The PRO Act and “ABC” Test Briefing
Spring 2021

Dear Member of Congress,

Attached is a memo prepared by a former Chairman and a Board Member of the NLRB that explains why non-unionized industries, such as the securities industry that we represent, may be inadvertently captured by The Protecting the Right to Organize Act (PRO Act). Although the PRO Act’s goal is to address potential worker classification concerns, the inclusion of an overly broad ABC test will disrupt industries that have traditionally and successfully relied on independent contractors, including our own. Broker-dealers will be subject to significant uncertainty regarding the measures that govern the use of independent financial advisors and this, in turn, could adversely affect those individuals who have long enjoyed the benefits of independent contractor status. When considering this legislation, we hope you will take into account these facts about our industry:

• Our 150,000 independent financial advisors operate small businesses across the country, reaching underserved communities and serving clients of varying needs. They help their clients plan for retirement, pay for a child’s education, and protect against life’s unexpected events by advising on investment and other products.
• Independent financial advisors choose to be independent contractors so that they can own their own business. They determine their hours, buy or rent their office space, employ staff, select and manage vendors, and are typically responsible for their expenses and benefits. This provides great flexibility and can be very rewarding.
• Notably, independent financial advisors create their own client base and decide the best way to serve them, since they know their clients best. They have branding control and build their own client-service model. Their clients are a valuable asset, and while retention is high, should they choose to affiliate with another broker-dealer, clients often follow.
• They have a written contract or arrangement with the broker-dealer that eliminates the potential for misunderstanding about their chosen status.
• Independent financial advisors work in a highly regulated industry. They are required by the securities laws to associate with broker-dealers, who handle their licensing and exercise a certain amount of control – in the form of supervision – to protect investors. Our broker-dealer members are necessary to and responsible for the regulatory obligations associated with clients’ transactions, such as the custody of client funds, trade execution, and reporting and disclosures. Financial advisors thus can focus on client service.
• The ABC test contained within the PRO Act is so restrictive and legally uncertain that even the California legislature exempted traditional independent contractor industries, such as ours, to avoid unintended consequences. There are other well-established tests like California’s Borello test.

We hope that you will consider voting against the PRO Act, as written, because of its potentially adverse effect on the securities industry.