The Fourth Circuit Affirms No Breach of ERISA’s Fiduciary Duties for “Cross-Selling” Efforts

Like the tides, the rules regarding ERISA’s fiduciary duties are constantly in flux. The Fourth Circuit recently ruled that while providing “investment advice for a fee” implicates those duties, pitching investment services does not. It also clarified that a fiduciary’s self-interest alone, without any action taken on behalf of that self-interest, is not a breach.

In Reetz v. Aon Hewitt Investment Consulting, Inc., the plaintiff, a former Lowe’s employee and a participant in Lowe’s retirement plan, argued that Aon’s advice to Lowe’s breached its fiduciary duties under ERISA. The plaintiff argued that Aon violated its duty of loyalty by (1) pitching Aon’s “delegated fiduciary” services to Lowe’s and (2) advising Lowe’s to streamline the investment menu it offered to plan participants. After a bench trial, the district court ruled Aon had not breached its fiduciary duties.

The Fourth Circuit affirmed. Under ERISA’s duty of loyalty, a fiduciary must act “solely” in the plan’s interest. 29 U.S.C. § 1104(a)(1)(A). The Fourth Circuit ruled that Aon’s sales efforts regarding its “delegated fiduciary” services were not “investment advice” and therefore Aon owed no duties for those efforts. It made no difference that Aon was an investment consultant to Lowe’s at the time of its sales efforts—merely because Aon was “cross-selling” did transform its sales efforts into a fiduciary function.

The Fourth Circuit also ruled that there was nothing disloyal about Aon’s recommendation that Lowe’s streamline its investment menu. The plaintiff argued that Aon was motivated by self-interest because Aon’s recommended approach would increase Aon’s chances of being hired to provide “delegated fiduciary” services. The Fourth Circuit disagreed. “Self-interest” alone does not show a breach. Rather, a breach occurs only where a fiduciary acts on behalf of the self-interest—“a fiduciary can have self-interest, it just can’t act on it.” Because the evidence reflected that Aon’s advice was independent of its sales efforts and intended to simplify participants’ investment choices, there was no breach. (The Fourth Circuit separately affirmed that Aon did not breach ERISA’s duty of prudence.)

While the questions raised by Reetz are simple, the answers likely are not. When is a fiduciary “selling investment services” versus providing “investment advice for a fee?” When does a fiduciary cross the line between merely having a self-interest and acting on behalf of that self-interest? Answering those questions will often require a fact-intensive inquiry, which may invite more litigation against ERISA fiduciaries.