New Jersey’s Independent Contractor Proposal Poses Nationwide Threat

Our members prize their independence. A lot.

It’s more than just a business model. It’s a philosophy grounded in the belief that Main Street investors are best served when financial advisors have the freedom to make decisions about how to run their business and serve clients.

Yet, the independence that so many of you enjoy—and freely choose—has been under constant threat. The latest big challenge is coming from New Jersey.

Policymakers in the state are advancing a proposal that would significantly narrow the definition of who qualifies as an independent contractor. If adopted, the rule would almost certainly force thousands of financial advisors to be reclassified as employees of their broker-dealers and RIA firms, stripping them of the independence they deliberately built their careers around.

Advocacy in Action

At a recent public hearing held by the New Jersey Department of Labor & Workforce Development, we testified against the rule, voicing our members’ concerns. Specifically, we objected to the state’s application of the so-called “ABC test,” a three-part standard used to determine whether a worker is an employee or an independent contractor.

It examines the worker’s relationship with the potential employer, and all three conditions must be met for an individual to qualify as an independent contractor. The criteria require that the worker:

A. Must be free from the control and direction of the possible employer.
B. Perform work that is outside the usual course of business of the possible employer.
C. Is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

The issue is that the above test is too broad to apply to the independent financial advice profession. Specifically, the supervision requirements under securities laws may conflict with the ABC Test conditions, opening the possibility of a slew of unintended consequences.

Among them are the forced reclassification of independent advisors as employees, the disruption of long-standing client relationships and the erosion of business models that keep advice accessible and affordable.

In fact, if enacted, the rule could cause many of you to take drastic measures rather than deal with the complexity of revamping your business. According to a recent joint study we conducted with Oxford Economics, 65% of New Jersey-based advisors say they would consider relocating out of the state, while 4% would retire. Only 8% would consider becoming employees.

The same study found that 91% believe clients would be negatively impacted by the proposal, with three in four expecting to raise fees and nearly 70% anticipating they would need to increase account minimums.

That’s why, ultimately, it’s investors who would suffer the most if efforts like this were to succeed. Higher costs for financial services will inevitably lead to an untold number of Main Street Americans losing access to the personalized advice they rely on to make sound financial decisions.

What Happens in New Jersey Won’t Stay in New Jersey

Should the state move forward with this proposal, it could set a precedent for others across the country. Beyond that, their proposal comes at a time when federal rules around independent contractor status remain unresolved, further raising the stakes of state-level action.

That’s why we need your continued engagement and support on this critical issue. We must use our collective voices to engage proactively with state policymakers to highlight the potential consequences of their actions.

Independence in a Choice

It’s no coincidence that our financial advisor members have deliberately chosen independence over traditional employment models. Many of you have worked in those environments and made a conscious decision to leave to serve your clients better. Your success, and the success of the clients you serve, depends on your ability to remain independent.

At this critical juncture, policymakers need to recognize the real-world implications of sweeping reclassification rules. The livelihoods of thousands of advisors and the financial well-being of millions of investors hang in the balance.