The U.S. House of Representatives passed a bill last week that would change the independent contractor status of advisors affiliated with independent broker/dealers and insurance companies. The Protecting the Right to Organize (PRO) Act, which now goes to the Senate for a vote, would institute stricter requirements for classifying a worker as a contractor instead of an employee, an issue that industry advocacy groups have been fighting for several years.
“This broad, sweeping legislation would unnecessarily reclassify as employees tens of thousands of financial advisors who have chosen the independent model,” said Dale Brown, president and CEO of the Financial Services Institute. “Our financial advisor members are independent business owners who, because of their independent contractor status, enjoy the freedom of running their own practice and offering their clients comprehensive advice, products and services.
“We strongly urge the Senate not to take up this legislation. Instead, we encourage the Senate and the House to take up the Modern Worker Empowerment Act, which would ensure consistent use of the current common law 20 factor test across all federal law and preserve the independent contractor status of those who choose this model.”
The PRO Act would implement the “ABC” factor test, also used by California’s Assembly Bill 5, to determine independent contractor status. But California Gov. Gavin Newsom provided a path for the financial services industry to classify workers as contractors, according to the FSI.
Under the three-part test, a worker would be considered an employee unless: “the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact”; “the service is performed outside the usual course of the business of the employer”; and “the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”
Before the bill was approved in the House, the FSI joined five other industry organizations in sending a letter to Speaker of the House Nancy Pelosi and House Minority Leader Kevin McCarthy, warning them about the negative impacts of the legislation. The American Council of Life Insurers, the Association for Advanced Life Underwriting, the Insured Retirement Institute, the National Association for Fixed Annuities and the National Association of Insurance and Financial Advisors also signed the letter.
“The current model provides financial services professionals with multiple avenues for advising and helping American families and businesses build secure financial futures,” the letter stated. “Some choose to engage in this work as employees, while many others prefer the freedom and independence that comes from being independent contractors so that they can exert greater control over their own business.”
In it, they argue that compensation practices in this industry are carefully recorded, so cash problems and unreported income are not issues, as they might be in other industries. In addition, advisors and agents are often selling products of multiple companies, “and are not subject to the right of direction and control characteristic of an employer-employee relationship.”