Industry groups urge New Jersey to rethink independent contractor rule proposal

Three major organizations representing financial advisors and insurance professionals are urging New Jersey regulators to withdraw or revise a proposed rule that would change how independent contractors are classified in the state.

The Financial Services Institute, Insured Retirement Institute, and National Association of Insurance and Financial Advisors warn the changes could disrupt business models, limit consumer choice, and harm the state’s economy.

The New Jersey Department of Labor and Workforce Development’s proposal, published in April, would modify the “ABC Test” used to determine whether workers are employees or independent contractors.

While the proposal aims to provide clarity for employers, industry groups argue it would instead create confusion and impose new burdens on thousands of financial professionals.

Concerns over business impact and consumer access

The Financial Services Institute, which represents independent financial advisors and small business owners, said in its comment letter dated August 6 that the rule “would destroy the independent financial advisor model and exceed NJDOL’s rulemaking authority.” The group contends that independent advisors have long operated as business owners, not employees, and that the proposed changes would force many to become employees of larger firms.

FSI’s letter states, “N.J.A.C. 12:11 will have disastrous consequences for FSI’s hardworking New Jersey members and the clients they serve.”

The organization, which has voiced criticisms against similar rulemaking by the federal Labor Department last year, also argues that the proposal would create “significant uncertainty – and, therefore, costs – for independent financial advisors and the independent financial services firms with whom they affiliate, which in turn would reduce the availability of high-quality investment advice and other financial, tax, and estate-planning services for underserved communities, including minority and rural communities.”

The Insured Retirement Institute, representing the retirement income and annuity marketplace, echoed these concerns. In its own letter, IRI urged the department to exempt securities and insurance financial professionals from the new standard, warning that “changing the standard for ‘independent contractor’ status via changes to the regulations will create significant, unintended negative consequences on the retirement income industry and the annuity marketplace, and ultimately for consumers.”

IRI cited research showing that independent contractor-led firms employ about 6,300 people in New Jersey – roughly one-quarter of the state’s financial and insurance services workforce – and contribute $1.5 billion in annual output. The group warned that limiting independent contracting “would severely disrupt these businesses and eliminate many of these jobs.”

Legal and regulatory arguments

The National Association of Insurance and Financial Advisors, which represents over 400 professionals in New Jersey, argued that the proposed rule “departs from the existing statute and case law controlling worker classification.”

NAIFA’s comment letter asserts that the rule would “increase confusion and the risk of misclassification across the state,” and could result in many independent contractors retiring or relocating.

NAIFA also challenged the department’s claim that the proposal would have no adverse economic consequences.

The letter states, “The Department’s claim that the proposal will have no adverse consequences, coupled with its failure to substantiate that claim and to respond to the wealth of evidence to the contrary, puts the Department on the horns of a dilemma: If the Department has supporting evidence, it was obligated to disclose that evidence to the public so they could evaluate and comment on it; this rulemaking cannot lawfully be completed without those further proceedings.”

All three groups highlighted the highly regulated nature of the financial services and insurance industries. They noted that federal and state laws already require oversight and compliance measures that should not be interpreted as employer control under the ABC Test, a bright-line standard that's been a point of contention since at least 2020.

They also pointed to exemptions in other states, such as California, where similar rules were amended to exclude insurance and securities professionals after initial implementation. The organizations are urging the department to either withdraw the proposal or, at minimum, exempt financial services and insurance professionals from the new classification standard.

As IRI’s letter puts it, “An exemption for insurance and securities financial professionals is appropriate to avoid disruption to the retirement income industry and the annuity marketplace in New Jersey.”

NAIFA’s letter concludes, “For these reasons, the Department should rescind the proposal.” If not, the group says, “it should exempt the financial-services and insurance industries from its new version of the ABC test.”

The department is expected to review public comments before issuing a final rule.