Posts Tagged ‘independence’
We are pleased to report that Congress adjourned in December without taking action on The Fair Playing Field Act of 2010 (FPFA). The FPFA would have revised the current tax law governing employment status determinations. The Republican majority in the House makes it unlikely that similar legislation will move forward in the 112th Congress. This victory was made possible by FSI members who responded to our calls to action in 2010 with more than 8,500 e-mails and letters to their Senators on this issue. In addition, several FSI members participated in targeted grassroots meetings with influential members of the House Ways & Means and Senate Finance Committees. Member involvement and FSI’s aggressive advocacy resulted in this important victory for our members. Thank you once again for your support on this important issue.
Tags: business, independence, Legislation
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On September 15, 2010, Senator John Kerry (D-MA) and Rep. Jim McDermott (D-WA 7th) introduced The Fair Playing Field Act of 2010 (FPFA) (S. 3786 and H.R. 6128). The bill would revise the current tax law governing employment status determinations by repealing Section 530 of the Revenue Act of 1978. The bill would also grant the IRS authority to make employee classification determinations through regulatory guidance, an authority it currently lacks. This is particularly problematic because the IRS is predisposed against independent contractors and prefers the centralized tax collection method offered through employer payroll withholdings.
What Does This Mean To You?
If passed in its current form, this bill would give the IRS reason to question if you are appropriately classified as an independent contractor in your relationship with your broker-dealer. If the IRS succeeds in forcing you to become an employee, it would:
- Undermine the entrepreneurial spirit of independent financial advisors, who would lose their independence as business owners and their ability to decide how to best serve their clients;
- Restrict independent financial advisors from providing high-quality, affordable financial advice, products and services to middle class investors without the burden of the conflicting agenda of a parent company; and
- Force independent broker-dealers to incur additional costs and compliance burdens that would cripple their ability to remain profitable while providing vital services to independent financial advisors and their clients.
Action Needed:
We believe the progress of this legislation will be determined in the Senate. Therefore, please contact your US Senators and urge them not to support or co-sponsor the Fair Playing Field Act introduced by Senator John Kerry.
Tags: business, client ownership, independence, Legislation
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I previously reported on the status of the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (H.R. 3408 and S. 2882) introduced in the House and Senate by Rep. Jim McDermott (D-WA, 7th) and Senator John Kerry (D-MA), respectively. The core provisions of these bills make it more difficult for employers to classify workers as independent contractors. Among other things, the proposed legislation would remove an important safe-harbor provision in the U.S. Tax Code, Section 530 of the Revenue Act of 1978, and give the IRS reason to question the independent contractor status of independent financial advisors affiliated with independent broker-dealers.
This legislation is still pending in Congress and may not move forward until the November elections take place. However, the preservation of the independent contractor status of financial advisors remains one of TPA’s top advocacy priorities. The Financial Services Institute (FSI) continues to educate Members of Congress about the proposed legislation’s potential unintended consequences for independent financial advisors and the broker-dealers that serve them. For example, FSI arranged meetings during the August Congressional recess between FSI members and members of key Congressional committees. Additionally, FSI filed an amicus brief in Taylor, et al. v. Waddell & Reed, Inc., et al. FSI‘s brief explains what the independent broker-dealer model is, how independent financial advisors function as independent contractors, and the broker-dealer supervision requirements of federal and state laws, and self-regulatory rules and regulations.
Tags: business, independence, Legislation
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The Professional Alliance, through the Financial Services Institute (FSI), has been working with several coalitions to influence the outcome of the independent contractor debate currently taking place in Congress (see below). TPA and FSI are supporters of the Coalition to Preserve Independent Contractor Status. The Coalition is made up of a broad and diverse spectrum of industries committed to protecting and preserving the independent contractor status of workers that many businesses rely upon. FSI is also working with a coalition made up of other financial services trade associations, including ACLI, SIFMA, and FPA.
