Steve Rosenberg writing today in his Boston ERISA and Insurance Litigation Blog ends his post, Insurance Brokers As ERISA Defendents, by commenting that "… it might be something for any entity playing a role in an ERISA governed plan to consider at the outset of their retention: should they put themselves in a position to be a fiduciary subject to ERISA, or should they avoid that like the plague?"
Until recently, one type of entity, wire house brokerage firms, did exactly that by not allowing their brokers to act as fiduciaries. For years they required their reps to act under rules which required them only to recommend “suitable investments”. This suitability requirement differs markedly from that of the fiduciary requirement imposed on registered investment advisors (RIAs) and CFPs. Not surprisingly, there has been an ongoing battle between this difference in legal responsibilities.
But now, Lisa Shidler writing for Investment News, Wirehouses warm to fiduciary status, tells us that the times are indeed a-changin’. Wachovia, Smith Barney, and UBS have all confirmed that they have begun allowing the top brokers to act as fiduciaries for 401(k) plans under certain conditions. And while Merrill Lynch declined to comment on the matter, she reports that industry sources say that some Merrill reps are also being allowed to act as fiduciaries.
Why? To be competitive with the RIAs and CFPs and to respond to plan sponsors who want them to accept fiduciary responsibility.