Prepared by The Wagner Law Group

Transcription

1 401(k) FIDUCIARY TOOLKIT Sponsored by ishares Prepared by The Wagner Law Group Rollover Assets Navigating ERISA Restrictions on Cross-Selling to 401(k) Plan Participants

2 IMPORTANT INFORMATION The Wagner Law Group has prepared this guide. BlackRock does not represent that this information is accurate and complete, and it should not be relied upon as such. This guide is intended for financial advisors who provide advisory services to 401(k) plans in a fiduciary capacity under the Employee Retirement Income Security Act of 1974, as amended (ERISA). This guide is intended for general informational purposes only, and it does not constitute legal, tax or investment advice on the part of The Wagner Law Group or BlackRock. BlackRock is not affiliated with The Wagner Law Group. This guide includes suggested guidelines that are intended to help minimize the liability risk under ERISA that arises when a fiduciary advisor provides certain rollover guidance to plan participants, enabling the advisor to earn additional compensation for providing IRA-related advice. The definitive conditions for eliminating such liability risk under ERISA have not been specifically established in regulatory or interpretive guidance as of the publication date of this paper. Future case law or other legal and regulatory developments may impact the analysis presented in this paper. The application of the legal analysis presented in this paper can vary significantly based on individual facts and circumstances. Plan fiduciaries should consult their legal counsel to determine how the specific requirements under ERISA apply to their individual situations. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. FOR FINANCIAL PROFESSIONAL USE ONLY NOT FOR PUBLIC DISTRIBUTION MW-9/10

3 ishares 3 Capture rollover assets the right way by equipping yourself with the knowledge you need to navigate the special ERISA rules which impact how you can and can t pursue rollover assets. This guide, prepared by The Wagner Law Group, investigates the scope and nature of the rigid restrictions under ERISA that limit the ability of fiduciary advisors to capture rollovers. Taking advantage of this analysis, it provides practical suggestions to help you get past the restriction on cross-selling to plan participants and successfully gather rollover assets. For more information, visit our Fiduciary Resource Center at To learn how to use ishares ETFs in 401(k) plans, call the Retirement Plan Sales Team at

4 4 Rollover Assets Executive Summary DOL Advisory Opinion A is the first pronouncement in which the DOL expressed its view that a prohibited transaction could arise under ERISA as a result of a fiduciary advisor making rolloverrelated recommendations to plan participants and then earning a fee for IRA-related advisory services. The justification for subjecting a fiduciary advisor s cross-selling activity to the fiduciary standards under ERISA is premised on the DOL s legal theory that the advisor is exercising discretionary authority respecting management of the plan when responding to participants questions concerning the advisability of taking plan distributions and how to invest the distribution proceeds. In support of this legal theory, the DOL cites as its authority, Varity Corp. v. Howe, a Supreme Court case that effectively establishes a three-factor test to determine whether participant communications are made in a fiduciary capacity. Utilizing these three factors as guidance, fiduciary advisors should consider modifying their cross-selling practices to minimize the likelihood that their rollover recommendations will be characterized as conflicted fiduciary advice in violation of ERISA. 1. Factual Context of Communication Setting Avoid Recommendations on Distributions/Rollovers at Plan Meetings When speaking with participants at plan-related meetings, advisors should avoid commenting on the advisability of taking distributions from the plan, rolling over funds to IRAs, or how to invest rollover IRAs. Advisors can, however, discuss the availability of rollover options as a purely educational matter. Engage in Limited Cross-Selling Only at Plan Meetings During plan-related meetings, advisors should limit their cross-selling efforts to merely stating that the advisor separately offers advisory services to individuals for a fee (unrelated to plan services). Tell Rollover-Related Services at Separate, One-on-One Meetings Any discussions with a participant that concern engaging the advisor to provide IRA-related services should be conducted on a one-on-one basis.

