2 February 2011 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Definition of Fiduciary Proposed Rule 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue NW, 

Washington, DC 20210 

Re: Proposed Rule: Definition of the Term “Fiduciary” under ERISA 

 

Dear Sirs and Madames: 

CFA Institute, (“CFA Institute”)1 appreciates the opportunity to submit the following comments 

regarding the U.S. Department of Labor’s Employee Benefits Security Administration (“EBSA”) 

proposal to expand who would be considered a “fiduciary” under the Employee Retirement 

Income Security Act (“ERISA”). CFA Institute represents the views of investment professionals 

before standard setters, regulatory authorities, and legislative bodies worldwide on issues that 

affect the practice of financial analysis and investment management, education and licensing 

requirements for investment professionals, and on issues that affect the efficiency, integrity and 

accountability of global financial markets. 

Executive Summary 

While CFA Institute supports the goals of EBSA’s proposals and the need for market participants 

to act in the best interests of their clients, we do not support the proposal’s expansion of who is 

considered a fiduciary under ERISA and thereby expanding the Act’s enforcement procedures 

and criminal penalties beyond those who exercise discretionary authority or control over 

beneficiaries’ funds or serve as the primary fund adviser. 

                                                           

1 CFA Institute is a global, not‐for‐profit professional association of nearly 101,000 investment analysts, advisers, portfolio

managers, and other investment professionals in 139 countries, of whom nearly 90,000 hold the Chartered Financial Analyst®

(CFA®

) designation. The CFA Institute membership also includes 137 member societies in 58 countries and territories.
Re: Proposed Rule: Definition of the Term “Fiduciary” under ERISA 

2 February 2011 

Page 2

Discussion 

CFA Institute strongly supports the goal of the EBSA, as stated in the proposal to protect 

participants and beneficiaries of retirement plans from conflicts of interest and self-dealing by 

those who provide investment services to them. 

As evidenced by the strong Code of Ethics and Standards of Professional Conduct applicable to 

all its members, CFA Institute has long advocated that investment professionals practice the 

highest standards of ethics and professional conduct when engaging in services for their clients. 

All CFA Institute members must comply with a number standards when providing investment 

advice to clients, including the Standard III(A) – Loyalty, Prudence, and Care – which requires 

CFA members and candidates for the CFA designation to exercise a duty of loyalty to their 

clients, act with reasonable care, exercise prudent judgment, act for the benefits of clients and 

place their clients’ interests before their own. Further, CFA members are subject to additional 

standards that require them to exercise independence and objectivity, deal fairly with clients, 

exercise diligence, independence and thoroughness in making investment recommendations, and 

disclose conflicts of interest to their clients. 

Proposal to Broaden Definition of Investment Adviser

As described in the rule proposal, there have been “significant changes in both the financial 

industry and the expectations of plan officials and participants who receive investment advice” 

since the DOL enacted the initial regulation defining the circumstances under which a person 

renders “investment advice.” The exponential growth of defined contribution and 401(k) plans as 

retirement vehicles has led to the enormous expansion of investment service providers that 

provide critical assistance to these plans and their beneficiaries. Many of these service providers 

currently do not qualify as fiduciaries under ERISA leaving their duties and responsibilities 

unclear with respect to that Act. 

The proposed changes would broaden the definition of “investment adviser” to include market 

participants who previously provided investment services that were outside the jurisdiction of 

ERISA. The proposed changes would mean that more individuals—such as consultants, brokers, 

and appraisers who offer assistance or expertise on investment-related matters—could be subject 

to the “stringent duties on those who act as plan fiduciaries” and “become personally liable for 

losses sustained by a plan” as a result of violations of ERISA rules. 

