On November 17, 2025, the Division of Trading and Markets (the “Staff”) of the Securities and Exchange Commission (SEC) issued a no-action letter allowing a personal-services entity (PSE) to receive transaction-based compensation (TBC) without registering as a broker-dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), provided the arrangement meets certain conditions.
Background
The request, submitted on behalf of the Financial Services Institute (FSI), focused on independent-contractor registered representatives of broker-dealers who operate through PSEs for succession and tax planning purposes and to hold other non-brokerage business lines such as insurance. Although treated as independent contractors for many purposes, these individuals are “employees” of the broker-dealer for purposes of Exchange Act and FINRA supervision requirements, and the broker-dealer remains responsible for supervising all aspects of their securities activities and related compensation.
FSI argued that Staff and enforcement positions have often treated receipt of TBC as dispositive of broker status, whereas other no-action letters and court decisions have taken a more functional approach and allowed unregistered entities to receive commissions in limited circumstances. It asked the Staff to confirm that a PSE that merely receives and redistributes TBC under the broker-dealer’s control need not register as a broker-dealer.
Staff Position
In its response, the Staff stated that it would not recommend enforcement action to the Commission against a PSE that receives TBC without registering as a broker-dealer, provided the arrangement follows the terms and conditions outlined in the request for relief. The Staff noted that its position supersedes prior inconsistent staff letters and is limited to the facts and representations set forth in the request for relief and in the Staff’s no-action letter.
The Staff highlighted the following key features of the structure:
- Supervision of the registered representatives’ brokerage activities, and of the broker-dealer’s brokerage business overall, remains with the broker-dealer.
- The broker-dealer retains the ability to effectively supervise its registered representatives, including by determining and directing the compensation to be paid to each representative
- The SEC and any applicable self-regulatory organizations have full access to books, records, and other information necessary to exercise regulatory oversight of the broker-dealer, its registered representatives, and its business operations
- The PSE does not solicit, execute, or negotiate securities transactions and does not engage in any activity that would reasonably cause it to meet the definition of “broker” or “dealer” under Sections 3(a)(4)(A) or 3(a)(5)(A), respectively, of the Exchange Act
The request for relief also outlined additional terms and conditions, including a requirement that the broker-dealer and the PSE enter into an independent-contractor servicing agreement to memorialize the arrangement. Among other things, that agreement provides that:
- The broker-dealer has sole and exclusive control over the securities-related activities of the registered representatives, treats the PSE location as a branch office or office of supervisory jurisdiction, and registers all PSE owners and principals with the same broker-dealer
- The broker-dealer remains responsible for hiring, licensing, training, supervision, and discipline of registered representatives
- Any unregistered employees of the PSE do not engage in securities-related activities that would require them to become registered representatives of a broker-dealer and have only clerical or ministerial involvement in securities transactions, and the PSE does not make any payments to such personnel that are tied to TBC paid by the broker-dealer to the PSE
The Staff also reminded market participants that the antifraud and anti-manipulation provisions of the federal securities laws, including Sections 9(a) and 10(b) of the Exchange Act and Rule 10b-5, continue to apply to firms and individuals relying on the no-action position.
Practical Considerations
For independent-contractor platforms, the no-action letter provides a clearer, though narrow, path for using PSEs as compensation conduits where the broker-dealer maintains full supervisory control and the PSE itself stays out of the securities business. Broker-dealers that support representatives operating through PSEs should consider reviewing existing structures and agreements for consistency with the no-action letter, confirming that ownership and registration of PSEs and their principals align with the described model, and updating supervisory procedures, compensation policies, and training to reflect the activity limits and oversight expectations summarized above.
As always, we and our colleagues are available at any time to discuss these or other matters.