Department of Labor’s Fiduciary Rule Is Vulnerable on First Amendment Grounds

DOLPromulgated in April 2016, the Department of Labor’s (DOL) highly controversial Fiduciary Rule drastically expands the universe of retirement investment advisors and employees who are deemed to be “fiduciaries” under federal law. Abandoning 40 years of settled statutory interpretation of the Employee Retirement Income Security Act of 1974 (ERISA) and parallel provisions of the Internal Revenue Code (IRC), DOL now maintains that a fiduciary is anyone who provides “recommendations” that are individualized or directed to a specific recipient for consideration in making investment or management decisions with respect to securities or other property of an ERISA plan or an IRA.

The rule loosely defines “recommendation” as “a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.” In an earlier proposed rulemaking, DOL even conceded that this expanded definition of fiduciary encompasses communications that “Congress did not intend to cover as fiduciary ‘investment advice’ and that parties would not ordinarily view as communications characterized by a relationship of trust or impartiality.” Nonetheless, the new rule sweeps broker-dealers, their registered representatives, insurance companies, brokers, and their commission-based sales agents into the broad definition of “fiduciary.”

While the DOL has postponed the Fiduciary Rule’s implementation until at least June 9, affected stakeholders have asked the US Court of Appeals for the Fifth Circuit to overturn the Rule on a variety of grounds.  Petitioners—including (among others) the American Council of Life Insurers (ACLI), the Indexed Annuity Leadership Council (IALC), and the US Chamber of Commerce—argue that the rule improperly asserts regulatory authority over products and activities that are outside DOL’s jurisdiction, in violation of the statutory limits Congress imposed on the agency. They also argue, among other things, that the rule unlawfully abridges the right of brokers, agents, and other insurance salespeople to convey truthful, non-misleading commercial speech to investors.

While the Fiduciary Rule is deeply flawed and should be overturned for many reasons, its First Amendment defects are especially vulnerable to attack. This is what Washington Legal Foundation argued in the amicus curiae brief it filed May 9 with the Fifth Circuit in the ongoing legal challenge.

On its face, the Fiduciary Rule discriminates against speech based solely on its content and the identity of the speaker, triggering heightened First Amendment scrutiny. Reed v. Town of Gilbert, Ariz. holds that any effort to classify speech by reference to its content, or to burden speech that falls into a disfavored category, constitutes a content-based restriction subject to strict scrutiny. And Sorrell v. IMS Health Inc. makes clear that any effort to restrict speech based on the speaker’s “economic motive” is a speaker-based restriction subject at the very least to “heightened scrutiny.” Nonetheless, the Texas district court below held just the opposite, relying on the “professional speech doctrine” to effectively eliminate Appellants’ First Amendment rights, based on nothing more than the regulated speakers’ identities and the content of their speech.

Not only has the US Supreme Court never recognized a separate First Amendment category for so-called professional speech, but it has consistently rejected any constitutional distinction between speech to the general public and speech to a particular person or group that somehow deprives the latter category of any meaningful First Amendment protection. Indeed, distinguishing between “professional” speech and ordinary speech is itself an impermissible content-based distinction. Even on the rare occasion that lower federal courts have invoked the professional-speech doctrine, they have limited its application to state regulatory regimes tied to a generally applicable licensing scheme—a threshold requirement not met here.

At bottom, the district court’s decision below afforded unacceptably broad deference to DOL’s decision to restrict truthful, non-misleading commercial speech. DOL seeks to justify its content-based and discriminatory burdens on the basis that those burdens are aimed solely at professional conduct, not speech. The district court agreed, explaining that Appellants and their members “may speak freely, so long as they recommend products that [in DOL’s view] are in a consumer’s best interest.” But “[t]he First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.” 44 Liquormart, Inc. v. Rhode Island.

Such speech restrictions are subject to heightened First Amendment review, even when the speech in question is commercial in nature. By exempting DOL’s rule from any level of judicial scrutiny, the decision below—if allowed to stand—would effectively render the First Amendment a dead letter.

Also published by Forbes.com on WLF’s contributor page.

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