Cetera, LPL among critics in 55,000 comments on DOL’s independent contractor proposal

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Advisors and brokers are among many groups and individuals calling for changes to a proposed independent contractor rule that they say could undermine their long-established business models.

The US Department of Labor has been inundated with about 55,000 responses to a proposal to prevent people who are, in fact, direct employees of companies, from being misclassified as independent contractors. The proposal was presented largely as something necessary to protect Uber drivers and other so-called “gig” workers from employment abuse; but it could easily violate the business models that more than 300,000 financial advisers, brokers and their employees rely on to operate as independents.

Mark Quinn, director of regulatory affairs at brokerage Cetera Financial Group, said the scale of the response to the DOL’s proposal is almost unprecedented in his experience. Cetera is among several industry groups that have expressed concern that the proposed rule for independent contractors could disrupt the way many advisers and brokers do business.

“The presumption seems to be that there are all these exploited people out there who need protection,” Quinn said. “That’s not what happens in our business. Most of them started as employees and found that this model wasn’t working for them and opted to go freelance.”

The DOL’s proposed worker classification regulations would ditch the looser standards adopted under the Trump administration. Critics of these standards have complained that they place too much emphasis on two factors: the degree of control workers have over their own work and the amount they stand to gain or lose from their own activities and decisions.

The new rule would instead call on federal regulators to look at the “totality of the circumstances” in deciding whether someone has been properly classified as an independent contractor. Other factors that should be considered, according to the DOL, include the amount of skill required for a given type of work, the permanence of an employment relationship, and whether the work being performed is only part of the job. supply of a particular product or service.

The Financial Services Institute, a trade group and lobby for independent advisers, argues in a letter on the DOL proposal that the rule could affect 500,000 independent contractors in the financial services and insurance industries. Of these, approximately 160,000 are independent financial advisors.

Among other things, the Financial Services Institute warns that the DOL’s proposal would undermine the “clarity and consistency” the industry expects from regulators. The resulting uncertainty, the institute warns, will result in both unnecessary compliance costs and most likely litigation.

“Financial advisors benefit from their status as independent contractors, which gives them the flexibility to run their own businesses, set their own hours, offer their preferred products and services, and enjoy a healthy work-life balance. and privacy,” according to the institute’s letter.

Concerns about the misclassification of independent contractors are much more common in industries like construction and trucking. Union rights advocates have long feared that workers in these industries are being denied benefits such as a federally guaranteed minimum wage and overtime pay because they are not classified as direct workers. Businesses with independent contractors also don’t owe payroll taxes, which helps support government programs like Social Security and Unemployment Insurance.

Gig economy companies have resisted attempts to have their workers designated as direct employees. In 2020, ride-sharing companies Uber and Lyft and similar companies waged an extremely expensive election campaign to overturn California law that would have ended the classification of their drivers as independent contractors.

Quinn said a big concern for Cetera, which provides services ranging from technology support to marketing to more than 8,000 independent advisers, is that the new rule could mean companies exert control over employees even if they don’t. only remind them of their obligation to follow state and federal laws. This control, in turn, could be sufficient to trigger a “direct employee” designation.

LPL Financial, which also provides various types of support to independent advisers, made a similar point in its comment letter on the DOL proposal.

“Independent financial professionals do not have to meet productivity targets set by LPL as a broker, nor do they have to meet any specific timeline beyond the trading calendars set by exchanges,” said writes LPL. “Therefore, LPL believes that the regulatory control it is required to exercise over a financial professional due to state and federal financial industry regulatory requirements should not be considered evidence of control.”

On the other hand, Quinn said the DOL’s proposed profit-and-loss criteria might work in favor of independent advisers. If anyone is directly responsible for their revenue and the volume of business they generate in a given year, he said, they are independent advisers.

“It really depends on how hard you work,” Quinn said.

The deadline for commenting on the DOL proposal was December 13. Quinn estimated the agency will now need months to sift through the tens of thousands of responses it has received. But he expects the DOL to take action in 2023.

“From a political standpoint, they’ll probably want to do something that controversial early in the election cycle,” Quinn said. “I don’t think they’re going to want this dragging on until 2024, which is an election year.”

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