 240.507.1725.

 

ABOUT THEODORE P. STEIN

tstein@offitkurman.com | 240.507.1725

Theodore P. Stein is an attorney based in Bethesda with more than 30 years of experience who counsels employers, their plans and plan trustees on how to comply with ERISA and the ACA and how to minimize the risk of ERISA claims. He also represents them when litigation is threatened or filed. He is the Chair of the ERISA/Employee Benefits Practice and a Principal in the firm’s Labor and Employment Practice Group.

 

 

 

 

 

ABOUT OFFIT KURMAN

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