The Financial Services Institute is pressing New Jersey lawmakers to advance legislation that would protect independent financial advisors from being reclassified as employees under the state's newly adopted worker classification rule, which the group warns could fundamentally destabilize the independent advisory business model in the state.
The Financial Services Institute (FSI), the leading trade group for independent broker-dealers and independent financial advisors, submitted written testimony Thursday to the New Jersey Senate Budget and Appropriations Committee in support of S2782.
The bill sponsored by Senators Gordon M. Johnson and Paul A. Sarlo, would carve out certain licensed and regulated professionals – including broker-dealers, investment advisers, and investment adviser representatives registered with either the New Jersey Bureau of Securities or the federal Securities and Exchange Commission – from the state's recently codified ABC test for worker classification.
The ABC test was adopted last month by the New Jersey Department of Labor and Workforce Development in a final rule set to kick in on October 1. The three-pronged test drew resistance from an advocacy group representing businesses in the state, which called the rule a disappointment.
"We will continue to work alongside the legislature and administration toward a further revised rule that recognizes the need to preserve the exact jobs and opportunities that remain in jeopardy," NJBIA President and CEO Michele Siekerka said in a written statement at the time.
Under S2782, a licensed professional operating under a written agreement that designates them as an independent contractor would not be classified as an employee for any purpose under state law, and would not be required to satisfy any additional test – including the ABC test – to maintain that status.
The bill would apply retroactively to agreements entered into before or after its effective date, providing a legal backstop for existing independent contractor arrangements.
In its testimony Thursday, FSI argued that the state labor department's ABC test fails to adequately account for the unique regulatory environment governing financial services professionals.
The group's core concern is that an advisor's compliance with securities supervision requirements – obligations mandated under federal securities laws – could be misread as evidence of employer control under the ABC test's first prong.
The first prong requires that a worker be free from control or direction over the performance of services. Because advisors must comply with oversight requirements set by their broker-dealer and by regulators, FSI contends it creates a structural trap for professionals who are not, in any meaningful sense, employees.
"Our members rely on their independent contractor classification to provide flexibility in the products and services they offer, allowing them to better serve their clients," Dale Brown, president and CEO of the Financial Services Institute, said in a statement released alongside the testimony.
A 2025 survey conducted jointly by FSI and Oxford Economics found that only 11% of New Jersey independent financial advisors would accept employment with a financial firm if they could no longer maintain their independent contractor status. That same research found that 65% of New Jersey advisors would consider relocating their businesses out of the state if the rule took effect as written, and that 91% expected their clients to face reduced services, fewer investment options, or higher fees as a result.
The deliberations in New Jersey are happening amid a broader debate over advisor classification, which has been escalating for well over a year. In February, the federal Department of Labor separately moved to rescind the Biden-era independent contractor rule, proposing a framework that would ease classification anxieties at the federal level.
The proposed rollback of the federal DOL's 2024 independent contractor rule would revert to an "economic reality" test that many in the industry view as more workable. New Jersey's final rule, however, moves in the opposite direction, codifying a stricter standard that the independent financial services sector has consistently opposed.
According to an analysis of SEC Form ADV filings by SmartAsset, New Jersey is home to 494 federally registered investment advisory firms – a community with significant exposure to the classification question.
"Independent financial advisors have chosen the independent contractor model ... for the freedom and flexibility to build their own business and provide affordable, high-quality financial advice to their clients," FSI said in its testimony.
"It is clear that an overly rigid application of the ABC test is not well suited to properly classifying financial advisors," the group said.
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