Close Close
ThinkAdvisor
DOL headquarters in Washington

Regulation and Compliance > Federal Regulation > DOL

Raymond James Preps for DOL’s Independent Contractor Proposal

By John Manganaro

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Senior leaders at Raymond James say much is at stake with Labor’s proposed overhaul of its independent contractor rules.
  • A final version of the rule could be published as soon as this month, though delays are seen as likely.
  • Advisor industry leaders say their firms are not prone to the same potential worker misclassification issues present in other fields.

Back in October, the Labor Department released a proposed rule under the Fair Labor Standards Act to be used by employers to determine worker classification more strictly as either an independent contractor or an employee.

While hailed by workers’ rights advocates as an important step meant to protect vulnerable populations at risk of exploitation on the job, the act also immediately sparked a backlash from leaders across a number of industries — among them financial services — who feel their organizations will suffer significant and unintended collateral damage from the proposal’s broad scope.

Fast forward to May 2023, and senior executives in the advisor industry continue to voice concerns that Labor’s rule could threaten independent advisors’ cherished ability to work as independent contractors. Among the prominent voices sharing their trepidation is Jodi Perry, president of the independent contractor’s division of Raymond James.

In a recent interview with ThinkAdvisor, Perry said her role at Raymond James gives her an obvious and significant incentive to get involved in the rulemaking process, which she has done via her participation on the board of the Financial Services Institute.

Perry has also been encouraging advisors across Raymond James’ sizable independent contractor wing to write to their lawmakers and to submit formal comments to the Labor Department, highlighting the reasons the advisor industry is not subject to the same misclassification issues as, for example, mobile application-based food delivery.

Simply put, many advisor professionals happily choose to operate as independent contractors, as this gives them much-needed control over everything from business structure and marketing to client service and investment management.

Perry was joined in the discussion by her Raymond James colleague Tim Killgoar, who leads the firm’s financial institutions division. Like Perry, Killgoar voiced concern about the potential implications of the proposed worker classification regulations, and both echoed comments made recently by Scott Curtis, president of the Raymond James Private Client Group.

According to the trio of Raymond James leaders, the independent contractor rule is one of the most pressing regulatory issues facing the industry in 2023, and as such, they remain focused on the rulemaking process and are preparing for both the best and worst possible outcomes.

Some Regulatory Background

The DOL first released its proposal on Oct. 11. In basic terms, the proposal seeks to replace the existing 2021 test under the Fair Labor Standards Act used to determine worker classification as either an independent contractor or an employee.

As proposed, the new Labor rule would replace the 2021 rule that went into effect as a result of a ruling in March by the U.S. District Court for the Eastern District of Texas. The ruling determined that Labor’s delay and withdrawal of its independent contractor rule violated the Administrative Procedure Act.

Labor’s regulatory flexibility agenda states that the department plans to issue a final independent contractor rule in May. However, given the complexity of the proposal and the mountains of both positive and negative feedback from a variety of stakeholders, policy experts have suggested the May deadline is likely unrealistic.

For their part, Perry and Killgoar aren’t spending much time speculating about exactly when the final rule may be issued. Instead, they are helping their advisors digest the potential rule changes and are mapping out a significant number of potential responses and contingency plans.

Given her role helping to steward the firm’s thousands of independent affiliated advisors, Perry says the rule keeps her up at night, though she is cautiously optimistic that relief for the advisor industry (among others) could come when the regulator eventually publishes its final rule.

Best- and Worst-Case Outcomes

Perry and Killgoar say there is still very little clarity in the current moment about what precisely will happen with the department’s proposal. On the one hand, the final rule could end up looking much different from the proposal, given the strength of the feedback, and there is also the possibility of litigation that would delay or curtail any new regulations.

“What we can say as of today is that we still don’t know exactly where this is all going, but we are putting our plans in place to ensure we don’t experience any disruption,” Perry explains. “I take some heart from the fact that our industry is not alone in this boat. Similar concerns are being expressed by real estate agents, insurance agents, the trucking industry, the entertainment industry and others.”

Perry says she hopes the volume and diversity of these voices could help the department see the need to refine its approach to policing employee mischaracterization. The worst-case outcome — which she emphasizes that Raymond James could deal with — would be full implementation of the proposal.

On the other hand, a best-case outcome would be a clear carve-out for the financial advisor industry or a wholesale reworking of the rule — or its full withdrawal.

“The bottom line is that we have a plan in place, and we have a lot of allies in this effort,” Perry says. “I sit on the board of FSI and they have a good plan as well, and so do other organizations in our space. So, this will remain something we are just having to watch and track very closely.”

The Desire for Flexibility

To explain their firm’s motivation for seeing the rule altered or rescinded, Perry and Killgoar emphasize all the different ways advisor professionals can choose to align themselves with a firm like Raymond James.

“We just have a broad range of options, and our advisors really value that flexibility,” Killgoar says. “We can bring someone in as that new advisor. They may start out on the employee side and then build up their practice that way before eventually deciding to establish themselves as being fully independent. It’s a whole spectrum of affiliation options, and the best fit really depends on the advisor’s career stage and their goals and objectives.”

(Image: Adobe Stock)

John Manganaro

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.