The U.S. Department of Labor today released the language of its latest independent contractor rule defining whether a worker is an employee or independent contractor, language that’s provoking a backlash from advisors who say it could harm their business models
After the language was released, the Financial Services Institute immediately issued a statement saying the rule threatens the independent contractor status of more than a quarter of a million independent financial advisors who own their own businesses.
Julie Su, the acting secretary of labor, said the rule is needed to combat employee misclassification, “which deprives workers of basic rights and protections.” It also deprives the IRS of tax revenues.
“This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned,” she said.
The FSI successfully sued the DOL in 2021 to force the agency to implement its Trump-era independent contractor rule. The latest rule, it said, unnecessarily threatens the livelihood of independent registered representatives.
“The independent contractor status is vital to our members, and FSI is ready to leverage all our advocacy tools to ensure it remains protected,” FSI President and CEO Dale Brown said in a statement.
“We fear the DOL’s final rule will undermine our financial advisor members’ independent contractor status, despite thousands of comment letters, multiple hearings and many meetings in which stakeholders, including our members, expressed their desire to remain independent,” Brown said.
If independent advisors “are forced to be employees, this could adversely harm Main Street Americans’ access to their local trusted financial advisor,” Brown said.
Back in the late 1990s, a predecessor organization that spawned FSI, the broker-dealer division of the International Association For Financial Planning, engaged in an lobbying duel with the Internal Revenue Service over the same issue. It prevailed after convincing the IRS that reps of independent B-Ds paid for the majority of their business costs and enjoyed wide discretion in selecting the investments they recommended and sold.
FSI’s effort could prompt it to sue the DOL once again, an attorney familiar with the organization’s plans told Financial Advisor. The trade group successfully sued the agency two years ago, forcing the DOL to reinstate the Trump-era rule, which used different criteria: It put greater weight on how much control people had over their work and how much control they had over the opportunity for profit or less to determine whether they were independent contractors. The DOL withdrew the Trump-era version a day before it was to become effective on May 6, 2021.