The Department of Labor’s (DOL) proposed independent contractor rule is facing additional arguments from Washington, D.C.-based advisory industry group, Financial Services Institute (FSI).
New findings from a study conducted by FSI and Oxford Economics found the proposal, re-introduced in 2022 and aimed at distinguishing employees from independent contractors under the Fair Labor Standards Act (FLSA), would “result in significant disruption if implemented, with scores of investors across the country likely losing access to affordable and professional financial advice and services.” According to the research, 19% of financial advisors said they would rather retire than be classified as an employee under the proposed rule.
The letter goes on to argue that the rule would bring higher costs for independent firms and their affiliated advisors. Seventy-eight percent said they expect account minimums to increase, while 77% expect commissions and management fees to rise.
“While our industry may not be the target of the DOL’s recent rulemaking, it’s clear that the potential fallout would be enormous,” said FSI President & CEO Dale Brown, in a press statement. “That’s especially the case for our financial advisor members, many of whom were once employees of wirehouse firms but willingly opted to go the independent route, believing that the model allowed them a better opportunity to provide clients with a great service experience.”
Of the 689 responses received from financial advisors, 47% believe there would be a reduction in investment options if the DOL proposal were to proceed, and 59% expect a possible reduction in customers and/or investors.
FSI had previously called on the DOL to rescind the new proposal last year, after the Biden Administration replaced an old Trump era proposal with a six-factor economic reality test. Such a test would be used to determine whether a worker is economically dependent on an employer or themselves for work.
Advisors have largely fought against the proposal, contending that the rule should exempt independent advisors who operate their own businesses. “Based on the findings of this study, and consistent with our comment letter late last year regarding this issue, we urge the department to rescind this proposal,” Brown continued in his statement.
In its comment period on the proposal—which garnered close to 55,000 comments from gig workers, financial advisors and industry experts—some encouraged the changes. Many comments encouraged the proposal, adding that the change would largely protect against worker misclassification that denies fair wages, employee benefits, Social Security, and more. Some of these comments were from advisors themselves.
“…We appreciate that the Department’s recent rule proposal will allow me to continue to choose to be an independent contractor,” said Daniel Alcala, an independent financial advisor affiliated with Global Retirement Plans. “This proposed rule would rely on a multi-factor economic realities test, which would allow me and the 140,000 other independent financial advisors to continue to own and run independent small businesses… The Department’s focus on the issue of economic dependence and independence when applying an economic reality test is the right lens.”
Editor’s Note: Due to an editing error, this story originally contained an inaccurate headline transposing “Independent Contractor” for “Employee.” The mistake has been corrected and 401(k) Specialist regrets any confusion caused by the error.
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