However, “supporters of the bill aren’t at this point interested in considering carve-outs because I think they’re concerned there would be a parade of groups asking for their industry to be carved out and that makes it more and more challenging to move the bill,” he said.
When it comes to the Labor Department, meanwhile, “there really hasn’t been a lot of conversation,” he said. The Labor Department under the Biden administration has “moved quickly to withdraw the rule and, while they have requested comment, the time period in which the window was open to provide comment was very narrow and it seemed that the decision was predetermined,” he said.
As a result, he went on to say, “there hasn’t been really any opportunity to engage” with the department and “to understand what exactly they think has changed in the last couple of months to cause them to totally reverse course” on the Independent Contractor Rule.
What Advisors Are Saying
What advisors who are FSI members have “communicated most clearly is that their independent contractor status is an essential component of their business model and that independent contractor status allows them to provide the best quality service and support to their clients,” Bellaire said.
Advisors are stressing that they “chose to be independent because they wanted to own their own business and they’re frustrated that members of Congress or folks at the Department of Labor — parts of our government — would interfere with their personal choice to operate their business in this fashion,” he said.
Agreeing, Taylor of Lion Street-affiliated firm Wealth Strategies, told ThinkAdvisor: “To me, having independence as a financial advisor is paramount” and “being an independent contractor gives me the control and flexibility to build my firm and team in the manner best suited to meet the unique needs of each of our clients.”
The Labor Department’s decision to withdraw the Independent Contractor Rule “feels like a knee-jerk reaction to legislation that was put in motion from the prior administration” and it “creates many unintentional consequences,” Taylor said, adding: “The Labor Department is muddying the waters and acting too quickly” in withdrawing the rule.
“The economic reality test to determine business structure for independence vs. FLSA employee creates a barrier between those who build a business without multiple layers of oversight and the nature of larger companies that are burdened by the layers built within,” he said. “It feels like the assumption is that we cannot act in the best interest of our clients and in the best interest of our employees as well.”
However, the reality is that, as an independent advisor, “I have full benefits and a higher compensation level for similar job roles than you would find in the ‘corporate’ world,” he said. “We are a business: We pay salaries, provide benefits in terms of health and retirement plans, give raises, vacation schedules, and pay our share of taxes. To look at us and all financial advisory firms in light of the DOL’s stance that a reduction in other benefits such as health, retirement plans, unemployment and workers compensation feels short-sighted on their part.”
Taylor’s prediction is that the withdrawal of the rule, “along with the impact of future legislation, will ultimately” hurt those the Labor Department is most interested in protecting. “Costs will increase, flexibility will decrease, and motivation to build a sound firm will get diminished with the removal of the rule,” he predicted.
What Advisors Can Do
Bellaire recommended that advisors who are FSI members “pay close attention to the information we’re putting out about developments and we call our members to take action at the appropriate time by letter-writing, participating in meetings, phone calls and other activity.”
If advisors “have opportunities to talk to their members of Congress and express to them the importance of their independent contractor status to the clients they serve and to the small businesses that they operate, they should take advantage of those opportunities,” he also suggested.
FSI’s political engagement team is creating those opportunities and is inviting FSI members to participate, he said, noting such roundtables have been a “very successful tool for us.”
FSI, meanwhile, is exploring all “avenues available to us to push back against” Labor’s decision, he said, but declined to provide specifics.
The Labor Department did not immediately respond to a request for comment Tuesday.
Pictured: David Bellaire, executive vice president and general counsel at the Financial Services Institute