5 ishares 5 2. Whether Communication Has a Plan-Related Nature Disclose Financial Sales Incentive to Sell IRA-Related Services To ensure the participant understands the sales nature of any promotional information encouraging the participant to engage the advisor to provide IRA-related advice, the advisor should disclose its financial incentive to sell such services. 3. Whether Advisor Is Known to Have Plan-Related Authority Disclose that IRA-Related Services Are Not Endorsed by Plan To ensure the participant understands the advisor is not acting as a plan fiduciary, the advisor should disclose that it is not acting as a plan fiduciary when selling or providing its IRA-related services, and make other related disclosures. Sponsor Should Acknowledge IRA-Related Services Are Not Part of Plan Services The advisor should seek an acknowledgment from the plan sponsor of its understanding that any personal services provided to individual participants concerning rollover IRAs will be performed outside of the plan, that such services will be in a non-fiduciary capacity, and other related acknowledgments. The disclosures and acknowledgements described above should be made in writing. Advisors should also consider developing sample Q&A information sheets that serve: (i) as an internal aid to the advisor to help clarify what can and should not be said to participants, and (ii) as a guide that can be distributed to the participant. Whether any activity is viewed as having a fiduciary character is based on the surrounding facts and circumstances, and fiduciary advisors who engage in cross-selling to participants should seek the assistance of legal counsel to ensure their practices are in full compliance with any requirements under ERISA.

6 6 Rollover Assets Introduction Many financial advisors do not yet fully grasp the significance of the 2005 guidance issued by the U.S. Department of Labor (DOL), which impacts advisors serving as plan fiduciaries and their ability to capture rollovers. As provided under this regulatory guidance, DOL Advisory Opinion A imposes an enormous restriction on the ability of fiduciary advisors to cross-sell their advisory services to plan participants. Here is a simple illustration of the type of cross-selling activity that is expressly prohibited under DOL Advisory Opinion A: The sponsor of a 401(k) plan hires a financial advisor as a fiduciary to make investment menu recommendations. A new menu is created based on the advisor s recommendations. The advisor introduces the plan s new menu at a participant education meeting. After the formal presentation, the advisor gives participants the opportunity to ask questions individually. In response to a participant s question on the advisability of taking a plan distribution at his approaching retirement date to gain access to investment choices that are not available through the plan, the advisor recommends a rollover to an IRA. The participant follows the advisor s recommendation, and rolls over his plan account to an IRA shortly after his retirement date. The advisor is hired to facilitate the rollover and provide IRA-related advice for a fee. DOL CONCLUSION The advisor s actions, as described above, constitute self-dealing, resulting in a prohibited transaction in violation of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

7 ishares 7 Advisory Opinion A is the first regulatory pronouncement in which the DOL expressed its view that a prohibited transaction could arise under ERISA as a result of a fiduciary advisor making conflicted rollover-related recommendations to plan participants. But what makes this DOL guidance even more surprising is its legal conclusion that non-fiduciary advisors are not subject to this restriction, and that financial advisors who are not serving as plan fiduciaries may freely capture rollovers. Based on a casual reading of Advisory Opinion A, one might easily infer that fiduciary advisors can never cross-sell their advisory services to plan participants under any possible circumstances. Such a rigid interpretation of this DOL guidance would effectively create a competitive advantage for a subset of financial advisors, generously allowing advisors who serve plans in a non-fiduciary capacity (e.g., brokers) to capture rollovers without limitation, but barring advisors who are willing to serve as plan fiduciaries (e.g., registered investment advisers) from engaging in the same exact activity. In this white paper, we will discuss the DOL s rationale for drawing a distinction between fiduciary advisors and non-fiduciary advisors. By examining the policy-related concerns and legal reasons for imposing a cross-selling restriction on fiduciary advisors alone, we will identify the precise nature of the restriction imposed under Advisory Opinion A, and explore how fiduciary advisors can potentially capture rollovers without running afoul of the fiduciary requirements under ERISA.

8 8 Rollover Assets Original Purpose of DOL Advisory Opinion Was to Clarify Whether Plan Fiduciaries Were Responsible for External Advisors To fully understand the principles declared in DOL Advisory Opinion A, it is helpful to identify the original purpose of this DOL pronouncement. Advisory Opinion A was issued in response to an administrative service provider s request for guidance concerning the responsibilities of a plan sponsor and other plan fiduciaries with regard to external financial advisors (i.e., financial planners and advisors who were neither chosen nor promoted by the plan sponsor) offering advisory services directly to the plan s participants. Based on the nature of the provider s request to the DOL, it appears that the primary purpose of the request was to obtain assurances that the plan s existing fiduciaries would not be held responsible for the activities of the external advisors. The Advisory Opinion summarizes three specific questions asked by the administrative service provider in its request for guidance, and it also supplies the DOL s responses. Generally speaking, the DOL s replies to the provider s original questions are favorable to plan sponsors and other plan fiduciaries, confirming that these internal plan fiduciaries are not responsible for the activities of the external advisors. The first question addressed in the Advisory Opinion concerns the fiduciary status of an external advisor who is independently hired by a participant to provide investment advice relating to the participant s investment allocations under the plan. Although the advisor is clearly viewed as a plan fiduciary, subject to potential liability under ERISA for any imprudent recommendations, the DOL favorably concludes that the plan sponsor and other fiduciaries are not responsible for the external advisor or the advisor s recommendations In theory, the plan sponsor or other fiduciary could be subject to co-fiduciary liability under ERISA Section 405 in connection with an imprudent investment recommendation made by an external advisor, but only if such plan fiduciary knowingly participated in the external advisor s breach of its duties under ERISA.

