The U.S. Department of Labor has suspended enforcement of a Biden-era rule that many financial advisors feared would force a reclassification of independent contractors as employees, potentially disrupting long-established business models in the independent wealth management space.
The agency is now signaling it may fully rescind the rule, marking a shift that could offer long-awaited clarity to thousands of advisors operating as 1099 contractors.
In newly released guidance, the Labor Department instructed its Wage and Hour Division not to enforce the 2024 independent contractor rule in any current investigations. This move comes amid ongoing litigation from industry groups seeking to block the rule entirely and reflects a broader reevaluation of the regulation's viability.
“The department has taken the position in those lawsuits that it is reconsidering the 2024 rule, including whether to rescind the regulation,” the DOL stated in a field assistance bulletin issued to enforcement staff.
Originally introduced under the Biden administration, the independent contractor rule was designed to strengthen labor protections for gig workers by establishing a six-factor economic reality test to determine whether individuals are truly independent or should be classified as employees. The rule considered criteria such as the degree of control over work, opportunity for profit or loss, skill required, permanence of the relationship, and the nature of the work within the employer’s business.
While the DOL maintained the regulation was necessary to curb worker misclassification and safeguard benefits like minimum wage and overtime, many in the financial services sector raised alarms. Broker-dealers, registered investment advisory firms, and independent advisors argued that the rule was overly rigid and ill-suited to the wealth management industry’s structure, where independence is often a core element of advisor-client relationships.
Robin Traxler, senior vice president of policy and deputy general counsel at the Financial Services Institute (FSI), welcomed the Department’s pivot, stating, “Independent financial advisors have lacked security in their choice to be independent contractors for far too long. They choose independence so that they can run their own businesses and better serve their clients.”
FSI, a leading advocacy organization for independent broker-dealers and financial advisors, is among the groups actively litigating against the 2024 rule. Traxler described the regulation as an “unworkable standard for determining worker classifications,” and reiterated FSI’s position that the DOL should revert to the more flexible 2021 framework adopted in the final days of the Trump administration.
That earlier rule prioritized two core factors—the nature and degree of control over the work and the worker’s opportunity for profit or loss—while minimizing emphasis on other considerations. Industry participants largely embraced this approach for its clarity and alignment with how advisory firms operate.
For many RIAs and independent BDs, the Biden-era rule raised existential concerns. Reclassifying advisors as employees could have implications not only for compensation structures but also for firm compliance, supervision models, benefits eligibility, and the legal structure of many practices. It could also threaten the appeal of the independent model, which has grown significantly over the past decade as more advisors have left wirehouses to establish their own businesses.
Beyond the financial services industry, the proposed rule shook other sectors reliant on flexible workforces, such as transportation, construction, and technology. Publicly traded companies like Uber, Lyft, and DoorDash saw stock price declines following the rule’s announcement in 2022, underscoring its sweeping potential effects on contractor-heavy business models.
Despite the DOL’s suspension of enforcement, the legal landscape remains unsettled. Courts across multiple jurisdictions are evaluating the rule’s legality, and while the agency’s latest action reduces short-term uncertainty, long-term regulatory direction will likely be shaped by both litigation outcomes and the outcome of the 2024 presidential election.
In the meantime, the field assistance bulletin acts as a practical ceasefire. It assures financial advisors currently operating under a 1099 structure that the DOL will not pursue reclassification actions under the 2024 rule while its future remains under review.
For advisors and firm leaders navigating growth strategies, M&A activity, and succession planning, the regulatory pause offers a measure of stability. Still, many in the industry remain cautious, emphasizing the importance of maintaining strong documentation and contractual clarity around independent contractor relationships, particularly in light of the DOL’s regulatory back-and-forth over the past three years.
As of now, no formal timeline has been announced for the potential rescission or replacement of the 2024 rule. However, industry stakeholders are actively engaging with regulators and lawmakers to press for a resolution that preserves the viability of the independent advisor model.
For wealth managers, the debate underscores a broader tension between labor classification reform and entrepreneurial flexibility. At a time when the RIA channel is gaining ground through advisor breakaways, M&A consolidation, and increased investor trust, regulatory clarity on employment classification remains a critical factor.
Independent advisors, in particular, cite autonomy, business ownership, and flexible service delivery as key competitive advantages. Any regulatory regime that complicates or undermines these attributes could create headwinds for firms recruiting talent or planning succession strategies.
While the Biden administration’s intent was to address labor misclassification—especially among vulnerable low-wage workers—the rule’s broad design made little distinction between gig economy workers and credentialed financial professionals managing multi-million-dollar books of business.
Advisory firms noted that most independent advisors operate with a high degree of autonomy, often investing their own capital, maintaining their own office space, hiring staff, and bearing entrepreneurial risk—factors traditionally associated with bona fide independent contractor status.
Given the Labor Department’s current stance and the litigation underway, many expect that the 2024 rule, in its current form, may not survive. However, the potential for future administrations to revisit or revise contractor classification rules remains a key concern for long-term strategic planning in the wealth management space.
FSI and other advocacy organizations are pushing for a legislative solution that would provide more durable protections for independent contractor status in the advisory industry. In the absence of such a fix, firms are advised to closely monitor regulatory developments and maintain compliance flexibility.
The path forward remains fluid, but for now, wealth management firms and independent advisors can breathe a cautious sigh of relief as the most immediate threat of reclassification has been put on hold.
Ultimately, the outcome of this debate will carry long-term implications for the structure of advisor-client relationships, firm growth strategies, and the competitive dynamics of the RIA and IBD channels. As the independent model continues to expand, preserving its regulatory viability remains a top priority for the industry.
