Grassroots Champions: Advocating to Preserve Independent Financial Advice

June 14, 2021

Legislators trying to advance the Protecting the Right to Organize (PRO) Act of 2021 may have good intentions in their desire to help independent contractors gain certain rights, but for independent financial advisors, the proposed law would threaten their businesses, upend their ability to serve their clients and ultimately limit investors’ access to financial advice.

“I think what’s been proposed has a lot of unintended consequences that people are not seeing. They’re looking at it through a very closed funnel,” said Mike Miller, a financial advisor and Managing Director of Plymouth, Minn.-based Integra Shield Financial Group. “Passage of this act is going to disenfranchise a lot of smaller investors, and it’ll disenfranchise a lot of advisors from working with those clients.”

Miller was among 10 FSI advisor members who participated in a virtual roundtable on May 6 with the staff of Sen. Tina Smith, the Democratic junior Senator from Minnesota and one of several co-sponsors of the PRO Act in the Senate, where legislators are set to consider the bill.

An identical version of the legislation passed the House on March 9. If enacted, the PRO Act would implement a more stringent worker classification test under the National Labor Relations Act (NLRA) that would likely result in more financial advisors being misclassified as employees of broker-dealers, rather than as independent contractors. A 2019 proposal in California included a similar test, but after we alerted state legislators to the negative impacts, lawmakers added a carveout to exempt financial advisors.

Our legislative affairs team is advocating in the U.S. Senate for a similar carveout in the PRO Act. If a carveout cannot be secured, we will oppose the passage of the PRO Act itself.

Independent Advisors ‘A Huge Relief’ For Clients

Many independent financial advisors have chosen to leave the employee channel because it places limitations on their ability to serve clients in the ways they choose – and would constrain them from serving certain clients at all.

As Beth Kietzman, a financial advisor at Artisan Financial Group in Saint Paul, Minn., explained to Sen. Smith’s staff during the roundtable, some wirehouse advisor programs set minimum thresholds for asset totals to ensure certain profit margins for each client.

Some of her clients do not have substantial assets because they are just starting on their financial journeys, said Kietzman, who became an independent advisor in 2009 after stints as a home-office employee, an advisor’s assistant and an employee advisor. It is crucial for these investors, however, to have financial advisors who can guide them, starting with basic financial education and financial planning services, which do not typically generate much revenue.

These investors – many of them younger and minority investors – may fall through the cracks in an employee-advisor model.

“Being there for my clients is a huge relief for them,” Kietzman said. As an independent advisor, “I can go backwards on my income if I choose to do so, because it benefits me or my clients in some way. Employee advisors can’t really do that because they have the constant pressure to crank out profits.”

Entrepreneurial Spirit

If advisors are forced to become employees, their remaining clients would likely see severe limitations in the investment products available to them, added Miller, who became an independent advisor in 1996 after a 20-year career in law enforcement and a three-year tenure as an employee advisor.

When he was an employee advisor, there were quotas and requirements on selling proprietary products, and he was assigned clients, Miller said.

“I did that for about three years, then I went independent because I had a more entrepreneurial spirit,” Miller said. Many of his clients have stayed with him for decades because they enjoy the flexibility and level of service he offers as an independent financial advisor. “As a result of the PRO Act, there’s a potential I would lose some of those clients,” he says.

‘No Control’ Over Costs

Kietzman also said she became an independent advisor after getting fed up with the pressures and restrictions of the employee channel. There were long workdays and occasional overnight work at her desk – with little promise of greater income for the additional toil.

In addition, while she was grateful that as an employee the office space, phones, computers and software were covered by her firm, she had little choice over their selections.

“I had no control over those costs. Right now, I control all my costs, and I would lose that as an employee advisor,” she said. “There’s a whole cottage industry underneath us – our advertising, our websites, everything – and we would lose access to that. As I emphasized to the Senator’s team – there would be no options if we had to go back to being employees under the PRO Act.”

Miller echoed the sentiment.

“As an independent, I pay my own rent, I pay my own expenses, I have my own tax ID number,” he said. “I don’t have anyone telling me what time to come into work, what time to leave, what products I have to sell or how I go about my client service model. I get to choose that, and I choose that based on the clients that I serve. I would lose that in an employee channel.”

Employee Channel ‘Not An Option’

There are many independent contractors across the United States that the PRO Act is intended to help, both advisors agreed.

The bill’s impact on independent financial advisors, however, would be disastrous.

“Part of what you hear about the PRO Act is that people will be able to be more represented by unions. We don’t have that in the independent financial services channel, nor would we want it,” Miller said. “We got into this channel because we didn’t want to be employees.”

Kietzman described feeling “terrified” that, as an employee advisor, she would no longer own her book of business, an asset she has spent years building and would sell when she retires. If it passes, she, like many other advisors, would be forced to thoroughly consider her options. For her, being an employee advisor would not make the list.

“I will not be someone’s employee again,” she said. “That’s just not an option for me.”

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