The rule that released by the Labor Department released Oct. 11 that will determine worker classification as an individual contractor, or employee is expected to cause major problems that financial professionals will have to deal with, says David Bellaire, executive vice general counsel and president for the Financial Services Institute, an advocacy organization.
A new Labor rule will replace the rule of 2021 which came into effect in the wake of a decision in March of this year by the U.S. District Court for the Eastern District of Texas that Labor’s delaying and withdrawing of its rule on independent contractors violated The Administrative Procedure Act.
The court’s decision means that the rule of independent contractors became effective on March 8, 2021.
Labor’s new rule could impede independent advisors’ capacity to be independent contractors. It could be “very difficult for our members due to the regulatory requirements” the rule imposes, Bellaire told ThinkAdvisor.
Labor’s proposed new policy according to an FSI spokesperson stated on October. 11 “would bring us back to confusing and contradicting interpretations of the courts comparable to prior to the 2021 rule and could cause firms and independent financial advisors to shift their resources and time to defend their independence as independent contractors.”
In a phone interview Thursday We talked to Bellaire five questions regarding the Labor Department’s proposal for an independent contractor rule changes and what that would be for financial advisors should it becomes effective.
1. What does this affect financial advisors specifically?
David Bellaire:There are regulations that say our members must offer financial advisors training or that financial advisors are required to keep specific records and books in specific ways. The business entity they work for cannot be paid commissions. This must be reported to their financial adviser directly. There are a variety of oversight and regulations for firms.
2. What did advisors enjoyed in the rule 2021?
The rule of 2021 said that you do not pay attention to such things, but you determine if the employer is in control of the worker.
3. What other problems will the proposed change cause?
The fact is, it’s going to raise their costs. The reason is because under the Fair Labor Standards [Act] the employer of employees must keep accurate records of the hours they work and the wages paid to their employees. The majority of our member companies aren’t doing any of this.
This means that there’s a huge new recordkeeping obligation that companies are required to meet, and it’s likely to raise their costs and these cost will be passed along to financial advisors as well as to the clients they serve.
We understand how important it is to choose a chiropractor that is right for you. It is our belief that educating our patients is a very important part of the success we see in our offices.