CFA Institute agrees with the EBSA that individuals who provide investment-related services 

can “significantly influence the decisions of plan fiduciaries, and have a considerable impact on 

plan investments.” Consultants who assist a plan choose an investment adviser, or with asset 

allocation or other types of consulting projects can be just as critical to the success of the pension 

plan as choosing particular investments. Having a correct and accurate assessment from an 

appraiser as to the value of the investment is the only way to make an informed investment 

decision with regard to that asset. When paying for investment advice, clients expect their 

advisers to provide that advice in the clients’ best interest whether that advice is offered as part 

of an on-going relationship or as part of an occasional or one-time relationship. 
Re: Proposed Rule: Definition of the Term “Fiduciary” under ERISA 

2 February 2011 

Page 3

However, putting these providers on the same plane as those who exercise “discretionary 

authority or control with respect to management of the plan or management or disposition of its 

assets” in terms or responsibility or liability is inappropriate. Broadening the scope of who is 

considered to have “rendered investment advice” in a manner proposed by these rules will lead 

to an unbalanced level of responsibility, restrictions and liability relative to the significance of 

action. 

Cost/Benefit Perspective

The strict 5-part test currently in place narrowly defines who “renders investment advice” under 

ERISA as those providing advice on a regular basis and on the understanding that it would serve 

as the primary basis for the plan’s investments. We believe this is appropriate when such 

stringent penalties and duties are imposed once the test is satisfied. 

While the EBSA believes that the benefits of the proposal outweigh the costs, we cannot agree. 

The proposal, if adopted, would have significant impacts on a variety of different players and 

practices. We believe the proposed rules would potentially reduce the number of those interested 

in providing services to ERISA plans, reducing the amount of information and assistance 

available to retirement plans and increasing its cost. Assuming that service providers continue to 

offer services to ERISA plans, the cost of the additional compliance precautions and procedures, 

given the potential liability, will likely be passed on to the client and negatively impact the 

returns of participants in retirement funds whom the proposed rules are designed to protect. 

CFA Institute certainly supports EBSA’s efforts to ensure that those providing investmentrelated services to ERISA pension plans do so in an ethical manner—in the best interest of the 

client, with independence and thoroughness, and disclosing all conflicts of interest. But we 

believe the DOL can accomplish this goal without imposing an onerous procedural burden and 

potential criminal liability on service providers and fomenting the widespread disruption to the 

relationships that will result from defining these more tangential service providers as 

“fiduciaries” under ERISA. 

Since the onset of the financial crisis there has been much discussion and debate about the term 

“fiduciary”—who owes such a duty to whom and when. The investing public is rightly confused 

about when they can expect the professionals who provide investment services to act as 

fiduciaries. Proposals to define a uniform fiduciary duty for all who provide investment advice 

are aimed at simplifying this issue and protecting the investing public. By inappropriately 

characterizing parties who provide investment-related services as having the same duty, with the 

same consequences for failure to adhere to that duty, as those who have discretionary authority 

over the management of assets, or those who are the primary investment advisers to clients, the 

proposed rules will likely create more confusion than clarity on this critical topic. 
Re: Proposed Rule: Definition of the Term “Fiduciary” under ERISA 

2 February 2011 

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Conclusion 

We are encouraged by EBSA’s desire to broaden the protections offered to those with invested 

retirement assets. Protecting the interest of investors throughout the complex investment process 

is an admirable goal. However, CFA Institute does not support the expanded application of the 

term fiduciary across the spectrum of firms providing investment-related services. . 

We appreciate the opportunity to respond to the EBSA’s proposals to expand the definition of 

the term fiduciary under ERISA. Should you have any questions about our positions, please do 

not hesitate to contact Kurt N. Schacht, CFA at kurt.schacht@cfainstitute.org or 212.756.7728; 

or Jon Stokes at jon.stokes@cfainstitute.org or 434.951.5314. 

 

Sincerely, 

 

/s/ Kurt N. Schacht /s/ Jon Stokes 

Kurt N. Schacht, CFA Jon Stokes 

Managing Director, Head, Standards of Practice 

CFA Institute CFA Institute