Independent contractor status for brokers and advisers safe in California

Independent contractor status for brokers and advisers safe in California
FSI successfully lobbied earlier this year for an exemption to proposed legislation for its broker-dealer and RIA members.
SEP 03, 2019
Brokers and advisers in California who work as independent contractors and are registered with a broker-dealer have sidestepped the fight over employment status currently playing out in the California statehouse. Assembly Bill 5, which writes into law a strict test before companies can classify workers as contractors, cleared a key committee Friday in the state Senate, according to multiple news reports. It is expected to pass both houses of the legislature before lawmakers adjourn Sept. 13, and then Gov. Gavin Newsom is expected to sign the bill, according to the Los Angeles Times. It is more expensive for brokerage firms to employ full-time brokers and advisers than it is for them to use independent contractors. [Recommended video: Biggest changes advisers should make to be successful in the future] The bill would make employees out of most independent contractors but would not have an effect on brokers and advisers who sell securities or offer financial advice, said Chris Paulitz, a spokesman for the Financial Services Institute, a trade group that represents broker-dealers. One of FSI's long-standing goals is to fight efforts by states to create greater restrictions on employing workers who are independent contractors. "If IBDs were forced to reclassify their financial advisers as employees, the additional costs and compliance burdens would cripple their ability to remain profitable while also providing the services needed by their advisers and clients," the FSI noted in a 2014 position paper on the issue. "IBDs could be subject to substantial back taxes, penalties, and interest payments." The new legislation is an offshoot of a recent court ruling that set new standards for when workers can be classified as independent contractors or employees. Gig economy giants such as Uber Technologies Inc., Lyft Inc. and DoorDash Inc. are ponying up millions of dollars to fight the impending employment rules, according to reports. "We worked with the bill's sponsor and the 'I'm Independent Coalition' to secure a carve out for financial services firms and RIAs," the FSI's Mr. Paulitz wrote in an email. "We held our California Capital Hill Day in the beginning of May, where we advocated for this carve out, as well as for firms and RIAs to better protect elderly clients from financial exploitation. The Senate passed the elderly protection bill as well in late May." "We are very pleased to see the right outcome secured," he added.

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