In the financial advice profession, advisors have the power to choose their business model. Advisors can affiliate with large institutions or build independent businesses of their own, and hardly anyone within the industry would quibble with the idea that it’s important for each professional to have the freedom to decide how to serve clients and structure a practice.
Despite that, the independent model continues to face pressure from regulators and lawmakers across the country. One of the main reasons is the lack of a consistent federal standard for determining who qualifies as an employee or an independent contractor.
The Modern Worker Empowerment Act (H.R. 1319), introduced in the U.S. House of Representatives, would address that challenge by updating the Fair Labor Standards Act to create a clear and lasting test for worker classification.
Why Clarity Matters
Independent advisors are business owners in every sense of the term. They lease office space, employ staff, manage expenses and serve as pillars of their local business communities. Their decision to be independent is deliberate. Many once worked as employees at large financial institutions and made a conscious choice to embrace a different model.
Over the last decade, worker classification has come under greater scrutiny across many sectors, driven largely by the rise of the gig economy. While FSI does not take a position on the nature of gig work, independent advisors often find themselves caught up in the same debate.
That’s because attempts to modernize classification rules frequently fail to account for the unique regulatory structure of financial services. The strict supervision requirements under securities law can conflict with the conditions outlined in some independent contractor definitions.
As a result, when the definition of “employee” shifts with each change in administration, advisors’ professional status is thrown into question. Each new interpretation of existing labor rules forces them to contemplate different compliance requirements and deal with extra layers of uncertainty. That instability filters through the entire advice ecosystem, affecting not only advisors but also the investors who depend on them.
That instability filters through the entire advice ecosystem.
The Modern Worker Empowerment Act would correct this by codifying a clear federal standard for determining who is an employee and who is an independent contractor in a way that preserves independent advisors’ classification as independent contractors. Doing so would provide durable guidance for advisors, firms and regulators. It would also allow those who prefer employment to choose that path while protecting those who have built their careers as independent professionals.
Broader Implications
The uncertainty extends beyond Washington. Many states have pursued their own approaches to worker classification, most notably the recent proposal in New Jersey. Some of those efforts have relied on rigid frameworks that fail to recognize the unique regulatory environment of financial services. The result is a patchwork of standards that can make compliance difficult and threaten to reclassify thousands of advisors who have operated successfully as independent contractors for years.
A clear federal standard would help resolve that conflict, reduce the risk of duplicative or inconsistent regulations, and bring greater stability to the marketplace. For clients, it would preserve access to advice and maintain the continuity of relationships that often span decades.
A Path Forward
This issue should not be seen through a partisan lens. It is about fairness, clarity and the ability of financial advisors to choose a model that works best for them and their clients. Advisors who prefer an employee model already have that option. Those who have chosen to remain independent should not have to question that status every election cycle.
Those who have chosen to remain independent should not have to question that status every election cycle.
The Modern Worker Empowerment Act presents an opportunity to deliver the certainty that the industry and its clients have long needed. Lawmakers should move the bill forward and send it to the President for signature. Doing so would protect independence, strengthen small businesses across the country, and reinforce a model that continues to provide millions of investors with the personalized financial advice they rely on to reach their goals.
FSI strongly supports this kind of clarity and consistency. We urge Congress to act now and make the Modern Worker Empowerment Act law.
Dale Brown is the President and CEO of the Financial Services Institute.
