Independence is one of the fundamental animating forces in American life, both in our civic interactions and in business. The ability to determine one's own path and achievements through hard work, talent and ingenuity is a powerful motivator that has driven countless successful companies, created millions of jobs, and which binds us together as part of what we call "the American Dream."
As we celebrate the Fourth of July holiday, however, we are reminded of a crucial lesson that has been reinforced over and over again throughout our nation's history: That independence requires constant vigilance. It is not something to be taken for granted, and if we are not continually working to defend it, our independence can be eroded and compromised.
For the thousands of small-business owners across the country who provide critical financial guidance to clients as independent financial advisors, today is a time to stand up and protect that independence.
Benefits of Independent Contractor Status
We have heard from countless advisors about the vital benefits that independent contractor status offers them and the hardworking American clients they serve.
Advisors have shared with us how the independent model has afforded them the freedom to work with clients from a variety of backgrounds, as they are no longer constrained to serve only those who meet high minimum asset requirements.
Other advisors have noted that independence allows them to better meet their clients' financial needs by giving them access to a larger array of investment options — not just proprietary products.
As an independent contractor, they also have more control over business costs, which ultimately benefits clients, as well.
Converging Threats to Advisor Independence
The PRO Act, which would impose a stringent worker classification test that would almost certainly recategorize many independent advisors as broker-dealer employees under the National Labor Relations Act (NLRA), is still under consideration in the U.S. Senate.
Although its future is uncertain, it is a clear signal that many legislators remain unaware of the significant unintended consequences the PRO Act would have on independent advisors and their Main Street clients.
The PRO Act is not the only threat facing the crucial independent channel of the financial services industry. In May, the Department of Labor (DOL) abruptly repealed a final rule that would have secured advisors' independent contractor status under the Fair Labor Standards Act (FLSA) by implementing a simple "economic reality test" to distinguish between employees and contractors.
The rule held that if a person was, as a matter of economic reality, in business for themselves — instead of being economically dependent on an employer — they should be considered an independent contractor.
