The Financial Services Institute pushed through amendments to California Senate Bill 459 that means independent broker-dealers and financial advisors affiliated with them won't be subject to increased compliance burdens and costs included in the original bill, FSI officials said Tuesday.

On June 22, the California Assembly Committee on Labor and Employment had passed a bill that would have required broker-dealers to manage and maintain forms showing advisors holding independent contractor status. The bill then went before the Assembly Appropriations Committee on Monday. 

However, the FSI-backed amendments removed the notice and record keeping requirements for all independent contractors in California. The amendment also replaces these requirements with a notice requirement via a Web site or office posting only for firms found to have engaged in willful mis-classification of independent contractors.

The FSI argued that SB 459 would have created additional unnecessary costs for independent broker-dealers that would be passed on to financial advisors and investors. The FSI also argued that the measure would have increased administrative costs for the state by about $250,000.

FSI officials said the law would have also required broker-dealers to maintain records for a prolonged period. And it would erode their independence through the threat of large civil penalties and potential criminal liability for willful misclassification of workers.

Launched in 2004 with offices in Atlanta, Ga., and Washington D.C., the FSI is an advocacy organization for independent financial services firms and independent financial advisors. It consists of 124 broker-dealer members and 27,000 financial advisor members.

"This is a big win, not only for our California broker-dealers and financial advisors, but for all broker-dealers and advisors in other states that were watching to see what happened in California before they acted," said FSI President & CEO Dale E. Brown.

"This will hopefully temper any thoughts from other state legislatures about going down a path that will ultimately hurt hard-working Americans' ability to secure affordable, unbiased financial advice, especially during these hard economic times," Brown added.

FSI Government Affairs Counsel Matt Schwartz spearheaded the FSI's advocacy effort this year that included convincing over 500 financial advisors to write letters to their assemblymen expressing concerns over Bill 459. In addition, roughly 25 members have volunteered to participate in face-to-face meetings with their assemblymen, coordinated through FSI.

Schwartz attributed the FSI's success in getting the bill amended to "the great grass roots effort that got members involved to write letters to let legislators know where they stand on this."

While the bill still has several legislative hoops to jump through, including an eventual vote by the state Assembly and Senate and a final signature by California Jerry Brown, the FSI says it's its mission for all intents and purposes has been accomplished in getting the amendments added.

"For our purposes, today is the day,'' FSI spokesman Christopher Paulitz said. 

 

-Jim McConville