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FSI to push for independent-contractor legislation in 2014

Jan 28, 2014 @ 12:23 pm

By Mark Schoeff Jr.

The lobbying organization representing independent broker-dealers and financial advisers this year will promote legislation to provide permanent protection against threats to their status as independent contractors.

The Financial Services Institute Inc. will look for a bill in Congress to which an independent-contractor amendment can be attached, David Bellaire, FSI executive vice president and general counsel, said at the FSI OneVoice Broker-Dealer Conference in Washington on Tuesday.

Live from FSI: Check out a video interview with Dale Brown, where the organization's president and CEO offers his Finra wish list.

The Internal Revenue Service applies a 20-part test to determine whether a person is an employee or an independent contractor. Due to the fact that independent broker-dealers have to comply with federal and state financial regulations, it can look as if they are subject to control from a parent firm, which would make them employees.

Although advisers generally have passed the independent-contractor test, FSI wants to remove the uncertainty of continuing IRS scrutiny.

“Financial advisers leave employment models like the wirehouse firms and join ours because they want their independence,” Mr. Bellaire told reporters on the sidelines of the FSI conference.

“They want to own their own business. They want to work with clients they choose,” Mr. Bellaire said.

Other FSI lobbying priorities include trying to shape the pending Labor Department rule that would expand the definition of “fiduciary” for advisers to retirement plans, reforming the Financial Industry Regulatory Authority Inc., expanding the group's reach in state legislatures and connecting with more lawmakers on Capitol Hill.

“Our members are deeply frustrated on a variety of fronts, whether it's Finra, the SEC [or] state regulators,” FSI president and chief executive Dale Brown told reporters.

“They feel the compliance burden, the cost, the complexity is real and it has consequences on their business,” he said. “At the adviser level, it has consequences for clients and potential clients.”

Advocacy is the core mission of the organization, which has a budget of $7.5 million and membership of 100 firms and 37,000 advisers, Mr. Brown said.

The government relations staff will grow to 13 people, from eight, by the end of the year.

The FSI is looking beyond Capitol Hill lawmakers and Washington regulators to exert influence.

Last year, it followed more than 300 bills in state legislatures, according to Mr. Brown.

Among its state-level wins last year were bills in Florida and Minnesota that streamline registration requirements for brokers and advisers.

The Labor Department fiduciary rule, which is scheduled for re-proposal in August, is the item on the Washington regulatory agenda that concerns the FSI the most. The group argues that the rule will raise regulatory and liability costs for brokers who sell individual retirement accounts, potentially pricing them out of the market for middle-income investors.

The FSI has expanded its reach on Capitol Hill to tap progressive Democrats, including caucuses for black and Hispanic members, to amplify its message to the Labor Department.

These groups share the FSI's “Main Street concerns,” Mr. Brown said.

“We have good working relationships with members of Congress who traditionally we didn't,” he said. “We have an opportunity to broaden our coalition going forward on other issues as well.”

Mr. Brown said that lobbying can be a slog requiring many years of effort.

For instance, an independent-contractor bill probably won't be approved this year.

“Given the current political environment, given the current regulatory environment, we have to work for a lot of incremental changes, small steps this year that will lay the foundation, hopefully, for greater changes in coming years,” Mr. Brown said.

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