Will proposed DOL regulation drive firms to drop ESOP appraisals?

BVWireIssue #98-3
November 17, 2010

In the October 22, 2010 Federal Register, the DOL issued a proposed regulation that would expand the definition of “investment advice” fiduciary under ERISA. Under the proposed regulation, “the types of advice and recommendations that may result in
fiduciary status under ERISA section 3(21)(A)(ii) are: Advice, appraisals or fairness opinions concerning the value of securities or other property.”

BVWire worries that, in its efforts to protect beneficiaries of pension plans, it will have a negative effect on the market. We recall the example of the trust firms like U.S. Trust which abandoned the ESOP market after being exposed to lawsuits.  Will the larger valuation firms (such as Duff & Phelps and Houlihan Lokey) that perform ESOP fairness opinions and appraisals similarly decide to forgo these generally low-margin engagements in order to protect themselves from the increased liability exposure?   This would mean that the new DOL regs, if approved, would potentially reduce the quality of ESOP work.

There is already a backlash against the proposed regulation, at least from the ESOP Association, and we won’t be surprised to hear of further responses from other related groups including the ASA BVC. BVWire will continue to report on the issue.

Please let us know if you have any comments about this article or enhancements you would like to see.