Summary of pending legislation:
- The Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (H.R. 3408 and S. 2882) was introduced in the House and Senate by Rep. Jim McDermott (D-WA-7) and Senator John Kerry (D-MA), respectively. The core provisions of these bills make it more difficult for employers to classify workers as independent contractors. Among other things, the proposed legislation would remove an important safe-harbor provision in Section 530 of the Revenue Act of 1978, and give the IRS reason to question the independent contractor status of independent financial advisors affiliated with independent broker-dealers.
- The Employee Misclassification Prevention Act was introduced in the House (H.R. 5107) by Rep. Lynn Woolsey (D-CA-6) and the Senate (S. 3254) by Senator Sherrod Brown (D-OH). The bills would amend the Fair Labor Standards Act of 1938 to increase the financial consequences to a company that misclassifies an individual as an independent contractor and impose new and expensive recordkeeping and notice requirements on a company that does business with an independent contractor.
FSI is meeting with key Members of Congress who are in a position to exert influence over this issue. They expect to schedule additional meetings with Congressional leaders in their home states and districts during July 4 recess. We will keep you informed of these efforts and any movement on these bills.
Tags: business, independence, Legislation
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I had created this list many years ago as a guide to help me conduct the necessary due diligence on brokerage firms. I’ve updated it for today’s climate but it is by no means all-inclusive.
Is the firm owned by another company? If so, there will always be the temptation to pressure you to sell certain products that benefit the parent company’s bottom line.
The compliance record of any broker dealer can be found at www.finra.org. Pay attention to the number of infractions as well as the dollar amount of any fines. Be sure the firm is registered in all 50 states. If you are a Series 6 Rep, ask if they will accept targeted licenses such as Series 22, 52, 62 and 72.
FINRA prohibits “parking” a license, so every Registered Representative must have a profitable, viable business. But beware of a production quota, which could be a sign that the firm will intrude on your business plan when they see fit.
A number of broker dealers have gone out of business in the past year or are threatened by bankruptcy. Look at the financial statements as well as the products sold by the firm.
Payout is important, but so are miscellaneous charges that may be assessed to you. Ticket charges, technology fees, audit fees and account fees all impact your revenue.
You should be the “Rep of Record” on your accounts and you’ll want the freedom to transfer your accounts to another brokerage firm if necessary. Look at the broker dealer’s privacy policy to see how confidential information is handled.
The trend is away from commissions and toward fee-based accounts. This can be valuable to the client and result in much higher valuations when you sell your business.
Broker dealers will limit the types of products available based on several factors, including the sophistication of their advisors. Be sure alternative products are available and that there are no proprietary products (to avoid a conflict of interest).
Does the firm attract product salespeople or advisors? Divide gross revenue by number of Reps to find average production. Look at magazine surveys for additional information.
Technology should help you do your job more efficiently. Does the firm require you to use specific financial planning software or other program? Is forms population available?
Tags: business, Compliance, independence
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On March 22, 2010, the Senate Banking Committee (Committee) approved the Restoring American Financial Stability Act of 2010 (RAFSA), S-3217, by a party-line vote of 13 to 10. I am pleased to report that the bill passed by the Committee contains a provision directing the Securities and Exchange Commission (SEC) to study all the issues surrounding harmonization of broker-dealer and investment adviser oversight. We supported the inclusion of this study in RAFSA because it will provide the SEC, investor advocates, financial services industry professionals, and other stakeholders with an opportunity to shape these important regulatory reforms without a rush to judgment in a politically charged atmosphere. We support the creation of a new universal standard of care and an industry-funded self-regulatory organization for investment advisers. We believe the study represents the best available opportunity to achieve our goals.
On April 12, 2010, the Financial Services Institute submitted a letter to all Senators urging them to support the SEC study in the final version of RAFSA. RAFSA is expected to make its way to the Senate floor in the next couple of weeks.
Many of you have responded to our Calls to Action by letting your Senator know how you feel about important aspects of this legislation. We are grateful for your support and involvement in the process. It does make a difference!
Tags: business, independence, regulation
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On Monday, March 22, 2010, the Senate Banking Committee (Committee) approved the Restoring American Financial Stability Act of 2010 (RAFSA) by a party-line vote of 13 to 10. I am pleased to report that the bill passed by the Committee contains a provision directing the Securities and Exchange Commission (SEC) to study all the issues surrounding harmonization of broker-dealer and investment adviser oversight.
