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More than six out of 10 New Jersey-based financial advisors would consider leaving the state if its Department of Labor & Workforce Development finalizes a rule changing its independent contractor classification for workers, according to a broker advocacy group.
The Financial Services Institute, partnering with Oxford Economics, surveyed 367 Garden State-based advisors on the rule’s potential impact. According to the survey released this week, 65% would consider relocating their businesses out of the state, 4% reported they would likely retire from the industry altogether and 8% claimed they’d “consider” becoming employees.
FSI CEO and President Dale Brown said the survey proved that independent advisors “don’t want to be employees,” calling advisors “entrepreneurs and business owners.”
“This proposed rule threatens not only the businesses advisors have built, but also New Jersey families’ access to the advice they rely on to navigate life transitions and achieve financial security,” Brown said.
The report’s release followed Brown’s testimony earlier this year in opposition to the proposed rule, in which he revealed some findings.
New Jersey’s proposal follows a similar rule brought up at the federal level during the Biden administration, which the Department of Labor under the Trump administration put on hold earlier this year. (The FSI was similarly vocal in its opposition to a federal standard.)
According to the New Jersey Monitor, Gov. Phil Murphy originally ordered a study of the contractor classification in 2018 to determine whether current classifications meant companies could deny employees mandated workplace benefits, including unemployment and family leave.
According to Robert Asaro-Angelo, commissioner of the New Jersey Department of Labor and Workforce Development, the rule would “prevent the illegal misclassification of employees” by offering “clear, reliable guidance to employers.”
“Not only would these new rules protect workers’ rights, but they would also ensure that bona fide independent contractors understand what makes them independent contractors, rather than employees, so that they can continue to operate with autonomy,” Asaro-Angelo said.
According to the FSI study, the proposed rule would “materially modify” the “ABC Test,” which is used to determine independent contractor status in New Jersey. This would mean that some independent advisors could be reclassified as employees of their affiliated firms.
In the study, FSI claimed that 94% of advisors were “very satisfied” with their independent contractor status, with 62% reporting it allowed them to better serve clients. However, if the rule were finalized, 88% of advisors believed their costs would increase, while 65% expected a rise in legal expenses. Even for advisors becoming employees, 44% expected more costs.
Additionally, about 17% expected to register or restructure their own RIA business, offering fee-based advice instead of operating as affiliated brokers. According to the FSI (which lobbies for broker/dealers), the RIA fee structure “may incentivize RIAs to prioritize higher net-worth clients with more assets, leading advisors to forgo smaller accounts or clients with limited trading activity.”
Over nine in 10 advisors expected clients to be impacted if the rule was finalized, with 67% expecting reduced services and 62% predicting reduced investment options. About 75% expected increased fees, and nearly seven out of 10 advisors expected increased account minimums. In total, the FSI predicted that about 4,670 industry workers may leave the state if the rule is finalized.
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