Language in the Department of Labor’s proposed conflict-of-interestrule, which would expand the fiduciary status toadvisors of 401(k) plans with less than $100 million in assets,will have significant impact on how advisors communicate basic planinformation.

A team of ERISA experts at Drinker Biddle has published a clientalert laying out just what the rule would mean for participantcommunications, assuming the proposed rule were enacted.

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Any communicated “recommendation” would trigger fiduciarystatus, according to the alert.

Which is to say that any communication that could be“reasonably” viewed as a “suggestion” that a participant move in orout of an investment would constitute fiduciary advice, accordingto the attorneys, citing language from the proposal.

“Under this standard, many common sales and investment educationpractices would constitute fiduciary advice.” Fred Reish and BradCampbell, former Assistance Labor Secretary and chief of theEmployee Benefits Security Administration, co-authored thepiece.

Under the DOL’s proposal, most communications would be regardedas suggestions, say the attorneys. That would be a change fromERISA and the DOL’s current guidelines, which requires a mutualunderstanding on behalf of participants that investment advice isbeing given to enact ERISA’s fiduciary protections.

Also, under the DOL’s proposal, advisors would only have to havea one-time relationship with a plan or participants in ordertrigger fiduciary status. Under existing regulation, advisors mustbe providing “on-going” advice in order to be held to the higherfiduciary standard.

The DOL does create an “education carve out,” which intends toallow financial education for participants without triggeringfiduciary status for the provider delivering it.

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But the carve out is “narrowly crafted,” say the attorneys, andthey warn broker advisors or providers of education materials totake steps to ensure materials don’t unintentionally triggerfiduciary status.

Existing guidance from the DOL says plan communications areeducational, and don’t constitute advice or trigger fiduciarystatus, when they are about plan information, general investmentinformation, asset allocation models, and interactive investmentmaterials.

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The new proposal includes those benchmarks, but adds greaterimperative on providers of education to only give“investment-neutral” advice, according to the attorneys.