9 ishares 9 The second and third questions similarly ask whether an external advisor is permitted to earn IRArelated advisory fees after recommending that participants withdraw funds from the plan and invest in rollover IRAs. The DOL favorably concludes that the external advisor s recommendations do not constitute fiduciary advice for ERISA purposes. In the DOL s opinion, advising participants on making withdrawals from the plan is not fiduciary investment advice, since distribution-related advice does not pertain to the investment of plan assets. Similarly, advising participants on how to invest the withdrawn funds is not subject to the fiduciary standards of ERISA, since the advice relates to funds that ceased to be plan assets upon withdrawal from the plan. KEY CONCEPT The DOL has concluded that a non-fiduciary advisor s cross-selling to participants to capture rollovers is not a fiduciary activity subject to the requirements of ERISA.

10 10 Rollover Assets DOL Advisory Opinion Includes Extra Commentary Imposing Restriction on Cross-Selling by Internal Fiduciary Advisors Many readers of DOL Advisory Opinion A were caught off guard by the DOL s additional commentary which accompanied the otherwise favorable guidance provided in response to the administrative service provider s original questions. As discussed above, the Advisory Opinion provides favorable assurances to plan fiduciaries that they had no oversight responsibilities with respect to external advisors. However, in spite of the fact that the original questions posed to the DOL related to external advisors only, the DOL went out of its way to discuss how it would reach an opposite conclusion if the financial advisor making recommendations to plan participants were an internal fiduciary advisor (i.e., an advisor who is already serving the plan as a fiduciary). The DOL provided the following unsolicited commentary on whether an internal fiduciary advisor may recommend that a participant roll over plan funds to an IRA arrangement and then earn IRA-related investment fees: Where, however, a plan officer or someone who is already a plan fiduciary responds to participant questions concerning the advisability of taking a distribution or the investment of amounts withdrawn from the plan, that fiduciary is exercising discretionary authority respecting management of the plan and must act prudently and solely in the interest of the participant. [emphasis added] Since someone who is already a fiduciary is deemed to be exercising fiduciary discretionary authority when advising on distributions and rollovers as described above, the internal fiduciary advisor s communications are subject to the duty to act solely in the interest of the participant. Accordingly, the advisor cannot make conflicted recommendations to participants in response to their questions concerning plan distributions and rollovers. KEY CONCEPT The DOL s guidance with respect to a fiduciary advisor is radically different from its favorable conclusion concerning a non-fiduciary advisor. If the advisor is already a fiduciary, it must act solely in the interest of the participant, meaning that the advisor s ability to cross-sell to participants is restricted.

11 ishares 11 The DOL s analysis is somewhat counterintuitive, because the cross-selling restriction is tied to the status of the advisor as an existing plan fiduciary, rather than depending on the fiduciary nature of the advisor s recommendations to participants. In fact, the Advisory Opinion concedes that recommendations concerning plan distributions and rollovers by their nature do not constitute fiduciary investment advice. This regulatory view on cross-selling, which places fiduciary advisors on unequal footing with non-fiduciary advisors, was affirmed once again in the DOL s preamble to the first iteration of the participant investment advice regulations under ERISA Section 408(b)(14), which were finalized on January 21, Although these regulations were subsequently withdrawn, lessening the significance of its preamble, the applicable commentary confirmed the DOL s intent to impose a cross-selling restriction on fiduciary advisors only. 2. The first iteration of the participant investment advice regulations was finalized, but then subsequently withdrawn as of November 16, 2009 before the effective date. A second iteration of these regulations was proposed on February 26, 2010.

