Are Financial Advisors Still Exempt from Overtime Laws?

Employees in the financial services industry generally meet the duties requirements for the administrative exemption to overtime laws. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption — a claim recently presented in a California court.

A recent analysis by Cullen and Dykman LLP notes that licensed financial advisors and “registered representatives,” whose duties involve both giving financial advice to clients and attempting to sell securities, are often at issue in such cases. And, while according to the Department of Labor (DOL), if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products, they are generally considered exempt from overtime laws — unless, as noted above, their primary duty is selling financial products.

A Feb. 16, 2016 decision of the U.S. District Court for the Northern District of California in Tsyn v. Wells Fargo Advisors, LLC, gives some comfort to financial institutions that these financial advisors — under the right circumstances — may properly be considered exempt.

The Cullen and Dykman analysis explains that, under the Fair Labor Standards Act, all employees are entitled to overtime unless they fall into a category of exemption, and that financial institutions generally argue that financial advisors fall under the “administrative” exemption.

Facts of the Case

In the Tsyn case, both employees had Series 7 licenses; one of the employees also held Series 63 and 65 securities licenses, while the other had a Series 66 license. As registered representatives, they were subject to FINRA rules, rules that the Cullen and Dykman analysis say make it clear that the primary function of the financial advisor is to give investment recommendations and advice based on the needs and desires of the customer. Wells Fargo argued that this made the advisors exempt. The advisors, on the other hand, argued that making sales of securities was an integral part of their jobs.

The California court reviewed a number of authorities, including a key DOL opinion letter, in finding that the “primary duties” of these advisors was to give advice, using discretion and judgment, and that the sales function was merely a function of that professional judgment.

The analysis cautions, however, that this decision is highly fact-specific, and that if a particular institution employs advisors whose duties tilt more heavily to the sales side rather than the advice side, a different result might occur. It concludes that financial institutions should review their job descriptions and the actual conditions of employment of their financial advisors to be certain they are properly classified as exempt.

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