Fending off taxes, fees and other state threats to adviser autonomy and growth

Fees, financial literacy and the freedom to work as an independent contractor are all under debate in state legislatures — and relevant to the growth of advisers' practices

Many of the legislative and regulatory issues that make headlines are national ones. However, actions at the state level can significantly impact independent financial advisers, their clients and the broader independent financial services industry, which is why the Financial Services Institute team continually monitors them.

Staying on top of state-level developments is no small task. It requires following hundreds of bills, engaging a wide array of lawmakers and teaming with industry partners to ensure we have the latest intel. Through it all, our main concern is simple: Getting fair outcomes for our members and the clients they serve.

Below is an overview of some state issues we’ve focused on during the first half of this year:

KENTUCKY

To pay for a reduction in the state’s income tax, the Kentucky legislature recently proposed new taxes on a series of business activities, including a 6% levy on personal financial planning and personal investment management services. After learning the proposal was in the works, we moved quickly and engaged our members in the state.

We reached out to legislators to let them know that taxing our industry would harm Kentuckians, making it more expensive for them to save and invest for retirement. Moreover, we also pointed out that such a tax would be unique to Kentucky and hurt wealth management businesses in the state.

Through our efforts — especially those of FSI members who spoke with their lawmakers about the tax’s harmful effects — the legislature agreed with our reasoning and took our services off the list. We were one of only three industries to achieve such a positive outcome out of approximately three dozen.

NEW YORK

When the gig economy first took off, the federal government waded into questions surrounding the classification of independent contractors. However, the states are increasingly looking at these issues as well.

While proposed legislation surrounding this issue is well-meaning — to improve worker protections — our industry often suffers the unintended consequences. A prime example is a pending bill in New York that would amend the definition of the term employment, using the so-called “ABC test.” Our concern is that this test would compel the reclassification of financial advisers who prefer — and freely choose — independence.

In 2019, we successfully gained a carve-out for our members in a similar circumstance in California. Today, we are advocating for the same outcome in New York, which would allow independent financial advisers to continue to serve investors in the state.

FLORIDA

Thanks in part to our efforts and those of other like-minded associations, Florida Gov. Ron DeSantis signed into law a bill earlier this year that requires high school students to take personal financial literacy and money management classes. We advocated for the bill’s passage from the beginning, touting the importance of financial literacy during a visit to the statehouse in Tallahassee in January.

In discussions with lawmakers, we stressed that a clearer understanding of money and investments not only allows people to take full ownership of their finances but enables them to thwart instances of financial abuse and fraud. In the future, we will continue to use our influence to support similar financial literacy measures across the country.

TENNESSEE

Decades ago, Tennessee approved a tax on various professionals to help plug a hole in its budget. In the beginning, it targeted 23 professions. While that number has come down over the years, securities agents, broker-dealers and investment advisers are still required to pay an annual $400 tax — which is on top of their standard registration fees.

Because of this, we believe the tax is discriminatory. Moreover, we think it’s unnecessary since the state’s fiscal footing is sound. Our members have supported our efforts in the Tennessee General Assembly to eliminate this tax through a grassroots letter-writing campaign. We will maintain our vigilance when fighting this unlawfully targeted tax in the months ahead.

ONGOING STATE ADVOCACY

We continue to work with states that would like to adopt the North American Securities Administrators Association model act to protect the elderly and other vulnerable people from financial exploitation. As of last year, 33 states have such laws on the books, and we hope Michigan and others will soon join them by adopting bills of their own.

At the end of the day, our mission is to ensure that Americans have greater access to high-quality, professional financial advice, which is especially important during these uncertain times. We will continue to put in the effort, wherever we need to, to make sure that happens, whether it’s on Capitol Hill, at a regulator’s office or in statehouses around the country.

Dale Brown is the president and CEO of the Financial Services Institute.