022323.01 / Federal Court in Florida Strikes Down DOL Interpretation of “Fiduciary” in the Context of Rollover Advice

Last week, a federal judge for the Middle District of Florida struck down the DOL's interpretation of the five-part test for determining whether a financial advisor is a fiduciary when recommending a rollover transaction (see American Securities Association v. United States Department of Labor).  According to DOL FAQ, it is possible for one-time rollover advice to satisfy the "regular basis" prong of the five-part test for determining fiduciary status if (1) the advisor had been providing advice about the plan to the client or (2) the advisor has not previously provided advice, but expects to continue providing investment recommendations about the IRA assets.  The court disagreed with (1), above, and found that while an offer to provide future advice may be the beginning of a relationship that satisfies that prong, the relationship cannot be related to the ERISA plan from which the rolled over assets originate.  That's because those assets are removed from the ERISA plan in the rollover, so that the advisor's potential future advice will inherently not be related to the ERISA plan. The court found that the DOL's interpretation in its FAQ ignores the plan-specific approach in the context of rollover transactions, so that the interpretation was "arbitrary and capricious".  For more information on the most recent interpretation of the DOL fiduciary standard and its application to rollover transactions, visit Tax Facts Online.  Read More: Q .  Note: Q is updated.