12 12 Rollover Assets Legal Reason for Basing DOL Restriction on Cross-Selling on Advisor s Exercise of Fiduciary Discretionary Authority The justification under Advisory Opinion A for subjecting a fiduciary advisor s cross-selling activity to the standard of care under ERISA is premised on the DOL s legal theory that fiduciary advisors are exercising discretionary authority respecting management of the plan when responding to participants questions concerning the advisability of withdrawing plan funds and the investment of such funds. The DOL refers to a single source of authority in support of this legal theory, Varity Corp. v. Howe, a U.S. Supreme Court case. 3 The DOL s reference to Varity Corp. is made sparingly through a brief footnote, without any further explanation, forcing readers of the Advisory Opinion to determine for themselves the conceptual link between the DOL s legal theory and this 1996 Supreme Court decision. Supreme Court Establishes Three-Factor Test for Determining Whether Employee Communications Are Subject to ERISA Fiduciary Standards (Varity Corp. v. Howe) The Supreme Court s decision in Varity Corp. is an influential and frequently cited ERISA opinion. The case involved an employer that decided to transfer its money-losing divisions to a new subsidiary. At a meeting to persuade employees to transfer to the new subsidiary, the employer assured them that their benefits would remain secure after the transfer. In reality, the subsidiary was insolvent from the day it was created, and its newly transferred employees lost valuable benefits after it went bankrupt. The court held that the employer had misled the employees in breach of its duty to act solely in the interest of plan participants under ERISA, and that the employer needed to restore their lost benefits. The main point of contention between the litigating parties in Varity Corp. was whether the employer was acting in a fiduciary capacity when it misled the transferred employees into believing that their benefits would remain secure, and whether this communication was subject to the fiduciary standards of ERISA. In deciding this issue, the court examined the relevant statutory definition under ERISA, which functionally provides that a person is a fiduciary to the extent such person exercises discretionary authority respecting management of the plan, or has discretionary authority in the administration of the plan. 4 As a factual matter, the court observed that reasonable employees could have thought that the employer was communicating with them both as an employer and as a plan fiduciary. The court ultimately concluded that the employer was in fact exercising discretionary authority respecting the plan s management or administration when it made its misrepresentations to the employees. This conclusion was based on the U.S. 489 (1996). 4. ERISA Section 3(21)(A) provides that a person is a fiduciary with respect to a plan to the extent he or she engages in any of the following activities: (i) exercises any discretionary authority or discretionary control respecting management of the plan or exercises any authority or control respecting management or disposition of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any assets of the plan, or (iii) has any discretionary authority or discretionary responsibility in the administration of the plan.

13 ishares 13 factual context of the communication, which was made at a key meeting that was largely about benefits. The opinion expressly stated that the court s conclusion was also based on the plan-related nature of the communications, and the fact that the communications were made by those who had plan-related authority. By its deliberate and organized formulation of its conclusion in Varity Corp., the Supreme Court effectively established a three-factor test for deciding whether a person is acting as a fiduciary when communicating with participants. KEY CONCEPT In accordance with the U.S. Supreme Court s analysis in Varity Corp., the determination of whether participant communications are made in a fiduciary capacity under ERISA depends on: (i) the factual context of the setting in which the communication is made, (ii) whether the communication has a plan-related nature, and (iii) whether the person making the communication is known to have plan-related authority. Supreme Court s Three-Factor Test Should Also Determine Whether Cross-Selling Communications Are Subject to ERISA Fiduciary Standards (Varity Corp. v. Howe) Given the fact that the DOL cites Varity Corp. as the foundation for its legal theory (i.e., that a fiduciary advisor is actually engaging in fiduciary activity when advising participants on distributions and rollovers as described in the Advisory Opinion), it stands to reason that the DOL s characterization of such fiduciary activity should be consistent with the three-factor test under Varity Corp. Before applying the three-factor test to confirm its consistency with the DOL s analysis under the Advisory Opinion, it is helpful to identify the relevant facts and circumstances surrounding the particular cross-selling activity referenced in Advisory Opinion A. The DOL does not clearly enunciate its assumptions, but it presupposes various factual conditions as implied by the highlighted phrases below in the key sentence from the Advisory Opinion: Where, however, a plan officer or someone who is already a fiduciary responds to participant questions concerning the advisability of taking a distribution or the investment of amounts withdrawn from the plan, that fiduciary is exercising discretionary authority respecting management of the plan [emphasis added] The unusual phrasing strongly implies that the DOL is making a number of factual assumptions. Specifically, it appears that the DOL is assuming that the participant communications at issue are being made at some type of plan meeting or Q&A session, during which participants are asking a plan

