Path Cleared for Registered Representative-Owned PSEs To Receive Transaction-Based Compensation

On Nov. 17, 2025, the U.S. Securities and Exchange Commission (SEC) issued a No-Action Letter confirming that it will not recommend enforcement action if a registered representative-owned personal services entity (PSE) receives transaction-based compensation (TBC) without first registering as a broker-dealer (BD).

Under Section 3(a)(4)(A) of the Securities and Exchange Act of 1934, as amended (1934 Act), any person engaged in the business of buying or selling securities for the account of others shall register as a broker-dealer with the SEC¹. The SEC historically has concluded that the receipt of commission or compensation, or any other remuneration, directly or indirectly, on the outcome or size of a securities transaction (i.e. transaction-based compensation) is a determinative factor in the definition of a “broker” or “dealer” requiring registration. If such remuneration is received, then the recipient may have to register with the SEC as a BD pursuant to Section 15(b) of the 1934 Act.

Until the issuance of the Nov. 17, 2025 No-Action Letter, the SEC had not expressly assured PSEs, including their independent contractors that are affiliated with BDs, that the mere receipt of TBC would not directly cause the PSE to be deemed a BD. The No-Action Letter clarifies and further identifies parameters that the SEC would expect to consider in order to provide such assurance.² 

Key Takeaways and Considerations for PSEs

TBC arrangements that (1) are structured to ensure that the registered BD retains full authority to effectively supervise its associated persons and the BD business, and (2) do not hinder the SEC and applicable self-regulatory organizations from their ability to effectively exercise their regulatory oversight over the BD, its registered representatives (including those that are employees and independent contractors), and its business operations, are permissible if the following additional conditions are in place:

• The BD maintains a bank account for paying TBC to its independent contractor registered representatives (RRs) who are also employees or independent contractors of the PSE and associated with the BD;
• The BD will instruct (or otherwise approve) the PSE regarding the size and timing of TBC to be paid to the RRs. Such instruction (or approval) will be specific to the payment to be made to each RR. In this regard, registered principals who are also employees or independent contractors of the PSE may make recommendations to the BD regarding the size and timing of TBC to be paid to the RRs. However, the BD will have final discretion regarding the size and timing of the payment to each of the RRs;
• Upon receiving instructions or approval from the BD, the PSE will promptly distribute TBC to the RRs, provided that the PSE may retain a portion of such payments for its use in paying for its overhead and administrative expenses;
• As required by Rules 17a-3 and 17a-4 of the 1934 Act, the BD will maintain records regarding all compensation payments it makes to the PSE, and which will provide required details as to payments made to each RR;
• Each of the RRs and registered principals of the PSE will be registered with the same BD.
• Each owner of the PSE will be a registered person of the BD; and
• The PSE’s location will either be designated as a branch office or as an “Office of Supervisory Jurisdiction” of the BD.

Additionally, the SEC suggests that each BD should maintain policies and procedures that are designed to ensure that the previously outlined conditions are satisfied. Furthermore, to delineate between the parties’ obligations, responsibilities and limitations, the BD and PSE should enter into a written independent contractor servicing agreement providing that:

• The BD will be obligated to comply with all applicable federal, state³, and local regulations and registration and licensing requirements;
• The BD will have sole and exclusive control over the day-to-day securities related activities of all of its associated persons;
• The BD will be solely responsible for hiring, proper registration, licensing, training, and supervision of all of its RRs with respect to the BD’s obligations under all applicable securities laws, rules, and regulations;
• The BD will retain the exclusive right to discipline and terminate its associated persons;
• All books and records in the possession of the PSE that are maintained on behalf of the BD will be made available for inspection by the SEC, any applicable self-regulatory organizations, or any other regulatory authority with jurisdiction over the BD’s business;
• The BD will not assert that the existence of any agreement with the PSE in any way affects the ability of the SEC, the applicable self-regulatory organizations, or any other relevant regulatory authority to regulate, examine, or discipline the BD or any of its associated persons for violations of applicable securities laws;
• The PSE itself will not engage in any securities-related activities that would require it to register as a BD;
• The PSE will not hold itself out as a BD or otherwise engage in the business of effecting transactions in securities for the account of others;
• To the extent the PSE employs any person who is not registered, such personnel will not be permitted to engage in any securities-related activities that would require them to become RRs of a BD and will only have clerical or ministerial involvement in securities transactions; and
• The PSE will not pay any bonuses to unregistered personnel that are tied to TBC paid by the BD to the PSE.

To help ensure that TBC can be paid and collected in accordance with the Nov. 17, 2025 No-Action Letter, registered representative-owned PSEs should consider reviewing their existing policies and procedures with their affiliated BDs and verify that the BD can satisfy the conditions the SEC outlines in the No-Action Letter. PSEs and affiliated BDs may also wish to coordinate the review and/or development of subcontracts, revenue or profit-sharing agreements, or related arrangements with respect to the receipt of TBC and confirm compliance with the No-Action Letter. 

It must be noted that SEC No-Action Letters reflect the views of the SEC staff and do not constitute a rule, regulation, or statement of the SEC. No-Action Letters are non-binding and highly fact-specific, and as such there is no assurance that the SEC will reach the same conclusion under a different set of facts. Interested persons should consult with legal counsel in making any determination regarding permissible actions that may be taken with respect to TBC received by any PSE.

¹ Engaging in “brokerage activities” and receiving TBC has historically involved soliciting, executing, or negotiating securities transactions, that would typically meet the definition of “broker” or “dealer” under the Exchange Act.

² The No-Action Letter and the parameters of permitting TBC in certain circumstances will not change the any registration or other rules for BDs and associated members pursuant to applicable FINRA requirements.

³ The individual state blue sky laws regulate the offer or sale of all securities transactions, including the issuing entity as well as those persons representing the issuer and involved in effecting such offers or sales to potential investors in the state.