The Financial Services Institute is asking the U.S. Department of Labor to extend the comment period on a rule that would make it harder for independent broker-dealers to classify reps as independent contractors.
The trade group has been opposing the rule, saying it will create “regulatory tumult” and make it more difficult for independent broker-dealers (IBDs) to treat professionals who want to hang out their own shingles as independent contractors.
The proposal would require that workers be considered as company employees when they are “economically dependent” on the firm, which would entitle them to more benefits and legal protections than contractors.
The new rule would replace a Trump administration regulation that allowed workers who own their own businesses or have the ability to work for competing companies to be treated as contractors.
Comments on the proposal were due by November 28, but the DOLhas already extended the comment period 15 days to December 13.
FSI, an industry group that represents 160,000 independent financial advisors and the IBDs they work with, told the DOL in a letter yesterday that the industry needs until January 12 to analyze and provide public input on the 58-page proposal.
FSI’s General Counsel David Bellaire said in the letter to the DOL that a full 90-day comment period is critical given the rule’s far-reaching economic impact on dually registered financial advisors who make up nearly 53% of producing registered reps in the nation.
The extension is also necessary to bring the proposal timeline into conformance with Office of Information and Regulatory Affairs rules for proposals with “significant regulatory action,” Bellaire said.
As a result or the proposal, “DOL continues a back-and-forth on the issue of worker classification, creating regulatory tumult just as those affected had adjusted to the reinstatement of [the agency’s] previous rule on this same issue. ... FSI is concerned that the short length of the comment period and timing of its completion (after Thanksgiving) limits the public’s ability to provide adequate input,” he added.
The FSI sued the DOL and won in May, preventing the agency from revoking the 2021 Trump-era rule which clarified independent financial advisors’ independent contractor status under the Fair Labor Standards Act. The DOL appealed the lawsuit, but then decided that proposing a new rule was a better legal workaround.
The new proposal adopts a broader definition of who counts as an employee, mirroring Obama-era guidance that was withdrawn by the DOL under former President Donald Trump.
The DOL proposal “could result in a return to the confusing and conflicting interpretations by the courts prior to the 2021 rule, causing independent financial advisors and firms to divert time and resources to defending their independent contractor classification,” FSI spokeswoman Allison Kuehner Mutschler told Financial Advisor magazine.