Compensation Practices

The whole unit on one sheet: networking desks in banks, who you can and cannot pay, the non-cash rules, the gift cap, and the records that link compensation to each transaction.

The One-Liners That Win Points

• A networking arrangement is a written deal where a member offers broker-dealer services at a financial institution (typically a bank or credit union); the member, not the bank, is the registered broker-dealer.
• Networking customer disclosures: written always, plus oral when the account is opened on the bank's premises. Substance is fixed: not Federal Deposit Insurance Corporation (FDIC) insured, not a deposit or obligation of the bank, not guaranteed, and subject to investment risk including loss of principal.
• Oral disclosure is triggered by where the account is opened, not where the customer is.
• A member may pay an unregistered bank employee only a one-time nominal cash referral fee, contingent on the customer contacting the broker-dealer (not on opening an account). Transaction-based pay is prohibited.
• The Gramm-Leach-Bliley Act (GLBA) replaced the old blanket bank exception with functional exceptions in the Securities Exchange Act of 1934 (SEA) "broker" definition; activities outside an exception get "pushed out" to a registered broker-dealer.
• General prohibition: no member or associated person (AP) may pay compensation to a person who, because of the payments, is required to register as a broker-dealer. The firm bears the burden of documenting that the recipient need not register.
• Continuing-commission exception: a firm may pay a retiring registered representative (or beneficiaries) continuing commissions on existing accounts under a bona fide written contract entered while the rep was registered, if the retiree does not solicit, open, or service accounts afterward.
• Foreign-finder exception: transaction-related pay to a non-registered foreign finder for the initial referral only of non-U.S. customers, with written customer acknowledgment of the finder's compensation.
• Permitted non-cash compensation is limited to four categories: gifts within the cap, occasional meals and entertainment, offeror-funded training at an appropriate location, and internal arrangements based on total production of all securities of all offerors.
• Internal sales contests must credit all products of a type equally; a contest may be product-type specific but never tilted to one issuer.
• Accepting a customer order is NOT clerical. The clerical-or-ministerial carve-out is "solely and exclusively"; anyone who accepts an order must register.

Numbers to Lock In

• Gift limit: $300 per person per year on or after March 30, 2026, raised from the prior $100 per person per year cap. Know both and apply the limit in effect at the time of the gift.
• Gifts are aggregated across the member and all its APs to one recipient per year (for example, five $80 gifts total $400 and breach a $300 cap).
• The same gift cap and four-category non-cash framework apply across variable contracts, direct participation programs (DPPs), investment company securities, and corporate financing.
• Bank-employee referral fee: one-time and nominal (no fixed dollar figure set by the rule).
• Recordkeeping is per-AP and transaction-level: each trade attributable to the AP, with the cash amount or a non-cash description, plus compensation-arrangement summaries and commission and concession schedules.

Top Gotchas

• The gift cap is per person per year, not per gift, and it aggregates firm-wide.
• Business entertainment where the rep attends with the recipient is entertainment under the cash and non-cash framework, not a gift; the same value sent without attendance is a gift.
• The FINRA gift cap is a floor, not a ceiling: a gift within the cap can still violate Municipal Securities Rulemaking Board (MSRB) pay-to-play, Department of Labor (DOL) Employee Retirement Income Security Act (ERISA) rules, or the SEC investment-adviser pay-to-play rule.
• Offeror-funded training must be at an appropriate location with a substantive agenda; only registered persons attend on the offeror's dime (spouses and guests pay their own way).
• The retiring-rep contract must be signed while the rep is still registered, and the retiree cannot service the accounts afterward.
• A "back-office" employee who confirms order details with a customer is accepting orders; the only safe harbor is occasional transcription plus a registered person confirming with the customer before entry.
• An unregistered clerical employee may take salary or a discretionary bonus, but never transaction-based compensation.
• "Produce on request" is not permission to skip records: the firm must still have systems that promptly reconstruct per-rep, per-trade compensation.

One-Breath Recap

Networking arrangements put a registered broker-dealer inside a bank: written disclosures always, oral disclosure when the account opens on premises, physical separation, and only a one-time nominal referral fee to bank staff. You cannot pay anyone who should be registered, except a retiring rep's continuing commissions under a pre-retirement written contract or a foreign finder's initial referral of non-U.S. clients. Non-cash compensation is four categories built on total production, sales contests must credit products equally, the gift cap is $300 per person per year (formerly $100) aggregated firm-wide and a floor beneath stricter pay-to-play rules, order acceptance is never clerical, and every dollar ties back to a per-AP transaction record.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Compensation Practices unit for the complete lesson.