A proposal by New Jersey's state labor department to institute new rules to protect gig workers has sparked a major backlash from the industry, with a policy expert at one of the broker-dealer industry's largest firms warning it could have unintended consequences for independent financial advisors.
"This issue's been around in one form or another for a really long time, both at the state level and at the federal level," Mark Quinn, director of Regulatory Affairs at Cetera Financial Group, told InvestmentNews.
Last week, numerous industry groups including the Financial Services Institute, the Insured Retirement Institute, and the National Association of Insurance and Financial Advisors spoke out against the New Jersey Department of Labor and Workforce Development’s proposal. In separate comment letters, they warned that the state's reading of the "ABC test" to classify workers as either employees or independent contractors could create confusion for thousands of financial professionals.
Cetera aired similar concerns in its own letter, maintaining that the proposal "would effectively nullify the decision that thousands of financial professionals in New Jersey have made to be independent contractors."
As Quinn explained, the US currently has a patchwork of standards to classify someone as an independent contractor or an employee. Aside from the federal-level Internal Revenue Code and the Fair Labor Standards Act, which guides the Department of Labor, states have the freedom to apply their own rules. California's Assembly Bill 5, which was passed into law in 2019, has stood as the foundation for the most pro-worker standard among states.
"AB5 codified the so-called 'ABC test,' which is the test for independent contractor or employee status," Quinn says. "In the California version, they specifically exempted a number of professions, including financial advisors, because they said there's a whole other legal and regulatory regime that applies to those people."
On April 28, the New Jersey Labor Department announced its proposal for its own interpretation of the ABC test. Those proposed rules were published in the state register on May 5, after which it opened a 60-day period for concerned stakeholders to share their comments and concerns.
"Frankly, that's not a real long time ... This came out of the blue," Quinn says. "They don't have to come to the industry and talk about it. But one would think with something of this magnitude, they would have wanted to at least give everybody a chance [to have their say]."
According to Quinn, California took considerable time to discuss its legislation with affected industry groups during the proposal stages. That's how it recognized that the ABC test – which defines someone as an employee based on the "economic reality" of their relationship to a particular firm – should not apply to independent financial advisors, who already operate under a specific regulatory regime.
"There is a lot of difference between [a construction professional] and an independent financial professional," Quinn says. "Financial professionals have licensing requirements. They're subject to a whole federal and state regulatory scheme that's very specific. They're subject to oversight by the broker dealer or investment advisor they work for."
For advisors in the business of selling securities, Quinn says being affiliated with a broker-dealer firm is a statutory necessity. But while many gig workers depend on their employers for economic survival, the same can't be said of independent financial advisors, who are effectively small business owners with their own employees.
According to FINRA's 2025 industry snapshot, there were just over 634,000 FINRA-registered representatives by the end of 2024, including almost 250,000 who are registered to do business in the state of New Jersey.
A new Oxford Economics report commissioned by FSI estimates that the financial services industry, including the 85 independent financial services firms and roughly 160,000 financial advisors FSI represented as of December 2020, contributed $35.7 billion to US GDP.
"We estimate that the 4,670 independent financial advisors whose jobs might be lost or displaced contribute approximately $470 million to New Jersey’s GDP and support 3,500 jobs through this induced channel," the report said, referring to the "induced impact" of advisors who live in New Jersey and spend at least part of their income in the state.
By applying the same standard to all workers, Quinn says New Jersey's proposal as drafted makes it "a complete outlier" relative to other jurisdictions in the US. That could lead to unintended ripple effects, including the possibility of economic losses from independent advisors moving out of state.
And while New Jersey's push puts it "eight feet to the left" of the status quo, Quinn says the measure could also set a precedent for other states. As the question of how to determine independent contractor status gets revisited every several years, a shift in New Jersey might potentially nudge New York, Michigan, and other politically aligned states in a similar direction, creating a "logistical nightmare" for broker-dealer firms with multi-state footprints.
"Our understanding is that under the law in New Jersey, they are required to review all the comments that people submitted," Quinn says. "We don't know how many comment letters they received ... If they're thorough about it, I think it will take some time."
While Cetera said the proposal in its current form "is so flawed it likely cannot be fixed," it also highlighted several opportunities for improvement, with Quinn saying the firm is open to a carve-out for financial advisors. He says other commenters have been less equivocal, with numerous stakeholders calling for the proposal to be discarded totally.
"Our point is, use a scalpel. Don't use a chainsaw," Quinn says. "What you're doing is creating a one-size-fits-all [regime] ... It just doesn't make sense."
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