A group of lawyers representing insurance and securities brokerages have made a curious argument for why a federal court should kill a rule aimed at protecting retirement savers: It restricts Wall Street's First Amendment rights.
In front of a packed federal courtroom in Dallas last week, plaintiffs attorneys fighting the Labor Department's fiduciary rule said it hinders free speech because it restricts what individuals selling retirement products will be able to say.
The rule requires that brokers who give retirement advice act in their clients' best interest. The Labor Department, which regulates pension funds and other retirement income, devised the rule in order to protect retirement savers from receiving biased advice or being sold products they don't need.
David Ogden, lawyer for the American Council of Life Insurers, argued in court that the rule would prevent simple sales pitches like, "Buy my product; it's a good product; here's what it will do for you."
The insurance industry would be affected by the rule because insurers sell annuities.
Big business has used similar tactics in cases related to product labeling, pharmaceutical sales and securities disclosures, with mixed success.
Experts said the First Amendment argument may be persuasive in this case, which may eventually come before the Supreme Court, because the burdens of the rule will force even honest salespeople to limit what they say to clients.
"Recent cases have made clear that the First Amendment provides broad protection for commercial speech that is truthful and non-misleading," said Floyd Abrams, a leading First Amendment rights lawyer with Cahill Gordon & Reindel, who successfully defended The New York Times in landmark litigation. "It's a close case."
The fiduciary rule has been a contentious subject for nearly six years, and its release in April led Wall Street to quickly file several lawsuits to block its implementation. It is set to take effect in April next year.
Regulators and consumer advocates have argued that the rule is important and necessary. Financial firms have countered that it is overly burdensome and expensive.