The rule proposed by the Department of Labor released on October 11 according to David Bellaire, executive vice president and general counsel of the Financial Services Institute, an advocacy group, this would determine whether workers are classified as independent contractors or employees.
The new labor rule would replace the 2021 rule that came into effect following a decision in March by the United States District Court for the Eastern District of Texas that Labor’s delay and withdrawal of its independent contractor rule violated the Administrative Procedure Act.
With the court’s decision, the independent contractor rule came into effect on March 8, 2021.
Labour’s new rule could threaten independent advisers’ ability to work as independent contractors and is shaping up to be “very difficult for our members because of all these regulatory requirements” it creates, Bellaire told ThinkAdvisor.
Labour’s new plan, an FSI spokesman said on October 11, “would lead to a return to confusing and contradictory court interpretations similar to those before the 2021 rule, forcing independent financial advisers and businesses to devote time and resources in defense of their independent contractor classification.”
In a phone interview Thursday, we asked Bellaire five questions about the Labor Department’s proposed change to the Independent Contractor Rule and what it would mean for financial advisers if it goes into effect.
1. What exactly would this change mean for financial advisors?
David Bellair: Certain regulatory requirements stipulate that our members must provide training to financial advisers or that financial advisers must keep certain books and records in a particular way. Or their business entity cannot collect commission income. It must go directly to the financial adviser. And there are all sorts of regulations and oversight requirements for companies.
2. What did advisors like about the 2021 rule?
The 2021 rule said you paid no attention to these things and determined whether the employer had control over the worker.
3. What other types of challenges does the proposed change create?
Well, it will definitely increase their costs. The reason is that under fair labor standards [Act]an employer of employees must keep detailed records of hours worked [and] wages received by their employees. Currently, our member companies do none of that.
So there is a significant new record keeping obligation for businesses to meet which will undoubtedly increase their costs and these costs will be passed on to the financial advisors and the clients they serve.