14 14 Rollover Assets officer or other fiduciary to provide advice concerning how participants should exercise their rights under the plan. Given the fact that participants are asking for advice, it can be further assumed that the participants are talking to a fiduciary known to them as having plan-related authority. These assumed facts in the DOL Advisory Opinion, as interpreted under the Varity Corp. threefactor test, would invariably lead to the conclusion that the internal fiduciary advisor was making recommendations to participants in a fiduciary capacity. KEY CONCEPT In light of the various factual assumptions implicit in the depiction of the restricted cross-selling activity in Advisory Opinion A, the DOL s legal theory for imposing the restriction on fiduciary advisors is consistent with the factual analysis required under the three-factor test from Varity Corp., a Supreme Court decision that is cited by the DOL as the sole authority for its legal theory. Recent ERISA Case Supports View that Cross-Selling Restriction Only Applies if Facts Demonstrate Advisor Is Acting as a Fiduciary (Young v. Principal Financial Group, Inc.) In Young v. Principal Financial Group, Inc. (S.D. Iowa, 2008), the federal district court held that an administrative service provider advising participants to roll over their plan accounts to IRAs limited to investing in its proprietary funds was potentially in violation of ERISA. However, the provider could only be held responsible for the resulting harm to participants caused by its conflicted recommendations (i.e., higher investment fees in proprietary funds) to the extent the provider was as a factual matter acting as a fiduciary when making these recommendations. The Young case involved a financial services company providing administrative services to defined contribution plans. According to the legal complaint, upon the termination of employment of targeted participants, the provider sent out forced call letters instructing them to call a toll-free telephone number to discuss how the termination might affect their benefits. However, the contact number provided was for the company s sales department, which advised participants to roll over their plan accounts to IRAs that were restricted to the provider s proprietary mutual funds. These rollovers caused the participants to pay higher fees than if they had left their funds in the plan. The complaint further alleged that the provider was exercising discretionary authority or control respecting management of the plan when providing this conflicted rollover advice, and that its conflicted advice was in breach of its duties under ERISA.

15 ishares 15 The court ruled that participants are entitled under ERISA to seek the disgorgement of profits from the provider. However, participants would need to demonstrate factually that the provider was acting in a fiduciary capacity when providing the conflicted rollover advice to participants. As illustrated by Young, a potential for abuse can arise when a provider exploits its position of trust with participants and cross-sells investment products that generate additional income for itself. At its core, this same policy-related concern drives the DOL s legal theory in Advisory Opinion A. To ensure participants are not harmed, if an advisor is indeed acting as a plan fiduciary when giving rollover advice based on the surrounding facts and circumstances, such advice should be subject to the fiduciary standards of ERISA and the rollover advice should be conflict-free. The analysis in the Young opinion is consistent with the view that the DOL restriction on cross-selling should apply only when advisors are making rollover recommendations that are deemed to constitute a fiduciary act as determined by the surrounding facts and circumstances. KEY CONCEPT Recent case law supports the view that the DOL restriction on cross-selling by fiduciary advisors should apply only when the surrounding facts demonstrate that the advisor s recommendations to participants are being made in a fiduciary capacity.

16 16 Rollover Assets Suggested Guidelines for Minimizing the Risk of a Fiduciary Advisor Providing Rollover Advice to Participants Based on the Supreme Court s three-factor test as discussed above, the determination of whether a fiduciary advisor s recommendations to participants are fiduciary communications depends upon: (i) the factual context of the setting in which the communication is made, (ii) whether the communication has a plan-related nature, and (iii) whether the person making the communication is known to have plan-related authority. Utilizing these criteria, financial advisors who already serve their plan clients as fiduciaries should modify their cross-selling practices to minimize the likelihood of their rollover recommendations being characterized as conflicted fiduciary advice in violation of ERISA. Suggested guidelines relating to each of the three factors in the Varity Corp. test are provided below, that are intended to ensure that (i) for factual context purposes, any cross-selling discussions occur in a setting that is not plan-related, (ii) disclosures of the advisor s sales incentive to sell IRA-related advisory services are made to the participant, demonstrating that the advisor s efforts to sell these services are not plan-related, and (iii) both the participant and plan sponsor understand that the IRArelated services offered to participants will not be provided under the authority or supervision of the plan sponsor or any other plan fiduciary. 1. Factual Context of Communication Setting Avoid Recommendations on Distributions/Rollovers at Plan Meetings When speaking with participants at plan-related meetings, advisors should avoid making recommendations or commenting on the advisability of taking distributions from the plan, rolling over funds to IRAs, or how to invest rollover IRAs. Advisors can, however, discuss the availability of rollover options as a purely educational matter. The DOL s Advisory Opinion specifically targets fiduciary advisors who respond to participant questions concerning the advisability of distributions and rollovers. Thus, advisors should limit their communications with participants to general education on the availability of distributions from the plan (i.e., when plan distributions are available) and rollover options for avoiding immediate taxation and obtaining greater investment flexibility.

