As many of you may know, I released my new book on fiduciary law last week. I was immediately flooded with emails asking me why I would release the book before the DOL’s announcement.
There is so much misinformation and conflicting information about the potential impact of the DOL’s new fiduciary standard, that it is easy to understand the confusion. But whatever the DOL announces, it is only going to change the applicability of fiduciary law to the parties involved in ERISA and possibly other pension plans. The DOL’s announcement is not going to change the long standing principles of fiduciary law, as set out primarily in the Restatement (Third) of Trust, the Restatement of Agency, and the various legal and regulatory decisions that have helped develop and fine tune basic fiduciary law.
The purpose of my writing and releasing my book on fiduciary law was to provide a means for people to learn and understand basic fiduciary law, especially those who might have to deal with fiduciary law for the first time as a result of the DOL’s announcement. Far too many times I see fiduciaries such as investment advisers and ERISA plan sponsors try to avoid liability by saying that they meant no harm or that they were unaware of the applicable legal standards. And each time the court or the regulators references the famous quote from Donovan v. Cunningham, “a pure heart and an empty head are not defenses to a claim of the breach of one’s fiduciary duties.” I often believe that every fiduciary should have that saying tattooed on their arm.
Fiduciary law, especially under ERISA, is to enforced on a purely objective basis. Subjectivity has no place in determining whether a breach of fiduciary duty occurred. People often ask me what is the best way to get a better understanding of fiduciary law. Aside from the obvious answer, my short book, I tell people that they should take the time to read Section 90 of the Restatement (Third) of Trusts, otherwise known as the Prudent Investor, both the section’s black letter law and all of the comments. Yes, it is dull and boring, but it is the authority. Second, I tell people to read the Enron decision in its entirety, as the court handed down an excellent analysis of fiduciary law under both ERISA and the Restatement (Third) of Trusts. It’s over 100 pages long and you may have to take several breaks. but it is one of the best analyses of fiduciary you will ever read.