More than seven million Americans work in the financial and insurance sector. While most of these workers are full-time employees, many choose to serve as independent contractors, especially in customer-facing occupations such as financial advisors, securities brokers, and insurance agents. As independent contractors, these workers do not earn a salary but instead are compensated based on the results of their efforts, typically through commissions provided by the institutions with which they are associated. As entrepreneurs, these workers can build businesses and generate wealth with the flexibility to work part-time; in many cases their financial services work constitutes a second job. From the perspective of financial services providers, independent contracting allows for larger and more flexible retail networks than would otherwise be possible, thereby expanding the number and types of customers they are able to serve.

While a substantial body of economic research indicates that independent contracting in general is economically efficient and benefits both workers and consumers, critics argue that it can be used to exploit workers, for example by denying them fringe benefits (e.g., employer-provided healthcare) and legal protections (e.g., minimum wage, unionization rights) available to workers who are classified as employees. Based on such concerns, some legislators and policymakers at both the state and federal levels have sought to restrict the use of independent contracting by narrowing the criteria under which workers can legally be classified as independent contractors. 

NERA was retained by Davis & Harman LLP to prepare a report examining the role of independent contracting in the financial and insurance services sector. Specifically, we explain the role of independent contracting in the economy generally; examine the roles played and economic benefits generated by independent contractors in the financial and insurance services industry; and assess the impact of limiting or prohibiting the use of independent contracting on these markets.

Our findings suggest that independent contracting in these sectors benefits consumers and that limiting or prohibiting its use would substantially reduce the supply of these services, especially to lower-income and disadvantaged populations. We also note that independent contracting allows financial and insurance professionals to become entrepreneurs by starting and growing their own businesses, thereby contributing to new business formation and job creation. Specifically, we find:

• More than half-a-million people work as independent contractors in the financial and insurance industry and in financial service occupations. We estimate conservatively that independent contractors account for at least one of every seven insurance agents, financial advisors and securities agents.
• Independent contractors own and operate approximately 130,000 financial advisory and insurance brokerage firms, employing approximately 330,000 people. Many of these business entrepreneurs are able to build equity in the firms they own. Prohibiting independent contracting would severely disrupt these businesses and eliminate many of these jobs.
• Between 2015 and 2019, independent contractors in the financial services sector created approximately 54,000 new businesses and 174,000 new jobs, all or most of which would not have existed if independent contracting were prohibited.
• Independent contractor-operated financial advisors and insurance agencies account for approximately 27 percent ($47 billion) of the output of the financial advisory and insurance brokerage industries. Reducing the supply of these services would harm consumers, including by reducing financial literacy and harming their ability to accumulate wealth and save for retirement.
• The use of independent contractors allows financial service and insurance providers to reach otherwise difficult-to-serve customers, thereby expanding the availability of financial advice and related services to low- and moderate-income households. For some firms, independent contractors account for the overwhelming majority of their workforce.
• Workers in the financial services sector choose to become independent contractors because they value independence, flexibility, and the opportunity to build a business and generate wealth. Prohibiting independent contracting would make these workers worse off.