Today my goal is to prove that the U.S. Department of Labor’s forthcoming fiduciary rule should regulate talk radio show host Dave Ramsey and other finance entertainers like him as fiduciaries.
They should be regulated, right? Or would doing so violate Ramsey’s First Amendment right to free speech?
As I wrestled with these questions before writing this column, countless hours evaporated in front of my computer. I stared at a blank monitor that seemed to mock me with each blinking pulse. Like Dr. Jekyll and Mr. Hyde, I found myself torn between two opposites.
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Either Ramsey and his ilk of wealth-driven advice columnists and broadcast hosts should be allowed to say whatever they’d like to say in the name of free speech, or their advice should be censored, i.e. regulated, in the name of the common good.
The problem is, most of Ramsey’s advice isn’t financial advice, it’s just “get out of debt” common sense.
That means I’m either pro-Bill of Rights and free speech, or I’m anti-American.
Then, in the midst of my writer’s block arrived the glimmer of an idea. That spark was my recollection of Lowe v. Securites and Exchange Commission, the 1985 Supreme Court decision that created a meter for measuring whether financial advice is protected under the First Amendment.
What is the nature of the advice?
In case you’re unfamiliar with Lowe v. SEC, here’s a quick breakdown:
Christopher Lowe was a convicted felon. He was found guilty of stealing from a bank, pocketing a client’s money, and trying to cover it up. After serving his time in prison, Lowe decided that providing investment advice was still his calling, and penned several investment-related newsletters. The problem was, the SEC had banned him permanently from the industry. Lowe fought the SEC’s decision based on his First Amendment rights.
Let’s breakdown to resulting court battle like rounds in a boxing bout:
Round One: District court. Victor: Lowe.
Round Two: Appellate court. Victor: SEC.
Round Three: Supreme Court. The decision went to Lowe in a unanimous 8-0 vote.
The Supreme Court ruled that Lowe’s constitutionally guaranteed right to free speech was protected as long as his actions adhered to a three-pronged test.
- His newsletter is of a general and impersonal nature.
- His newsletter is of a bona fide and genuine nature.
- His newsletter is published in general and regular circulation.
Ironically, this ruling created the ability to regulate Dave Ramsey. But it also happens to violate the spirit of the new Labor Department fiduciary standard.
Questions around the advice given out by financial entertainers press the issue of whether the Department of Labor’s fiduciary standard bumps up against a 1985 Supreme Court ruling. (Photo: iStock)
Getting back to my original questions …
First, let’s take up the issue of whether the Labor Department rule should regulate financial entertainers including Dave Ramsey? Next, we’ll move on to the question of whether Lowe V. SEC applies to Ramsey? Finally, we’ll consider whether the Supreme Court decision contradicts the Labor Department’s fiduciary rule.
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The Labor Department has specifically stated that regulating entertainers such as Ramsey was not their intent for the new fiduciary rule. (Of course, under the Affordable Care Act, the Obama administration said it wasn’t their intent to force Americans to give up their primary care physicians, a statement now believed about as widely as Lance Armstrong’s early claim that he never took performance enhancing drugs.)
Even if it’s not the Labor Department’s intent to regulate financial entertainers, the new fiduciary rule gives that agency the ability to do so. But is that simply a problem waiting to happen?
Earlier this year, Forbes columnist John Berlau took up these issues in a column that published under the headline “How Fiduciary Rule May Censor Financial Broadcasters like Dave Ramsey.”
Berlau agreed with me that the Labor Department rule applies to Ramsey. To validate the idea, Berlau interviewed Kent Mason, an expert attorney “who has testified before Congress on the ill effects of the fiduciary rule.” Mason insisted the ambiguous wording and broad reach of the rule will allow the government to regulate Ramsey as a fiduciary. But others weren’t convinced.
Slate columnist Helaine Olen provided a rebuttal. “No consumer pays financial advisors on television or the radio for their specific, on-the-air advice,” she wrote.
Thus, without compensation, the Labor Department rule doesn’t regulate financial entertainers, which is a good thing. (Think brother-in-law saying “xyz” stock is a “sure thing!” right before it tanks.)
But I still have to agree with Mason and Berlau that the rule shouldn’t define where the compensation comes from. The rule is more concerned with whether there is or isn’t compensation.
Can I prove that Dave Ramsey has given specific recommendations? As they say: Does a bear defecate in the woods? (Photo: iStock)
Personal or impersonal
It seems to me, those who have looked at the Labor Department rule as it applies to financial entertainers may have missed a key fact: Lowe v. SEC already regulates Ramsey, particularly when Ramsey doles out advice of a “personal” nature. The Supreme Court found the distinction between personal and impersonal paramount to judging whether one’s First Amendment right is being impeded upon. Most of Ramsey’s advice is “impersonal” in nature, which means it is protected under the First Amendment.
However, when Ramsey gives specific recommendations, particularly with regards to financial tools, products and investments, his advice is no longer impersonal.
Consider this: On Aug. 4, 2016, a caller who dialed into “The Dave Ramsey Show” asked if he should convert his Thrift Savings Plan (TSP) from a traditional to a Roth. Dave said “Yes!” and then proceeded to recommend how to invest the TSP.
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In this example, Ramsey is already regulated, and he should be. He gave financial advice without a license. However, if Ramsey had only told the caller how to convert the TSP from a traditional to a Roth, then current rules wouldn’t regulate his advice.
Whether Ramsey should or shouldn’t have given the advice is irrelevant. The Supreme Court has already decided that it’s protected speech. But the Labor Department rule ignores whether the advice is personal or impersonal. Instead, it asks, was there a “recommendation,” and was there any sort of “compensation”?
Ignoring the distinction between personal and impersonal robs Ramsey and others of a constitutional right that was already challenged by the SEC and later ratified by the Supreme Court.
To the many who yell at me when I correct Ramsey’s fictitious financial beliefs, consider this. I’m holding Ramsey accountable to rules that he should be aware of, and that should be enforced.
So should Ramsey be regulated? When he makes personalized investment advice, the answer is a simple, and loud, yes.
But does the regulation imposed by the Labor Department fiduciary rule violate Ramsey’s First Amendment right?
The answer is also a simple, and loud, yes!
Read other columns by Michael Markey:
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