Posts Tagged ‘Legislation’
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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Yesterday, the Senate voted 60-39 to approve the 2,315 page financial regulatory reform bill. The President is expected to sign the legislation sometime next week. The final Dodd-Frank bill requires the SEC to conduct a comprehensive study of all the issues involved in harmonizing the regulation of all providers of retail financial advice, including a fiduciary standard of care and enhanced supervision of RIAs. When signed by the President into law, the SEC would be required to report the results of the study to Congress within six months. At the conclusion of the study, the SEC may promulgate rules that would impose an obligation to act in the best interest of the client without regard to the financial or other interests of the broker, dealer, or investment adviser providing the advice.
“After almost two years of legislative activity, the real work begins as implementation of regulatory reform falls to the SEC and other regulators,” said Dale Brown, President & CEO of the Financial Services Institute. “We are already working to articulate unintended consequences and to bring the unique perspective of independent broker-dealers and financial advisors to this process.”
Our ultimate goal has been, and remains, a standard of care that works in all client situations and in all business models, combined with an industry-funded self-regulatory organization for investment advisers. We have supported the inclusion of the SEC study in the final bill throughout the legislative process. We believe the study represents the best available opportunity to achieve our goals.
We would like to thank everyone who acted on this important issue.
Tags: business, Compliance, Legislation, regulation
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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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The SEC has announced that they plan to publish a proposal to reform Rule 12b-1 in June 2010. The proposal is intended to address the SEC’s concerns that the fees no longer serve their intended purpose of supporting fund distribution, represent additional sales compensation, and are poorly disclosed to clients.
The Professional Alliance is a member if The Financial Services Institute (FSI) and we have long held the position that Rule 12b-1 provides fair compensation to financial advisors for providing middle-class Americans with critical support and guidance in planning to achieve important financial goals ranging from retirement, to college funding for children, to caring for aging parents. We have vigorously advocated for the retention of 12b-1 fees as an essential way of aligning the interests of the advisor with the interests of their fund shareholder clients. For this reason, preserving 12b-1 fees for the benefit of small investors has been a top advocacy priority for FSI since 2007, when the SEC initially announced its intention to review Rule 12b-1.
In an effort to preserve 12b-1 fees, the Financial Services Institute has meet with senior members of the SEC’s staff and held meetings with each of the five SEC Commissioners in the last month. We are closely monitoring developments and will alert you as soon as the proposal is made public.
Tags: business, clients, Investments, Legislation
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The Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (H.R. 3408) was introduced in the House on July 30, 2009 by Rep. Jim McDermott (D-WA 7th). Senator John Kerry (D-MA) introduced a bill by the same name in the Senate (S. 2882) on December 23, 2009. The substantive language of the House and Senate bills are identical. On February 1, 2010, President Obama released the Administration’s 2011-2012 budget proposal, which contains sections that would repeal protections afforded by Section 530 of the Revenue Act of 1978 (Section 530).
The bills and the proposed budget would have serious consequences for independent broker-dealers by taking away an important safe harbor provision in Section 530. They seek to eliminate the “longstanding recognized practice” safe harbor and to increase financial tax penalties for employers who misclassify workers as independent contractors without a reasonable basis. Additionally, the bills propose to place the burden of proof on the taxpayer to demonstrate that the worker is properly classified and authorize an independent contractor to petition the IRS for a review of the contractor’s employment status. The House bill has been referred to the Ways and Means Committee, the Senate bill has been referred the Finance Committee, and the Administration’s 2011-2012 budget has been submitted to Congress for review and approval.
These items are particularly important to labor unions concerned about the misclassification of workers as independent contractors in certain industries. As a result, the labor unions have identified the issue as a top priority in their legislative agenda. The legislation may also gain momentum as legislators seek new sources of tax revenue. The misclassification of workers as independent contractors is an attractive target since it is estimated to result in billions in unpaid payroll taxes.
Independent broker-dealers and independent financial advisors operate in a heavily regulated and documented industry in which cash payment for services is strictly prohibited. They are not involved in the industries of concern to the proponents of the legislation, responsibly pay their taxes, and are properly classified as independent contractors. In fact, financial advisors choose to affiliate with independent broker-dealers so they can own and operate their own small business and exert greater control over the means of its operation. Nevertheless, the Financial Services Institute1 is concerned that if these items were passed into in their current form, it would have serious unintended negative consequences for independent broker-dealers, independent financial advisors, and their middle class clients.
For more than thirty years, the independent broker-dealer industry has provided the investing public with comprehensive and affordable financial solutions. The lynchpin of the independent broker-dealer industry is a network of financial advisors who operate with maximum flexibility and are responsible for the entirety of their business operations. These independent financial advisors are small business owners and entrepreneurs who benefit from a decentralized business structure. As small business owners, these financial advisors usually own or rent their own office, employ their own staff, and are subject to independent broker-dealer inspection primarily for the purposes of complying with securities laws. In the U.S., approximately 180,000 financial advisors – or approximately 61.7% percent of all practicing registered representatives – operate as self-employed independent contractors, rather than employees, of their affiliated broker-dealer firm.3 A careful analysis of the relationship between a registered representative and an independent broker-dealer firm makes it clear that registered representatives associated with independent broker-dealer firms are properly classified as independent contractors for purposes of employment taxes.
The independent broker-dealer business model focuses on offering financial solutions to clients who constitute the backbone of America’s investor class. Financial advisors associated with independent broker-dealers primarily serve “Main Street Americans” – families able to invest tens or hundreds of thousands – rather than millions – of dollars. The independent broker-dealer model provides those investors with access to products and services that maximize their ability to achieve their financial goals. The independent broker-dealer industry is able to efficiently serve consumers and offer services at affordable prices because the primary business relationship is between the financial advisor and the consumer.
The negative impact on independent broker-dealers, financial advisors and their clients would be significant. Section 530 has functioned effectively for over thirty years. Congressional efforts to repeal it add great uncertainty and new expenses for entrepreneurs, falling heavily on small businesses. Eliminating the safe harbor would discourage entrepreneurship and damage the economy. These general concerns would be heightened in the independent broker-dealer industry.
If independent broker-dealers were forced to reclassify their financial advisors as employees, the additional costs and compliance burdens would cripple their ability to remain profitable while also providing the services needed by their advisors and their clients. Independent broker-dealers would be exposed to unnecessary IRS scrutiny of their classification of workers, potentially subjecting them to substantial back taxes, penalties, and interest payments.
If the IRS forced independent financial advisors to become employees of their broker-dealer, they would lose much of the independence that is so vital to the advice, products, and services they provide their clients by undermining their entrepreneurial spirit. Additionally, repeal would wipe out the “sweat equity” independent financial advisors have built in their own practices and eliminate their ability to exert control over how they best serve their own clients. This would be a tragedy for middle class investors who have come to rely upon the unbiased professional financial services they receive from their local independent financial advisor.
For these reasons, we believe independent broker-dealers and financial advisors should be exempted from the H.R. 3408, S. 2882 and other attempts to narrow or eliminate the safe harbor provision of Section 530.
Tags: business, Legislation, regulation
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