Financial Trade Groups Blast Independent Contractor Bill

FSI said it will continue to "strongly advocate" for the carve-out for the independent financial services industry, similar to the one included in California A.B. 5. 

"We expected this to be an uphill battle in the House," Brown noted. "We are now focused on working with the Senate to preserve our financial advisor members' independence."

Ken Bentsen, SIFMA's president and CEO, explained Tuesday in a statement that the PRO Act changes how independent contractor status is determined under NLRA by imposing "an 'ABC' test on all businesses and workers, which could adversely impact hundreds of thousands" of independent advisors.

The ABC test is a three-part test for worker classification. Workers would be presumed employees unless they could satisfy all three prongs.

"The rigidity of the 'ABC test' in the proposed bill and legal uncertainty surrounding it could result in the reclassification of independent FAs as employees or require them to build out services that they more efficiently lease from other broker-dealers," Bentsen said.

Approximately 150,000 registered brokers and investment advisors operate their own financial advisory firms utilizing the independent contractor model, according to Bentsen.

"This allows these firms to obtain brokerage, research, compliance, clearing and custody services from larger broker-dealers while owning and controlling their business."

Further, independent advisors "own and manage the relationship with their clients and provide them investment education and guidance and other financial planning for life events," Bentsen said. "Independent financial advisors are entrepreneurs who explicitly choose to own and operate their own business. They are far different from the type of worker the underlying bill seeks to address."