Introduction

Welcome to Compensation Practices: the requirements that govern how, when, and to whom a member firm may pay money or non-cash items in connection with the securities business. These cover bank-branch broker-dealer arrangements, payments to retiring representatives and foreign finders, sales contests and offeror-funded training, the FINRA gift limit, the carve-outs for clerical employees, and the books-and-records that tie every dollar of compensation back to a specific transaction and person.

Exam Weight: Part of 30% (~45 questions across Function 2)

What You'll Learn

In this unit, you'll cover:

• Networking Arrangements: Bank-branch broker-dealer arrangements, the SEC Regulation R incorporation requirement, on-premises oral disclosures, physical separation, the bank-employee one-time nominal cash referral fee carve-out, and the Gramm-Leach-Bliley Act (GLBA) functional bank-broker exceptions to the Securities Exchange Act of 1934 (SEA) "broker" definition
• Payments to Unregistered Persons: The general prohibition on paying compensation to persons required to register as broker-dealers, the continuing-commission exception for retiring registered representatives (RRs), and the foreign-finder exception for initial referrals of non-U.S. clients
• Cash and Non-Cash Compensation: The four permitted non-cash compensation categories (gifts, occasional meals/entertainment, offeror-funded training, internal non-cash arrangements), the total-production equal-credit requirement, and the parallel requirements across DPPs, investment company securities, and corporate financing
• Gifts: The $300 per-person-per-year limit (effective March 30, 2026, raised from $100), aggregation rules, the recordkeeping requirement, the carve-outs for personal gifts and promotional items, and how stricter requirements (MSRB pay-to-play and the SEC adviser pay-to-play rule) override the $300 floor for government and pension officials
• Persons Exempt from Registration: The clerical-or-ministerial carve-out, the rule that accepting customer orders is NOT clerical, the narrow transcription-and-confirmation safe harbor, and the prohibition on transaction-based compensation to unregistered persons
• Recordkeeping for Compensation: Per-associated-person transaction records that tie each securities trade to the rep credited with monetary or non-monetary compensation, summary of each rep's compensation arrangement, commission and concession schedules, and the produce-on-request alternative for firms that maintain the underlying systems

Why This Matters

The Series 24 exam tests three principal-level themes from this material:

• Whether a payment to an unregistered person, a bank employee, a finder, or a retiring rep falls within a specific exception (networking, retiring-rep continuing commissions, or foreign finder) or whether the recipient is engaged in unregistered broker activity that disqualifies the payment
• Whether non-cash compensation, gifts, sales contests, and offeror-funded training meet the total-production equal-credit requirement, the gift limit, and the no-sales-target conditions, or whether the firm has crossed the issuer-tied incentive line that the requirements are designed to prevent
• Whether the firm's compensation records satisfy the per-AP compensation recordkeeping rule at the transaction level (linking every trade to the credited rep with cash and non-cash detail) or whether the firm has only contest rules and summary schedules

A bank-branch B/D rep who fails to deliver oral disclosures at on-premises account opening is a networking-arrangement case study; a member that runs an issuer-specific sales contest violates the cash/non-cash compensation framework without ever exceeding the gift limit. The exam draws supervisory questions from both the customer-facing disclosure and the back-end recordkeeping.

Let's start with networking arrangements: where a member firm and a financial institution share space, customers, and customer disclosures.