17 ishares 17 DOL Interpretive Bulletin 96-1, which includes general guidance on the distinction between investment advice and investment education, provides particular guidance on how educational guidance can be provided with respect to rollovers. In emphasizing the importance of rollover education, the preamble states: Plan participants also need to be informed about the impact on retirement savings of preretirement withdrawals... The Department, therefore, encourages educational service providers to emphasize that participants should... if they change employment refrain from withdrawing their retirement savings, and opt instead to directly transfer or roll over their plan account into an IRA or other retirement vehicle... This DOL guidance confirms that an advisor providing a plan participant with general educational information about the availability of rollovers would not be providing investment advice. Engage in Limited Cross-Selling Only at Plan Meetings During plan-related meetings, advisors should limit their cross-selling efforts to merely stating that: (i) unrelated to the plan services currently provided by the advisor, the advisor also offers advisory services to individuals for a fee, and (ii) the advisor would be happy to discuss IRA rollovers and other personal investment strategies with participants individually. Sell Rollover-Related Services at Separate, One-on-One Meetings Any discussions with an individual participant concerning how to invest his or her distribution proceeds (e.g., investing through rollover IRA), or engaging the advisor to provide IRA-related services, should be made on a one-on-one basis. Such sales discussions with an individual participant should never be conducted at or following a plan-related meeting, or with multiple participants. 2. Whether Communication Has a Plan-Related Nature Disclose Financial Sales Incentive to Sell IRA-Related Services To ensure the participant understands the sales nature of any promotional information encouraging the participant to engage the advisor to provide IRA-related advice, at the initial one-on-one meeting with a participant, the advisor should disclose its financial incentive to encourage the participant to engage the advisor, which arises because the advisor will receive additional compensation as a result of providing IRA-related advice for a fee.

18 18 Rollover Assets 3. Whether Advisor Is Known to Have Plan-Related Authority Disclose that IRA-Related Services Are Not Endorsed by Plan To ensure the participant understands the advisor is not acting in a fiduciary capacity, the advisor should disclose at the initial one-on-one meeting that: (i) the participant is not required or encouraged by the plan sponsor to work with the advisor, (ii) any IRA-related services provided by the advisor are completely unrelated to the plan and they are not supervised or monitored by the plan sponsor or any other plan fiduciary, and (iii) the advisor is not acting as a plan fiduciary when selling or providing its IRA-related services. Sponsor Should Acknowledge IRA-Related Services Are Not Part of Plan Services The advisor should seek an acknowledgment from the plan sponsor of its understanding that (i) the advisor s plan-related services concerning the availability of distributions and rollover options will be merely educational in nature, and will not include advice to participants on the advisability of taking distributions from the plan, rolling over funds to IRAs, or how to invest rollover IRAs, and (ii) any personal services provided to individual participants concerning IRA rollovers will be performed outside of the plan and that such services will be in a non-fiduciary capacity. The participant disclosures and plan sponsor acknowledgements described above should be in writing. Advisors should consider working with their legal counsel to develop appropriate forms and/or agreement provisions. Advisors should also consider developing sample Q&A information sheets that serve: (i) as an internal aid to the advisor to help clarify what can and should not be said to participants, and (ii) as a guide that can be distributed to the participant. Conclusion Although DOL Advisory Opinion A imposes a cross-selling restriction on fiduciary advisors, an analysis of the DOL s reasoning reveals the precise nature and scope of the DOL restriction on the ability of fiduciary advisors to provide rollover guidance to plan participants and earn additional compensation for IRA-related advisory services. Based on the three-factor test established under Varity Corp., a U.S. Supreme Court case that is cited as the primary authority for the DOL s legal theory in its Advisory Opinion, financial advisors can make specific adjustments to their cross-selling practices to minimize the likelihood of such activity being subject to the DOL s restriction. Whether any activity is viewed as having a fiduciary character is based on the surrounding facts and circumstances, and fiduciary advisors who engage in cross-selling to participants should seek the assistance of legal counsel to ensure their practices are in full compliance with any requirements under ERISA.

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