Federal legislation impacting financial advisors’ independent contractor classification remains top of mind this year, as Democrats in the House of Representatives passed the Protecting the Right to Organize (PRO) Act on March 9. The measure is currently awaiting review in the Senate.

If enacted, the PRO Act would implement a more stringent worker classification test for independent contractors, likely resulting in the reclassification of financial advisors as employees of broker-dealers, undermining these advisors’ choice to be independent contractors running their own businesses.

We strongly oppose the PRO Act on the basis that enabling financial advisors to operate as independent contractors is an essential element of their businesses and the services they provide to clients. Reclassification of advisors as employees would undermine thousands of thriving advisory practices across the country and place severe limitations on Main Street investors’ access to high-quality financial advice.

Independent advisors are drawn to the independent model because of the freedom it offers to serve their clients in the way they choose. Just as importantly, the independent business model opens a wide range of options for Main Street investors to obtain financial guidance that suits their needs.

We fully recognize that worker misclassification is a real and problematic issue in some industries. However, in the independent financial advice sector, the proposed PRO Act runs in direct opposition to advisors’ interests—and, if passed into law, would unduly harm them and the investors they serve.

With this in mind, we have joined forces with a coalition of like-minded trade organizations to oppose the PRO Act and argue for a carveout in the bill’s worker classifications provisions for financial advisors, similar to the one we secured in California’s 2019 independent contractor law.

An Arms-Length Relationship
For years, we have worked tirelessly on both the state and federal levels to safeguard independent advisors’ independent contractor status. The core of our argument is that the relationship between independent financial advisors and the wealth management firms that support them is, essentially, a supervisory one, centered on ensuring advisors’ compliance with securities regulations.

For virtually all other purposes, the relationship is no different from any other arms-length, contractual agreement between an independent business owner and a technology or service provider.

The independent contractor model empowers advisors to follow their entrepreneurial instincts by, for example, allowing them to develop their own technology platforms; determine their own mix of advisory versus commission-based services for clients; and exercise greater control over the products they offer to investors.

The PRO Act would undermine these positive features—which have proven to provide significant value to investors and increase access to financial advice—by creating requirements that do not serve advisors, firms or investors.

California’s Assembly Bill 5, which came before that state’s legislature in 2019, implemented a strict test for companies classifying workers as independent contractors, but provided an exception for businesses in the independent financial services industry. Our advocacy efforts played a significant role in securing the carveout, which provided a much-sought-after degree of clarity and certainty to advisors in the state.

The PRO Act—Not A Done Deal
Even though the PRO Act passed the House without a carveout for advisors—and despite the fact that the Democrats now hold the presidency and the tie-breaking vote in the Senate—it is not a foregone conclusion that the bill will become law.

Looking ahead, we plan to engage the Senate on two fronts: Working to either secure a carveout in the Senate version of the bill, or to advocate against passage of the bill altogether. Signs are positive for a favorable outcome, given that portions of the Democratic caucus appear not to favor the legislation in its current form. Additionally, passage of the PRO Act would require the support of at least 10 Republican Senators to overcome a filibuster.

We are continuing to express our opposition to the bill in discussions with key lawmakers. In addition, FSI members have sent over 8,000 letters to members of Congress so far in response to our Calls to Action. As long as the PRO Act remains active, we will continue to fight for an exemption for our members.

The stakes are high—in addition to its immediate effects, the PRO Act could open the door for future laws and regulations that would erode financial advisors’ independent contractor status even further. However, this fight is just beginning, and we will continue to staunchly defend our members’ interests on this critical issue.

Dale E. Brown is president and CEO of the Financial Services Institute.