3982 / Who is a fiduciary for purposes of the prohibited transaction rules?

The definition of investment advice fiduciary continues to change.  Under the 2024 rule, a financial services professional is classified as an investment advice fiduciary if (1) the provider offers investment advice or makes investment recommendations to a retirement investor, (2) the advice or recommendation is made for a fee or other compensation and (3) the financial services provider either specifically states that they are acting as an investment advice fiduciary or makes the recommendation within a professional relationship in which an investor would reasonably expect to receive sound investment recommendations that are in their best interest.  See Q for a detailed explanation.

Historically, a fiduciary has been a person who has discretionary authority or control over plan management or administration or disposition of plan assets, or who renders investment advice for a fee or other compensation, direct or indirect, with respect to any money or other property of the plan.¹

A person renders investment advice if advising trustees as to the value of property or making recommendations about the advisability of buying or selling property and, directly or indirectly (1) has discretionary authority with respect to buying or selling property, or (2) renders advice on a regular basis to the plan, pursuant to a mutual understanding that (x) the services will be the primary basis for investment decisions, and (y) he or she will render individualized advice regarding investment policies.² Whether advice and recommendations regarding plan purchases of insurance contracts and annuities constitute investment advice depends on the facts in each situation.³ A fee or other compensation can include insurance sales commissions.

A final rule issued by the Department of Labor (DOL) in 2016 broadened the definition of fiduciary, effective April 10, 2017⁴ to include a person who gives fiduciary investment advice to a plan, plan fiduciary, participant, beneficiary, or IRA owner. It was vacated on June 21, 2018 after the Fifth Circuit Court of Appeals issued a mandate. The DOL did not appeal, and instead proposed a new class exemption which has again been modified as of 2024. See Q .⁵

Under earlier DOL regulations, a person who develops a computer model or who markets a computer model or investment advice program used in an ‘‘eligible investment advice arrangement’’ is a fiduciary of a plan by reason of the provision of investment advice and is treated as a ‘‘fiduciary advisor.’’⁶ The regulations specify the conditions that must be met for a fiduciary to elect to be the sole fiduciary advisor under the investment advice program.

ERISA does not modify the definition of a fiduciary under IRC Section 4975; consequently, an individual who is not a fiduciary under ERISA still can be a fiduciary for purposes of IRC Section 4975.⁷