Advisors get a win as NJ Senate passes independent contractor bill

Image shows the New Jersey Senate and a generic bill — The New Jersey Senate is considering a bill that would exempt financial advisors from employer definitions. (This image was created with AI)

By Brooke Lacey

The New Jersey Senate voted 35-2 Thursday on legislation to clarify the choice of independent contractor status for certain licensed or regulated professionals, including financial advisors.

The bill intends to protect specific licensed or regulated professionals (including independent financial advisors and insurance producers) from being reclassified as employees under the state's independent-contractor rules. This bill codifies that understanding and retroactively applies its provisions to any past agreements regarding that relationship.

“Passage of this legislation will create certainty that’s been absent, ensuring that financial professionals can continue to be independent advisors,” said Dan Barry, assistant vice president of legislative affairs for the Financial Services Institute, which submitted comments.

The bill goes to the General Assembly and must be signed by Gov. Mikie Sherrill

Barry noted that FSI supported similar legislation in 2019 (California Assembly Bill 5), which was passed in 2019 and gave clarity to independent advisors in that state. Other trade groups active on the issue include the National Association of Insurance and Financial Advisors and the Insured Retirement Institute.

The FSI letter urged state lawmakers to advance the bill to provide certainty for the independent financial services industry, which remains exposed to potential challenges to advisors’ classification under the New Jersey Department of Labor and Workforce Development’s final independent contractor rule.

“This legislation would help ensure the NJDOL’s independent contractor rule does not cause undue uncertainty or lead to the misclassification of financial services professionals,” Barry said.

ABC test a challenge

New Jersey has relied on the ABC test to determine whether a worker is legally classified as an independent contractor or an employee. The test presumes a worker to be an employee unless the hiring entity can prove all three of the following conditions:

A – The worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in fact.

B – The worker performs work that is outside the usual course of the hiring entity’s business.

C – The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Prong B is the hardest for financial advisors to meet because it mandates that a contractor perform work outside the usual course of the hiring company's business.

The current bill bypasses multi-factor tests altogether by making a valid written contract the sole determining factor for those designated professions.

Want to be independent

Barry noted that independent advisors choose that model for a reason, but there is some ambiguity around their work. A 2025 survey, conducted by FSI and Oxford Economics, found that only 11% of New Jersey independent financial advisors would accept employment with a financial firm if they were unable to keep their independent contractor status.

In addition, of the 600 independent financial advisors surveyed, 19% said they would retire rather than become an employee of their broker-dealer, and 58% said they would make changes to their business to avoid employment status.

“Independent financial advisors choose the independent contractor model for the freedom and flexibility to build their own business. An independent advisor’s business is an asset that would be lost if the advisor is classified as an employee,” Barry said.

The letter to the Senate noted that: “In New Jersey, independent contractors with at least one employee own and operate approximately 2,323 financial and insurance services firms. These independent-contractor-led firms employ an estimated 6,300 people—accounting for 25% of all employees in the financial and insurance services industry in the state.”

This bill was passed out of the Senate Budget and Appropriations Committee on June 4, advancing to the second reading.

“The bill does have bipartisan support and we have some confidence the Senate will get it done,” Barry said. “We’re hoping to get it through the Senate by the end of June.”