Who is a Fiduciary?

A Fiduciary – is a person who is bound to act for another’s benefit.

In financial services, a fiduciary is expected to be a Prudent Expert.

Under the Prudent Expert Rule – a fiduciary must discharge his or her duties with the care, skill, prudence and diligence, under the circumstances then prevailing, that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and aims.

The prudent man rule directs fiduciaries “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.

ERISA & Retirement Fiduciaries

In 1974, the Employee Retirement Income Security Act (ERISA) was passed to protect the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire. Congress constructed ERISA based on its perspective that certain critical relationships to a plan and functions on the behalf of a plan should require heightened duties (and corresponding heightened scrutiny). Congress, therefore, defined who could be considered an ERISA fiduciary based not on the particular title a person (or entity) holds, but rather on what that person or entity does or has the authority to do relative to the plan. Thus, with the exception of the plan’s named fiduciary and trustee, it is the functions undertaken rather than the title held that determines fiduciary status.

What Is an ERISA Fiduciary?

The starting point for all discussion of what it means to be an ERISA fiduciary is Section 3(21)(A) of ERISA. Section 3(21)(A) states that a person is a fiduciary “to the extent” that the person:

  • Exercises any discretionary authority or control over plan management or disposition of a plan’s assets
  • Provides investment advice for a fee (or other direct or indirect compensation) or has any authority or responsibility to do so, or
  • Has any discretionary authority or responsibility over the plan

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