Quick Answer
Under NASAA standards, agents may not borrow from, lend to, or act as custodian for customers. No exceptions apply. Investment advisers may borrow from a broker-dealer, affiliate, or lending institution, and may lend only when the adviser itself is a lending institution or the client is an affiliate.
The rules on borrowing and lending between securities professionals and their customers are one of the most frequently tested topics on the Series 63, precisely because the exam likes to test whether an exception that applies to advisers also applies to agents (it does not).
Why Is the Agent Rule an Absolute Prohibition?
Under the NASAA dishonest or unethical practices standard (the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents), an agent:
- May never borrow money or securities from a customer
- May never lend money or securities to a customer
- May never act as custodian for a customer's money, securities, or executed stock powers
- There are NO exceptions: not for family members, not for financial institutions, not for affiliates
The NASAA agent provision lists no exceptions. Identify which standard the question asks you to apply.
Do Investment Advisers Get Any Exceptions?
For the Series 63, the agent rule above is the focus, but the exam frequently tests the contrast with investment advisers. Under the NASAA Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers Model Rule, an IA is not under a flat prohibition:
- An IA may borrow from a client that is a broker-dealer, an affiliate, or a financial institution in the business of lending
- An IA may lend to a client when the IA itself is such a financial institution or the client is an affiliate
The point to remember is the contrast itself: agents have no exceptions; advisers have a few.
An affiliate is an entity that controls, is controlled by, or is under common control with the IA, such as a corporate parent, subsidiary, or sister company, not simply a wealthy or well-connected individual client.
How Do the Agent and Adviser Rules Compare?
| Agent | Investment Adviser | |
|---|---|---|
| Borrow from customer/client | Never | Only if client is a BD, affiliate, or financial institution |
| Lend to customer/client | Never | Only if IA is a financial institution or client is an affiliate |
| Act as custodian | Never | Subject to separate custody rules |
| Exceptions for family members | None | None (family relationship alone does not create an exception) |
| Exceptions for banks | None | Yes - banks qualify as financial institutions |
Exam Tip: Gotchas
- The financial institution exception applies only to IAs, not to agents. If an agent's client is a bank, the agent still may not borrow from that client. Agents face an absolute prohibition regardless of who the client is.
- Do not carry over the FINRA borrowing and lending rule from the SIE or Series 7. The Series 63 tests the NASAA standard, which gives an agent no exception.
- The FINRA rule lets a registered person borrow money from or lend money to a customer in listed cases, such as an immediate family member or a lending institution acting in its lending business, when the firm's written procedures allow it and, in some cases, the firm approves in writing.
What Should You Check on Exam Day?
- Agents: zero exceptions, ever, for borrowing, lending, or acting as custodian.
- Advisers: the exception depends on loan direction. Borrowing FROM a client needs a BD, affiliate, or lending institution. Lending TO a client needs the IA itself to be one, or the client to be an affiliate.
- If a question swaps an adviser exception onto an agent fact pattern, the correct answer is still that the agent may not do it.