The U.S. House of Representatives yesterday passed legislation that will reclassify certain independent financial advisors, including those affiliated with independent broker-dealers (IBDs), as employees, ignoring objections from some financial services industry groups.
The PRO Act, which is being hailed by unions as the most important labor relations legislation in decades, essentially expands who is considered an employee for the purposes of forming or joining a union and seeking employee benefits, and it sweeps independent financial advisors into that group.
Many financial services trade groups, including the Financial Services Institute (FSI) and the Securities Industry and Financial Markets Association (Sifma), requested a carve out for the independent financial services industry due to their members’ business model and the fact that advisors choose independence, but the bill passed by the House did not include the carve-out. The trade groups are now focused on advocating for a carve out in the Senate, FSI President and CEO Dale Brown said.
“We are disappointed in the House’s vote to pass the PRO Act without providing a carve-out for independent financial advisors,” Brown said. “These advisors, many of them leaving an employee advisor model, choose the independent model because it allows them to better meet the needs of their clients and operate their own business. Independent financial advisors are small business owners and entrepreneurs. They have built their businesses within their communities, helping hard-working Main Street Americans achieve their financial goals.”
As the PRO Act moves to the Senate, FSI will continue to “strongly advocate” for the addition of a carve-out for the independent financial services industry, similar to the one included in California, Brown said.
“We expected this to be an uphill battle in the House,” he added. “We are now focused on working with the Senate to preserve our financial advisor members’ independence.” The PRO Act faces more opposition in the Senate than it did in the House.
The bill, which critics say would make it nearly impossible for any worker to qualify as an independent contractor, incorporates measures that follow California's new independent contractor law and erodes right-to-work laws in 27 states. Proponents of the bill say it would grant all workers a bargaining position for access to health care, improved benefits and pay increases.
“This legislation seeks to change the definition of 'independent contractor' in a way that would cause significant disruption to the independent financial services and property casualty insurance industries and the customers we serve,” Brown and 13 other CEOs said in a letter to lawmakers last week.
Rep. Bobby Scott, D-Va., the lead author of the bill, which has three Republican co-sponsors, pointed to a 2019 report by the Bureau of Labor Statistics that found on average union members make 19% more than workers in the same field not represented by a union.
“Over the past year, every elected official has celebrated the courage and resilience of our workers,” Scott said in a statement. “But there is a difference between praising hard work and standing up for hardworking people. Workers need our solidarity, and they need our action.”
But independent advisors and agents are not employees, financial service trade group CEOs argued in their letter to lawmakers last week. “By effectively reclassifying independent contractors as employees, the PRO Act would create unintended consequences for the industry, and specifically insurance producers and independent financial advisors," the letter stated.
Advisors already have a long history of “appropriate classification as independent contractors” and are not involved in the worker classification problems found in other industries, the CEOs said.
Many independent financial advisors “have substantial relationships with one or more insurance companies, broker dealers, or registered investment advisors, which allows them to offer expanded options to their customers. These small business owners enter into written agreements with insurance companies (or general agents of insurance companies), broker dealers or registered investment advisors that carefully set forth the terms of the independent contractor status. It would be enormously disruptive to negate these agreements through Federal legislation,” they said.