The Republican takeover of the House could be a big win for independent representatives and the broker-dealers who want to maintain their reps' status as independent contractors.
That's the assessment of Dale Brown, chief executive and president of the Financial Services Institute, an advocacy group for independent broker-dealers and advisers. One of the FSI's top legislative priorities is protecting the independent-contractor tax status of advisers affiliated with independent firms.
The FSI opposes the proposed Fair Playing Field Act of 2010, which was sponsored this year by Sen. John Kerry, D-Mass., and Rep. Jim McDermott, D-Wash. The proposed law would revise the current tax law governing employment status determination, according to the FSI. It also would give the
Internal Revenue Service authority to make employee classification determinations through regulatory guidance, an authority it currently lacks, according to the FSI.
(Click here for an exclusive online special report on the results of the 2010 elections -- and the impact on advisers.)
Referring to the chances of the bill being passed this year, Brown said today that “if we get through the lame-duck Congress, we should be OK. With Republicans in charge of the House, there won't be as much support for independent-contractor issues.”
The issue is a priority for labor unions, which traditionally support Democrats, Mr. Brown said. Labor unions can't organize independent contractors, and they also view it as an issue to enhance the welfare of others, he said.
Tightening some loopholes on workers identified as independent contractors should be looked at, Mr. Brown said. But the proposal has “unintended consequences” for independent reps that potentially could harm them and their clients, he said.
In a letter last month to Mr. Kerry, Mr. Brown wrote: “We are concerned that the repeal [of current law] and allowing the IRS to issue industry-specific guidelines will lead to unnecessary and costly questioning of independent-broker-dealer worker classification status.” That would create uncertainty that would make it difficult for firms to make long-term business decisions, he wrote.
Reps at firms such as
LPL Financial Services Inc. and
Raymond James Financial Services Inc. are paid as independent contractors, and responsible for their own business costs. Reps at firms such as Morgan Stanley Smith Barney LLC are employees.
The independent model offers lower fixed costs for broker-dealers, since it eliminates the need to pay rent on a branch-office network, or salaries to staff. These costs are borne by the reps in exchange for higher commission payouts.
