The Financial Services Institute (FSI) submitted a comment letter to the Department of Labor (DOL) regarding the Department’s proposed independent contractor classification rule. As the organization representing independent financial advisors and independent financial services firms, FSI has expressed serious concerns about how the proposed rule would affect independent financial advisors’ independent contractor status and its ultimate impact on advisors’ ability to continue to own and operate their businesses and serve clients within their communities. FSI urges DOL to withdraw the proposal.
“We appreciate the opportunity to weigh in on the proposal and share our insights on its impact on not only the independent financial advice industry but also the Main Street Americans our members serve,” said FSI President & CEO Dale Brown. “Our members, inspired by the entrepreneurial spirit, have chosen to be independent contractors – many switching from an employee-based model – with the desire to build their own business, develop their own staff and provide high-quality, personalized service to their clients. Despite the DOL’s claims, the proposal would create uncertainty regarding many financial advisors’ independent contractor status. It would also impose burdensome costs on independent financial services firms and, ultimately, impact access to objective, professional financial advice for hard-working Americans. We will continue to engage with the Department on this proposal to preserve advisors’ independent contractor status.”
The comment letter highlights several key points and issues, including:
- By getting rid of the clarifying “core factors” framework of the existing rule from 2021, the Proposed Rule would not achieve regulatory clarity, is inconsistent with the Fair Labor Standards Act, contravenes Supreme Court precedent, and violates the Administrative Procedure Act.
- The novel, totality-of-the-circumstance test for worker classification offered in the proposal raises significant concerns, including:
- The test would be independently unlawful, unpredictable and inappropriately slanted toward employee classification.
- The test would improperly construe the “control” factor to weigh in favor employment classification when a firm requires compliance with federal and state regulatory requirements, even though those requirements have nothing to do with economic dependence and are not indicative of independent contractor status.
- The test would incorrectly abandon the “integrated unit of production” factor articulated by Supreme Court precedent in determining FLSA worker classification and replace it with the vague requirement of determining whether a worker is “integral,” meaning important, to a business.
- The Department’s cost-benefit analysis significantly underestimates the Proposed Rule’s costs by neglecting to consider costs from wage cuts and layoffs, payroll taxes, disruption of specific industries, increased litigation, shifting operations and recordkeeping.
- The Proposed Rule would significantly harm the independent financial services industry.
- The industry would face increased litigation costs from accusations of misclassifying financial advisors.
- Independent financial advisors could lose the flexibility to change their affiliations with firms and engage in activities outside the scope of their relationships with their affiliated firm.
- Costs to clients would increase, leading to loss of access to financial advice.
- The Proposed Rule would have economy-wide ramifications.
- The proposal would introduce significant uncertainty into worker classification impacting much of the economy, and it fails to account for the myriad ways that businesses and contractors structure their relationships and the long-term investments made based on these arrangements.
- The legal uncertainty created by the DOL’s Proposed Rule would chill vital economic innovation and stifle innovation of new work models.
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