Significant progress made on advocacy priorities of our industry

While 2021 presented several challenges, there were also many positive legislative and regulatory developments over the course of the year.

Significant progress was made on the advocacy priorities impacting our industry last year despite the challenges, such as the changes in presidential administrations and the political parties controlling Congress and state legislatures, the year brought.

Protecting independent contractor status: Protecting advisers’ independent contractor status was one of the leading issues in 2021, as this fundamental pillar of advisers’ business models came under assault from multiple directions.

Early in the year, the House of Representatives passed the Protecting the Right to Organize (PRO) Act, which would mandate a more stringent “ABC” worker classification test for independent contractors under the National Labor Relations Act and would recategorize many advisers as employees of their broker-dealers. While the bill has not advanced in the Senate, concerns arose that PRO Act provisions could be included in the budget reconciliation process.

A second legislative threat to independent contractor status —– a proposal revising existing unemployment insurance laws requiring states to use the same classification test included in the PRO Act — was poised for inclusion in the budget reconciliation process since it qualifies as a tax bill.

We quickly mobilized, with FSI members sending thousands of letters to lawmakers sharing compelling stories about why they chose independence. The troublesome provisions were ultimately not included in the reconciliation process.

On the regulatory front, the Department of Labor withdrew a final rule that would have provided much-needed clarity on advisers’ independent contractor status under the Fair Labor Standards Act. By repealing the rule, the DOL left a more complex, ambiguous multi-factor test in place, leaving advisers vulnerable to threats to their independent status.

In response to this development, we joined a coalition of industry groups in challenging the DOL’s withdrawal of the rule, arguing that the department took a misguided and harmful policy position on this issue and failed to meet the Administrative Procedure Act’s requirements. This case is ongoing.

In the states, a case brought before the Supreme Judicial Court of Massachusetts questions the impact of regulatory supervision requirements on a worker’s classification status. We filed an amicus brief citing extensive judicial precedent finding that compliance with legal mandates is not an exercise of control for worker classification purposes.

Additionally, a few state proposals that would classify gig workers as employees threatened to unintentionally undermine advisers’ independent contractor status in 2021. Following discussions with state lawmakers, the proposals failed to progress. However, we expect renewed attempts in 2022.

Standard of care issues: The DOL’s PTE 2020-02 takes an important step toward establishing a unified best-interest standard of care for our industry, providing a best-interest standard that’s consistent with Reg BI or with an RIA’s fiduciary duty under the Investment Advisers Act of 1940.

During the implementation process, we conveyed our members’ concerns to the DOL, and the department announced that it would extend its non-enforcement policy through Feb. 1, 2022, if firms and advisers abide by its impartial conduct standards. The department will also hold off on the measure’s documentation and disclosure requirements for rollover recommendations until July 1.

While we have conveyed to the department that more time would be helpful, and requested an extension of the temporary nonenforcement policy until at least July 31, the department’s receptiveness to input is encouraging.

Modernizing regulation and leveraging technology: As part of our continuous constructive dialogue with Finra, we underscored the need for an extension of its temporary remote inspection policy. We were pleased when the regulator extended the temporary policy through the middle of 2022. With Covid continuing to impact companies and workers across the country, this extension will provide our members with tangible relief and greater flexibility to operate their firms. The move will also give us and the industry more time to collect data on the effectiveness of remote inspections.

We are further encouraged that Finra has shown willingness to review this and other rules in order to adapt to the lasting effects of Covid and significant advances in technology.

Retirement security: The Securing a Strong Retirement Act (SECURE 2.0), introduced early this year, would significantly strengthen Americans’ access to retirement savings vehicles and services. We will continue to advocate for the bill’s passage in 2022.

Taxes: The New York legislature considered taxes on equity, bond and derivative sales. However, following the active engagement of our team and our members, the bill failed to move. We also stopped a New Jersey transaction tax proposal.

Protecting seniors and vulnerable investors: As part of our ongoing advocacy efforts on protection of senior citizens and other vulnerable investors, we continue to support the adoption of NASAA’s model rule to protect seniors and vulnerable investors from financial exploitation. Iowa, Nebraska, South Carolina and Hawaii adopted versions of the rule, bringing the total number of adopters to 33.

While 2021 presented several challenges, there were also many positive legislative and regulatory developments over the course of the year. And we will build on this momentum as we continue to advocate for independent financial firms and advisers in 2022 and beyond.

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