When Financial Services Institute (FSI) member firm Waddell & Reed became the target of a lawsuit in 2009 alleging that it had wrongly classified its advisors as independent contractors rather than as employees, the company’s leaders and advisors knew they were facing a direct challenge to one of the most important components of their business model—and a crucial protection for advisors’ independence.
They also knew they had a key ally in FSI.
The lawsuit, filed by two former Waddell & Reed financial advisors and later joined by a third, alleged that by implementing SEC and FINRA-imposed regulations concerning advertising, correspondence and other practices, Waddell & Reed had exercised a level of control over its affiliated advisors that indicated an employee relationship. The plaintiffs argued that they should have been compensated as salaried employees, rather than as independent contractors.
In addition to contributing subject matter expertise and strategic advice, FSI also filed an amicus brief supporting the firm.
A ruling in favor of the plaintiffs in this case could have seriously jeopardized the autonomy that independent advisors hold dear, even potentially forcing them to become employees of their broker-dealers.
The independent contractor issue is central to the independent broker-dealer business model. This issue affects not just Waddell & Reed, but a whole segment of the financial services industry that plays a vital role in ensuring that Main Street Americans have access to professional advice, products and services to help them plan for the future.