Financial Services Institute Issues Statement on Threat to Independent Financial...

Financial Services Institute Issues Statement on Threat to Independent
Financial Advisor Business Model Through Recently Proposed Legislative Changes
to Federal Worker Classification Rules
"Main Street" American Households' Access to High-Quality, Affordable
Financial Advice, Products and Services Could Be Diminished Significantly

ATLANTA, Aug. 17 /PRNewswire/ -- The Financial Services Institute (FSI) - the
leading legislative and policy advocacy voice for independent broker-dealers
and independent financial advisors nationwide - today reported that the
independent financial advisor business model, as well as middle-class access
to financial advice, are threatened by the recently proposed blanket
elimination by Congress of the "safe harbor provision" in Section 530 of the
Revenue Act of 1978. This critical feature of tax law allows workers to be
classified as "independent contractors" rather than "employees" in industries
where such designations are part of long-standing, recognized practice.

The proposed legislative changes are being encouraged by labor unions, and are
aimed at targeting the misclassification of workers as independent contractors
in certain industries, such as trucking and the construction trades.

Dale E. Brown, President and Chief Executive Officer of FSI, issued the
following statement in response to the proposed legislative changes:

"While the independent financial advisor community is not the intended target
of this legislation, they will become unintended victims of it. The severe
and adverse consequences this legislation will have on independent financial
advisors would directly threaten middle class American households' access to
affordable, high-quality, independent financial advice, and at a time when the
uncertainty and volatility of the markets has made such expert advice more
critical than ever.

The following ramifications, should the envisioned legislative changes come to
pass, represent a very real possibility, as opposed to a 'worst-case'
scenario:

-- Independent financial advisors would be exposed to unnecessary and
onerous IRS scrutiny of their worker classification status;

-- Independent broker-dealers could be forced to reclassify the
independent
financial advisors they serve as employees, and in the process, be
subjected to hefty payments related to "back taxes", penalties
and interest.

-- These payments - combined with substantial added personnel and
compliance costs - could be so significant as to threaten the very
existence of most small and mid-sized independent broker-dealers,
while
crippling the ability of larger broker-dealers to remain profitable as
they provide the vital services needed by the independent financial
advisors to serve their clients;

-- Independent financial advisors reclassified as employees of
broker-dealers would lose much of the independence that is so crucial
to
the advice, products and solutions they provide to their clients by
undermining their entrepreneurial spirit. Additionally, this 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 completely unjust and unfair for the independent financial
advisors of America, who pay their taxes, operate in a heavily regulated and
thoroughly documented industry in which cash payment for services is strictly
prohibited, and are not involved in the industries of concern to legislators
and labor unions.

More importantly, the destruction of the independent financial advisor model
as it exists today would have an enormous negative impact on the ability of
the American middle class to access high-quality, affordable financial advice,
products and services.

Today, 98,000 independent financial advisors across the country -
approximately 42.3% of all practicing registered reps -provide the investing
public with comprehensive and affordable financial solutions, supported by a
network of independent broker-dealers. These independent advisors are not
employees of broker-dealers, but self-employed business owners who manage
their own financial advisory practices and are principally responsible for
serving a segment of the US population that has been substantially overlooked
by the big Wall Street institutions: the millions of 'Main Street' American
households across the nation with net investible assets of tens and hundreds
of thousands, rather than millions, of dollars.

This is a vital demographic segment that represents the backbone of America,
and needs access to sound financial advice, products and solutions to secure
their life goals more than ever before. Yet, this seemingly obscure tax law
change now threatens middle-class access to such services and solutions.

At FSI, we are working diligently across all avenues to combat this serious
potential threat to independent financial advisors, and the middle-class
American clients who rely on their services and support."

About the Financial Services Institute (FSI)

The Financial Services Institute (FSI) was formed in January 2004 as an
advocacy and membership organization for independent broker-dealers and
independent financial advisors. The organization's mission is to create a
healthier regulatory environment for independent broker-dealers and their
affiliated independent financial advisors through aggressive and effective
advocacy, education and public awareness. Today, FSI is the voice for 114
independent broker-dealers, who collectively serve more than 152,000
independent financial advisors, and for more than 10,000 independent financial
advisors who are individual members.

Media Contact:
Joseph Kuo or Sofia Mata-Leclerc
Kekst and Company
212 521 4863 or 212 521 4821
joe-kuo@kekst.com or sofia-mata@kekst.com

SOURCE Financial Services Institute

Joseph Kuo, +1-212-521-4863, joe-kuo@kekst.com, or Sofia Mata-Leclerc,
+1-212-521 4821, sofia-mata@kekst.com, both of Kekst and Company