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May 15 2017

Legal Group Argues Fiduciary Rule Violates Free Speech

Washington Legal Foundation, a public-interest law firm and Washington D.C. think tank, filed an amicus brief urging the Fifth Circuit Court of Appeals to reverse the lower court’s ruling in favor of the Department of Labor on the grounds that the fiduciary rule infringes on advisors’ First Amendment rights.

“Most brokers, agents, and other insurance salespeople may no longer receive customary forms of compensation, including commissions or sales loads, for recommending investments to retirement investors without first agreeing to become the investor’s fiduciary under the government’s onerous contract terms,” said the WLF in their brief. “In other words, the rule subjects everyday sales pitches about retirement products to ‘the highest legal standards of trust and loyalty,’ even if the transaction lacks any of the ‘hallmarks of a trust relationship.’”

In her February ruling, Judge Barbara M.G. Lynn of the Northern District of Texas held that the trade groups waived their free speech arguments since they did not expressly raise such concerns with the DOL in public comments during the rulemaking process.



The Washington Legal Foundation brief argues that this approach has been rejected in the past by both the Fifth Circuit and the U.S. Supreme Court.

“The district court’s holding that appellants waived their First Amendment claim by not raising any First Amendment issues during the rulemaking process is contrary to binding Fifth Circuit and Supreme Court precedents….it is also contrary to fundamental notions of procedural fairness, sound public policy, and common sense,” said the WLF.

The group continued, “At a practical level, the very notion that a regulated stakeholder can somehow ‘waive’ a challenge to an agency rule—before that rule is even reduced to final form—runs counter to basic notions of procedural fairness.”

The fiduciary rule attempts to reduce conflicts of interest in retirement investment advice and redefines who is considered an investment advice fiduciary under the Employee Retirement Income Security Act of 1974. According to the DOL fiduciary rule, all who provide retirement investment advice to plans, plan fiduciaries and IRAs are required to abide by a “fiduciary” standard.

The rule applies to advisors paid by commission or other transaction-based compensation. Critics claim that it leaves financial firms and advisors open to frivolous class action lawsuits that would essentially end access to financial advice by retirement saviors of modest means. Proponents argue that the rule provides valuable safeguards against conflicted advice to those very same investors.

Plaintiffs in Chamber of Commerce et al. v. Department of Labor include the Securities Industry and Financial Markets Association, Financial Services Institute, Financial Services Roundtable, and others.

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Article by: The DI Wire


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