When the Department of Labor’s Employee Benefits Security Administration re-proposes its fiduciary rules, it must take into account their effect on broker/dealers, plan sponsors, record keepers and plan auditors, says Jeleen Guttenberg, a partner in the law firm Bracewell & Giuliani’s Employee Benefits, ERISA, and Executive Compensation group.
These groups have never had fiduciary status, but if they did, it would change the whole way people do business, Guttenberg cautions.
Bronislaw Grala, senior counsel for Cadwalader, Wickersham & Taft LLP in New York, and head of Cadwalader’s ERISA practice, said that, “Generally speaking, if I assume good faith on the part of the Department of Labor, it is a little hard to criticize them for wanting to provide greater protections for investors, people who have plans or IRAs. But in my mind, the proposal went way too far and was not well thought out in terms of unintended consequences.”
He added that, “once you characterize someone as a fiduciary, they now owe a fiduciary duty to not give advice in which they have a conflict.” That’s fine, he said, except that several exemptions to the fiduciary definition were put in place in the ‘70s. “When you change the definition, a lot of exemptions become unusable,” Grala said. “They didn’t think through what would have to be done. They aren’t just reinventing the definition of fiduciary, but reinventing all of these exemptions.”