EBSA Faces More Criticism on Definition of Fiduciary Proposal

March 2, 2011 (PLANSPONSOR.com) – In a second day of testimony regarding the Department of Labor’s proposed change to the definition of fiduciary, witnesses continued to express concerns.

The Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI) both agreed with previous witnesses that the Employee Benefits Security Administration’s proposal is too broad (see ABC Warns against Too Broad Definition of Fiduciary) and may disrupt established business practices of financial institutions interacting with employee benefit plans. In addition, both groups encouraged the agency to look into the costs of the proposal (see EBSA Hears Warning on Pending Rule Changes).  

ICI suggested a rewrite of the rule, while SIFMA urged EBSA to confer with the Securities and Exchange Commission and other regulators on the interaction of its proposal with the requirements of Dodd-Frank.  

Specifically, Paul Schott Stevens, President and CEO of ICI, said revisions to the rule should embrace the following principles: 

  • Persons who deal with plans or IRA investors must know whether or not they are fiduciaries. 
  • Fiduciary status should attach only to genuine advisory relationships where a position of trust and confidence exists. 
  • Simply selling an investment product cannot be a fiduciary act.  
  • The rule should not discourage the assistance that recordkeepers engaged to administer plan accounts provide to help fiduciaries prudently select and monitor plan menu investments, a point made in the first day of testimony by J.P. Morgan (see J.P. Morgan Asks for Clarification on Redefinition of Fiduciary). 


Ken Bentsen, Executive Vice President for Public Policy and Advocacy at SIFMA, said the rule appears to be in conflict with section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, in which Congress asked the SEC to conduct a study on investment advisers and broker/ dealers and the distinctions between them when providing personalized investment advice and further authorized the SEC to promulgate a rule establishing a uniform standard of care for the provision of such advice. Bentsen noted that the SEC has now presented its study to Congress and recommended that the Commission adopt such a standard, that, based on the SEC study and direction from Congress, would appear to be quite different than the standard being proposed in the DOL’s proposed rule.  

“One would hope that the agencies will coordinate rule-making so that the change in the standard of conduct would be effective at the same time that this regulation and the changes in the necessary prohibited transaction trading exemptions were effective,” he said.  

The SIFMA testimony is here.  

The ICI testimony is here.