Evaluating the Implications of the Upcoming DOL Ruling on B/AA RIA / Independent Advisors and the Black Community 

 

Author: Necho Carroll, AAAA Director of Operations

The Association of African American Financial Advisors (AAAA) is the largest trade organization that represents B/AA Financial Advisors in the Wealth Management/Financial Services Industry. Our database contains 10% of the total population of licensed Black or African-American Financial Advisors in the industry. 

Introduction 

The Department of Labor (DOL) ruling on independent contractors has the potential to have a significant negative impact on Black/African American (B/AA) financial advisors, which will, in turn, have a negative impact on the Black/African American community. The ruling could lead to many B/AA financial advisors being reclassified as employees, which could make it more expensive for these Advisors to serve Main Street clients with affordable prices. This is a concern because a large portion of Black/African American households have incomes below the national media average.  

Current State of Affairs 

According to the Bureau of Labor and Statistics, there are roughly 55,000 licensed Black/African American Personal Financial Advisors and Securities, commodities, and financial services sales agents in the industry. These individuals connect buyers and sellers in financial markets. They sell securities to individuals, advise companies in search of investors, and conduct trades for their clients. According to AAAA membership data, roughly 26% of these licensed professionals are independent or Registered Investment Advisors (RIAs). Currently influence 3-6% of the Black community. This suggests that there is already a significant gap in access to financial advice for Black households. 

Potential Impact of the DOL Ruling 

The DOL's proposed rule on independent contractors would require employers to classify workers as employees if they meet certain criteria, such as if the employer controls the worker's work schedule or provides the worker with the necessary tools and equipment. This could have a significant impact on the financial services industry, as many financial advisors currently work as independent contractors. 

Implications for the Black Community 

If B/AA financial advisors are reclassified as employees, they may face several challenges, including: 

  • Increased costs: Financial advisors who are reclassified as employees will be subject to new requirements, which would increase their costs of doing business and could lead to them raising their fees. 

  • Decreased flexibility: Financial advisors who are reclassified as employees may have less flexibility in how they operate their businesses. For example, they may be required to follow certain employer policies. This could make it more difficult for them to serve low-income clients, who may have different needs and schedules than other affluent clients. 

  • Reduced availability: Some financial advisors may choose to leave the industry altogether rather than comply with the new requirements. This could lead to a decline in the number of B/AA financial advisors available to serve the Black community. 

A decline in the availability of financial advice for B/AA households could have several negative consequences, including: 

  • Reduced Financial Planning: Financial advice can help people make informed decisions about their finances. Without access to financial advice, B/AA households may be more likely to make financial mistakes that could have long-term consequences. 

  • Reduced Wealth Accumulation: Financial advice can help people develop and implement financial plans to reach their financial goals, such as saving for retirement and investing for the future. Without access to financial advice, B/AA households may be less likely to accumulate wealth. 

  • Reduced Economic Growth: A decline in the availability of financial advice for B/AA households could stifle the Black community's economic growth, which could have ripple effects on the wider U.S. economy. 

Conclusion 

According to US Census data, roughly 46 million individuals identify as Black/African American.  These individuals have average investable assets of $12,000 according to pewresearch data. The DOL's upcoming ruling on independent contractors has the potential to have a significant impact on B/AA financial advisors and the Black community as a whole. It is important to consider the potential consequences of the ruling carefully and to develop strategies to mitigate any negative impacts. 

Recommendations 

In order to mitigate the potential negative impacts of the DOL ruling, the following recommendations are proposed: 

  • Increase the number of B/AA financial advisors: This can be done by expanding educational and training programs for B/AA students and by providing financial assistance to B/AA individuals who are interested in pursuing a career in financial advising. 

  • Support B/AA financial advisors: This can be done by providing them with resources and tools to help them succeed in their businesses, and by advocating for policies that support B/AA financial advisors. 

  • Educate the Black community about financial planning: This can be done by providing financial literacy education programs and resources to Black households. 

By taking these steps, we can help to ensure that B/AA households have access to the financial advice they need to achieve their financial goals.