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Opinion: PRO Act Eliminates Essential Freedoms for Independent Advisors and Main Street Investors

By: John Harrison, Executive Director of The Alternative and Direct Investment Securities Association (ADISA)

By: John Harrison, Executive Director of The Alternative and Direct Investment Securities Association (ADISA)

Independence is a fundamental tenet of life in the United States. The freedom to choose how we will live and work binds us all together as Americans, but that basic right is now challenged by the Protecting the Right to Organize Act (PRO Act; H.R. 842/S.420) currently being proposed in the U.S. Congress. The PRO Act will inhibit freedom in a way that will not only disrupt the work of independent contractors currently in the financial industry, but will also have adverse effects on the average retail investor—all perhaps as an unintended consequence.

The PRO Act undermines workers’ freedoms in many different ways, but possibly the most damaging is the reinterpretation of what exactly constitutes an independent contractor. Under the PRO Act, the definition of an independent contractor becomes so narrow that the designation effectively disappears. Instead of being independent contractors, financial advisors would be reclassified as regular employees of broker-dealers, taking away their entrepreneurial vision and putting undue financial stress on the broker-dealer as they become sudden employers of the formerly independent contractor.

Independent contractors are, and have long been, an important part of the financial services industry. Today, according to a report by Cerulli Associates, approximately 64 percent of all registered representatives operate as self-employed independent contractors. Financial advisors choose to operate independently for several reasons.

Not only do they have more control over their business costs, but they also often have access to a greater selection of financial options for their clients. Many of these independent advisors have established relationships with insurance companies, broker-dealers, registered investment advisors or other groups that allow them to present choices to their clients, beyond the proprietary products of a single employer. Additionally, under the independent model, advisors have more freedom to accept the clients with whom they will work. They are not only limited to certain high-net-worth individuals.

The current structure, of course, benefits the normal retail investor. With lower business costs, independent professionals can provide more affordable services. With more options, advisors can provide the offering that is best suited to help their clients achieve their financial objectives.

And we know from research that the more retail investors have access to professional financial advice, the more likely they are to reach their financial goals—this, of course, means more resources for businesses, communities and families. It seems that, after the unprecedented effects of the last two years or so, independent advisors will be needed now perhaps more than ever.

Worker misclassification is a very real issue in many industries, but, as any independent broker-dealer knows, independent contractors in the financial arena are already highly regulated with compensation practices carefully monitored and reported. The PRO Act will neither help advisors nor their clients. Instead, it will only limit options for everyone.

The independent contractor model provides freedom to a great many advisors and the investors they serve. If these freedoms are taken away, then what could be next? Instead of being threatened with policies like the PRO Act, financial professionals should be applauded and supported for the services they provide. These small business owners are integral, not only to the financial services industry, but to our American economy as a whole. We must continue to fight for their freedom to operate in the manner that best benefits them and their clients.

John Harrison is a regular contributor to The DI Wire.

Since 2012, Harrison has been the executive director of ADISA, an organization that represents the non-traded alternative investment industry. He has been in association management for more than 25 years and has served in industry, education, and health associations in the U.S., Europe, and the Middle East. Harrison was a cum laude graduate in biology and psychology from the University of Georgia and earned an MBA and a doctorate in business administration from Georgia State University.


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The views and opinions expressed in the preceding article are those of the author and do not necessarily reflect the views of The DI Wire.