Advocacy Close to Home

With a new Administration and the subsequent uncertainties around trade, government spending, tax policy and regulation, headlines have been fixated on the overwhelming flow of news coming out of Washington, D.C.

While we work diligently with lawmakers and regulators at the federal level to advocate for our members, we also spend plenty of time focused on the states. That’s because issues closer to home can often have as much, if not more, influence on our members’ independent businesses.

Over the past several months, our state advocacy team has engaged on many important issues on your behalf. Here’s an overview:

Independent Contractor Rules

Recently, New Jersey proposed an independent contractor rule, which represents an expansive and aggressive interpretation of the state’s ABC test to determine whether a worker is an employee of a business.

Under the ABC test, a worker is considered an employee—not an independent contractor—unless it can be proven ALL three of the following test conditions are satisfied:

1. The worker is free from the control and direction of the putative employer;
2. The worker performs work that is outside the usual course of business of the putative employer; and
3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

In our industry, supervision requirements outlined in securities laws may conflict with the test conditions. This could lead to independent financial advisors being forced to reclassify as employees of their broker-dealer or RIA.

FSI Executive Vice President & General Counsel David Bellaire testified in front of lawmakers on behalf of our members in late June, arguing against the proposal. He told lawmakers that such a test is too sweeping, with SEC rules making it a near certainty that independent advisors would be re-classified as employees of their broker-dealers—though they have no desire to operate under that model.

He also stressed that the proposal would have clear negative implications for investors, causing many to get priced out from receiving financial advice. (The full testimony is available here.) FSI will also be submitting formal comments in opposition to the proposal and has issued a Call to Action, mobilizing our members to make their voices heard.

Fiduciary Standard of Care

NASAA has long sought to develop a model Reg BI-type rule that would establish a consistent standard of care for investors at the state level. We have generally supported these efforts because a consistent framework is better than each state establishing different requirements and interpretations.

We commented on NASAA’s proposal last fall. The updated version, which included many of our suggestions, was adopted in April and largely comports with existing federal Reg BI regulations.

While states often accept NASAA rules as is, some may change provisions or modify the language to fit with their statutory and regulatory lexicon. We will continue to monitor the situation and act if necessary.

Non-Traded REIT Sales

NASAA is also re-proposing a policy statement that would limit the sales of non-traded REITs. The new effort comes after the association shelved a similar statement two years ago due to objections.

We reviewed the updated language and believe it is still too restrictive, serving to reduce choice for investors. Moreover, we believe it fails to align with federal rules. NASAA is in the process of reviewing our comments on the proposal, along with those submitted by other stakeholders.

Financial Service Taxes

States continue to consider financial services as a potential source of tax revenue. After lawmakers in Maryland pursued a sales tax on business-to-business financial services transactions earlier this year, we orchestrated grassroots campaign among our members to defeat this proposal. Thanks to the work of our team and the rapid response of our members, we successfully defeated the proposal.

Meanwhile, Minnesota had proposed a sales tax on financial services provided to individuals. The proposal sought to eliminate an existing carve-out that exempts our industry from sales taxes. In response, we engaged legislators in the state to let them know how taxes on financial services serve to limit advice for people who need it the most. Thankfully, those efforts were successful – the proposal was not included in a recent budget bill signed by the governor.

Artificial Intelligence

In Virginia, the state legislature jumped into the AI regulation fray. Lawmakers passed a bill, modeled on a Colorado law, that would establish a comprehensive regulatory scheme for the development and use of “high-risk artificial intelligence.”

We sought an exemption for financial service providers, including independent financial advisors. While the bill passed along party lines without the exemption, the governor vetoed the bill. We will continue our advocacy efforts while the legislature is out of session, as we expect lawmakers to reintroduce the bill in 2026.

Senior Protection

More than 40 states have enacted legislation or regulations to protect seniors and other vulnerable investors from financial exploitation. We have strongly supported these efforts over the years. We are currently pushing for the passage of similar bills in Wisconsin and New York and will continue to advocate for measures to protect the vulnerable until all 50 states write these protections into law.

Financial Education

We have long advocated for robust financial education and literacy programs across the country. This year, the focus is on New York, where we are supporting legislation requiring a high school course in financial literacy and capability. About half the states have similar requirements on the books, and we are looking to build on that momentum.

Deceptive Practices Legislation

New York’s legislature passed expansive consumer protection legislation that we had successfully opposed in the past. While well-intentioned, we were concerned that that the measure failed to adequately define what constitutes an “unfair” or “abusive” act or practice, leaving those terms up for broad interpretation.

FSI sought significant changes to the bill and our members engaged on the ground in Albany and through a Call to Action. Though the bill passed, through our advocacy, we were able to win important changes. Notably, the bill no longer contains provisions that would have invited speculative and potentially crippling lawsuits against business owners in New York, including our members.

Our advocacy work in the states is and will always be a top priority. FSI’s goal is to champion outcomes around the country that are fair to our members and consistent with our mission of ensuring individuals have access to competent and affordable financial advice, products and services.

To learn more about FSI’s advocacy and how you can get involved, visit our Advocacy Action Center or email [email protected].