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Fiduciary Rule Slammed as First Amendment Violation

May 11, 2017

A legal group and an insurance industry association claim the Department of Labor’s fiduciary rule, which purports to require retirement brokers put clients’ interests first, violates the constitutionally-protected freedom of speech of investment advisors, broker-dealers and insurance agents, Law360.com writes.

The Washington Legal Foundation has filed an amicus brief supporting several industry groups fighting to reverse a Fifth Circuit court decision issued in February in favor of the DOL, according to the legal news website.

The WLF argues that the court’s ruling allows the Labor Department to curb “truthful, non-misleading commercial speech,” referring to advisors and brokers’ sales recommendations to their clients, Law360.com writes.

In a separate suit, the American Council of Life Insurers is arguing the rule violates the free speech of insurance agents and brokers, curbing their right to discuss annuity products with consumers, according to the news service.

In February, U.S. District Judge Barbara Lynn rejected a challenge from the U.S. Chamber of Commerce and several other industry groups claiming the DOL had overstepped its authority by approving its fiduciary rule. Her ruling came hours after the DOL had requested a stay following a memorandum from President Donald Trump directing the agency to review the rule.

In this week’s brief, the WLF argued Lynn’s February ruling, which concluded that the challengers had waived their First Amendment claims because they hadn’t raised claims during the rulemaking, went against precedents set both by the Fifth Circuit and by the U.S. Supreme Court, Law360.com writes.

The DOL has delayed the rule, originally scheduled to go into effect in April, at least until June. And in April, the Fifth Circuit declined a preliminary injunction request against the rule in view of the delay, Law360.com writes. Earlier this month the U.S. Chamber of Commerce and Sifma implored the Fifth Circuit that the DOL had overstepped its authority by including a best interest contract exemption, which allows brokers to sell some commission-based products after signing a contract with their clients, according to the legal news website.

Meanwhile, Thrivent Financial for Lutherans, a fraternal benefit society, is challenging the DOL’s rule in Minnesota federal court, arguing the rule’s ban on class action waivers in contracts goes against the Federal Arbitration Act, Law360.com writes.

In addition to legal challenges, the DOL’s rule also faces an outright repeal as part of a Dodd-Frank overhaul bill approved by a House of Representatives panel earlier this month and now heading for a full House vote.

By Alex Padalka
  • To read the Law 360 article cited in this story, click here.