Definition
An investment advice fiduciary is a person who renders investment advice for a fee or other compensation with respect to any moneys or other property of an employee benefit plan or an IRA, and who is treated as an ERISA fiduciary under Section 3(21)(A)(ii) of ERISA with respect to that advice.
Why it matters
Investment advice fiduciary status is one of the three routes into ERISA fiduciary status, alongside discretionary authority over plan administration and discretionary authority over plan assets. It is the route through which most advice-giving relationships in the retirement space are evaluated for ERISA fiduciary duty. Whether a given advisor, broker-dealer, or platform is an investment advice fiduciary with respect to a specific recommendation determines whether the ERISA fiduciary standard governs that recommendation and whether the ERISA prohibited transaction rules apply to the advisor's compensation.
How it works
Investment advice fiduciary status is defined by the intersection of ERISA Section 3(21)(A)(ii) and the DOL's operationalizing regulations. The statutory language covers persons who render investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of a plan, or has any authority or responsibility to do so. The DOL has, through successive rulemakings, defined what qualifies as investment advice for this purpose. The 1975 five-part test required the advice to be individualized to the recipient, provided on a regular basis, pursuant to a mutual understanding that it would serve as a primary basis for investment decisions, and rendered for a fee. Subsequent rulemakings — including the 2016 rule, the 2020 rule, and the 2024 rule — have attempted to expand this definition to cover more rollover, IRA advice, and one-time recommendation situations, with each attempt subject to litigation and revision. An investment advice fiduciary is subject to the ERISA Section 404 duties of loyalty and prudence with respect to the covered advice and must comply with the prohibited transaction rules on compensation, typically by relying on a class exemption such as PTE 2020-02.
In practice
For an individual receiving retirement account advice, whether the person giving the advice is an investment advice fiduciary determines whether the advice is subject to the ERISA fiduciary standard. Ask the professional whether they are acting as an ERISA investment advice fiduciary with respect to the specific recommendation, what compensation they will receive from any resulting transaction, and what prohibited transaction exemption they are relying on. Common documentation includes a written acknowledgment of fiduciary status, a rollover analysis for rollover recommendations under PTE 2020-02, and disclosure of conflicts and compensation. Investment advice fiduciary status is recommendation-specific — the same professional may be a fiduciary with respect to one recommendation and not another — so the question is asked with respect to each recommendation rather than the professional's status in general.
Related terms
- ERISA fiduciary standard
- DOL fiduciary rule
- ERISA Section 404
- Prohibited transaction
- Rollover
- Fiduciary standard
- Named fiduciary
- Prudent expert standard