Imagine practicing financial planning as an employee of a broker-dealer and not as an independent entrepreneur. Almost 42% of all registered representatives in the country could be subject to such a fate, if Congress eliminates the safe harbor provision of the Revenue Act of 1978, the Financial Services Institute said this morning.

The safe harbor provision currently allows certain workers to be classified as independent contractors, rather than employees, in industries where the designation as an independent contractor is a long-standing practice, like trucking and construction. Labor unions, which have been trying to organize certain types of those workers for a long time, support the move.

If the provision is passed, independent broker-dealers will be forced to reclassify the independent financial advisors they serve as employees, incurring hefty payroll taxes. The broker-dealer would end up passing those heavy costs on to investors, which would limit the access of middle class investors to high-quality, independent financial advice.

The 98,000 practicing registered reps in the country will also be subject to day-to-day micromanagement by independent broker-dealers, FSI says. The current business model focuses on serving the investor, rather than the agenda of a corporate parent, said David Bellaire, general counsel and director of government affairs for FSI. “That is not the business that independent firms are staffed to serve,” Bellaire said. “They do not have that expertise, and they don’t want it.”

Rep. Jim McDermott (D-Wash.) introduced the Taxpayer Responsibility, Accountability and Consistency Act of 2009 to the House Ways and Means Committee in July, where it is attracting co-sponsors. FSI has asked McDermott to exclude registered reps from that requirement, Bellaire said. McDermott, however, has received several similar requests from other industries, but has decided not TO honor any of them at this point, he said.

Requiring registered reps be classified as employees of independent broker-dealers would be completely unfair for the independent financial advisors of America, the FSI says. They pay their taxes, operate in a heavily regulated and thoroughly documented industry and are not involved in the industries of concern to legislators and labor unions, FSI said.