Thursday, July 12, 2007

Reish on Brokers as ERISA Fiduciaries

Reish The July 11th Reish, Luftman, Reicher & Cohen Bulletin has an interesting piece by Fred Reish on potential liability for brokers who give investment advice to ERISA  plans.

Here is some of what Fred has to say on the topic:

I am often asked whether there are any lawsuits against brokers as fiduciaries for retirement plans. The answer is, yes, there are lawsuits and NASD arbitrations claiming that brokers have become ERISA fiduciaries. They are, in the main, based on allegations that the brokers gave investment advice. The cases are usually filed by the plan sponsor or its fiduciaries (e.g., the responsible officers, the committee or the trustee) to recover investment losses. Some of those cases are won by the plans and others are won by the brokers.

The legal issue is whether the broker made investment recommendations that rose to the level of ERISA-defined “investment advice,” which is different than either the securities law definition or the conversational meaning of those words. Stated slightly differently, ERISA did not make every broker a fiduciary, nor did it turn every investment recommendation into fiduciary advice. Instead, ERISA and the DOL regulations crafted a specific and limited definition of fiduciary investment advice.

The article then goes on to examine the recent case of Ellis v. Rycenga Homes, Inc., No. 1:04-cv-694 (W.D. Mich. Mar. 15, 2007) (Westlaw subscription required) to explain the concept of ERISA-defined investment advice.

Fred concludes based on this case's legal analysis:

In other words, to be fiduciary advice, the broker’s recommendations must contemplate, among other things, investment policies and strategies, portfolio composition, diversification or similar overarching factors. That is, investment recommendations alone are not fiduciary advice.


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Tracked on Jul 16, 2007 6:39:33 AM


With this crisis I don't think that the brokers will have a happy future. It's sad.

Posted by: John Minsk | Mar 2, 2009 1:20:44 PM

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