As mentioned in my March 15 blog, I supported the inclusion of this study in the RAFSA because it will provide the SEC, investor advocates, financial services industry professionals, and other stakeholders with the opportunity to shape these important regulatory reforms without a rush to judgment in a politically charged atmosphere. From the start of this important debate, we have embraced regulatory reforms that support universal access to competent investment advice, clear and concise client disclosures, and uniform and effective regulatory supervision of all market participants. We still support the creation of a new universal standard of care and an industry-funded self-regulatory organization for investment advisers. We believe the study represents the best available opportunity to achieve our goals. I will continue to monitor RAFSA as it makes it way to the Senate floor in the next few months.
Many of you responded by letting your Senators know how you feel about important aspects of this legislation. We are grateful for your support and involvement in the process. It does make a difference.
Tags: business, Compliance, independence
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A growing number of Senate Banking Committee members are indicating their support of a provision that would replace the regulatory reform draft legislation’s requirement that all financial advisors become registered investment advisers with an amendment that would direct the SEC to study all the issues surrounding harmonization of Broker/Dealer and investment adviser oversight.
I support the adoption of the study because it will provide an opportunity to shape regulatory reforms in a manner that is workable for all client situations and across all business models. Furthermore, I continue to support the creation of a new universal standard of care and an industry-funded self-regulatory organization for investment advisers. I believe the proposed study represents the best available opportunity to achieve these goals.
I urge you to call or write your Senator in support of an SEC study of these important issues. The Financial Services Institute provides a link that can help you quickly contact your Senator through the FSI Advocacy Action Center: http://www.bipac.net/issue_alert.asp?g=FSI&issue=Senate_Banking_Committee_Study&parent=FSI
I have personally contacted my Senators and asked them to support this study. I urge you to join me so we can maximize our impact.
Tags: business, Compliance, independence
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The Financial Services Institute (FSI) is the “Voice of Independent Broker-Dealers and Independent Financial Advisors.” The organization has done a terrific job of speaking out on issues that affect independent advisors.
FSI President and CEO Dale E. Brown said last week that proposed legislation that could require independent broker-dealers to reclassify independent financial advisors as employees would destroy their business model and reduce their independence. “The independent broker-dealers and the independent contractors they license have a three-decade record of compliance with applicable rules, so there is no need for the IRS to be given any reason to question whether or not our industry is appropriately classified,” Brown said.
Currently independent brokerage firms pay reps on an independent contractor basis, allowing them the independence of working for themselves. But legislation that was introduced to the House in late July by Rep. Jim McDermott (D-Wash) and to the Senate in December by Sen. John Kerry could lead to high costs and extra hassle for independent broker-dealers.
Please contact your representatives in Washington and urge them not to support S. 2882, the Taxpayer Responsibility, Accountability and Consistency Act of 2009.
Tags: business, client ownership, independence
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The status of financial professionals as independent contractors is in jeopardy given recent legislation which proposes blanket removal of a safe-harbor provision that has been in place since 1978. On July 30, Rep. Jim McDermott (D-WA 7th) introduced H.R. 3408, the Taxpayer Responsibility, Accountability and Consistency Act of 2009. The bill’s core provisions make it more difficult for employers to classify workers as independent contractors.
While the proposal is intended to address worker classification problems in other industries, it would have serious unintended negative consequences for independent Broker/Dealers, independent financial advisors, and the clients they serve.
Negative impact from the passage of this legislation and repeal of the safe harbor provisions would be significant:
• Independent financial advisors would be exposed to IRS scrutiny of worker classification status
- And could be subject to back taxes, penalties, and interest
• The IRS could force independent financial advisors to become employees of their Broker/Dealer
- This would undermine true independence and mitigate their ability to best serve their clients
- Ownership of clients and the practice could move to the broker dealer
Please call or write your Representatives and urge them not to cosponsor H.R. 3408.
Tags: business, client ownership, independence
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