How Convenient: Labor Dept. Rule May Remove Financial Advice From the Airwaves

March 7th, 2016 3:16 PM

Score another blow for (allegedly) "unintended consequences."

A proposed 33-page rule applying to investment advisers emanating from the Department of Labor would redefine the fiduciary relationship between investment advisers and their clients investing for retirement, which is the predominant objective of most investors. According to the Wall Street Journal, the rule "could be released as soon as this month." One side effect of the rule is that it could mark the beginning of the end of financial talk radio and TV broadcasts. Since such programs tend to lean center-right (there are exceptions, including Suze Orman), it seems mighty convenient for the government and its regulatory army that the press, particularly the Associated Press, has paid no visible attention to this apparently imminent rule.

DOL's rule, once in effect, would require advisers to act in their clients' "best interests," a stricter standard than the current requirement that they place their clients in "suitable" investments.

This post will stay away from the fierce debate over how brokers and advisers are paid, and concentrate on just one aspect of the five "core "principles pushed by The Committee for a Fiduciary Standard, an "all-volunteer" group formed in 2009 for the express purpose of hardening adviser regulations, characterized in their language as "advocat(ing) for the authentic fiduciary standard as established under the Investment Advisers Act of 1940."

The five core principles follow. The one at issue is in bold:
• Put the client’s best interests first;
• Act with prudence, that is, with the skill, care, diligence and good judgment of a professional;
• Do not mislead clients--provide conspicuous, full and fair disclosure of all important facts;
• Avoid conflicts of interest;
• Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.

Avoiding "conflicts of interest" seems pretty clear. But, as usual, the devil is in the details. In this case, the devil is on the side of restricting what sensible people would consider free speech.

As John Berlau at the Competitive Enterprise Institute pointed out at on Thursday, the rule's detailed language causes anyone providing "investment advice" to an individual or family — including a talk radio host discussing financial matters with a caller — to be vulnerable to conflict of interest allegations.

Additionally, as is so often the case, we're seeing one form of business siding with stricter government rule-making for the express purpose of smearing and making life tougher on a perceived competitor:

How Fiduciary Rule May Censor Financial Broadcasters Like Dave Ramsey

Popular financial radio show host Dave Ramsey caused a firestorm on Twitter last week when he weighed in against the “fiduciary rule”—the controversial pending Department of Labor regulation that would impose new restrictions on a vast swath of financial professionals who handle IRAs and 401(k) accounts. Yet, Ramsey was only echoing concerns about the costs of the rule already expressed by Members of Congress from both parties.

Ramsey Tweeted, “this Obama rule will kill the Middle Class and below ability to access personal advice.” A war of Tweets then broke out between opponents of the rule, and supporters, the latter of which includes fee-based investment advisers expected to benefit from the new costs the rule will shower on their broker competitors.

Fittingly, even before Ramsey came out against the rule, one of his critics called for using the rule against Ramsey, supposedly for providing advice said critic deemed harmful to savers. In an October article in LifeHealthPro, an online trade journal for insurance agents and financial advisers, Michael Markey, an insurance agent and owner of Legacy Financial Network, called for Ramsey to “be regulated and to be held accountable” by the government for the opinions he gives to listeners. Markey hailed the Labor Department rule as ushering a new era in which “entertainers like Dave Ramsey can no longer evade the pursuit of regulatory oversight.”

So there you have it. A competitor who doesn't like Dave Ramsey and the platform he has built clearly intends to see that the new rule puts him under the government's thumb.

But how is this possible? Here's how, per Berlau:

Experts both for and against the rule I have talked to agree its broad reach could extend to financial media personalities who offer tips to individual audience members, a group that includes not just Ramsey but TV hosts like Suze Orman and Jim Cramer, as well as many other broadcasters who opine on business and investment matters.

... “Under the proposed regulation, investment advice from a radio host to a caller regarding the caller’s own investment issues would appear to be fiduciary advice if the advice addresses specific investments,” (partner at the law firm Davis & Harman Kent) Mason said in an email. It doesn’t matter that Ramsey and other hosts aren’t compensated by listeners, he adds, as the DOL rule explicitly covers those who give investment advice and receive compensation “from any source.” Mason agrees with Markey that the compensation Ramsey receives from radio stations that carry his show and from book sales are enough to define Ramsey as a “fiduciary” under the rule.

Though the rule does contain an exemption for “recommendations made to the general public,” this wouldn’t protect Ramsey and other radio and television personalities if they gave specific answers to callers or audience members, argue both Mason and Markey. Similarly, Mason adds, while the main part of investment seminars would be exempt, “if during the seminar, someone from the audience asks a question about his or her situation and the speaker answers the question with respect to specific investments, that answer would be fiduciary advice.”

So, apart from the talk radio issue, I guess advisers looking for clients will now have to tape and archive every presentation, prospective client meeting and phone discussion to protect themselves against anyone who claims that they gave specific financial advice. Lord have mercy.

But what about that quaint little document known as the Constitution, whose First Amendment protects freedom of speech and of the press? It turns out that we're in uncharted waters, mainly because no one has ever thought that people making financial suggestions should be presumptively muzzled:

... To my knowledge, there has never been a federal court ruling on whether restrictions on financial advice offered to individuals in a public forum would violate the First Amendment. In any event, even if this aspect of the rule were eventually ruled unconstitutional, it may take years before such cases wind their way through the courts, and the free flow of financial discussion would be chilled until such a ruling occurs.

All the more reason for the Labor Department to withdraw the fiduciary rule as written. If it does not do so, Congress must perform its fiduciary duty to the American people and throw out this regulation that is definitely not in savers’ “best interest.”

In other words, if the rule goes into effect, prudent advisers will have to act as if it will stay final. Radio stations which carry money-related broadcasts like Dave Ramsey, Clark Howard and others will force the hosts to stay away from individual calls. Even telling an individual or family that it would be a good idea to put away the plastic and get out of debt is technically a form of "financial advice" that ultimately affects their ability to retire comfortably (or at all). If Ramsey and others don't comply, there's a good chance that no one, or almost no one, will air their shows. If they do comply, their programs will more than likely become less interesting, start losing listeners, and then start losing broadcast outlets.

Thus, if the DOL rule goes into effect unchanged, muzzlers like the aforementioned Michael Markey would likely get their way, even if it means trampling on the First Amendment and turning popular talk-show hosts into government targets.

So how is this not being treated as serious news at the supposedly First Amendment-defending establishment press outlets like the Associated Press and the New York Times (the Times had a story about the DOL rule in September, but did not address the First Amendment issue)?

Cross-posted at