Quick Answer
An agent who opens or holds a beneficial interest in a securities account at another firm needs the employer's prior written consent and must give the executing firm written notice. Outside securities accounts are closely related to selling away, but the critical distinction is disclosure and authorization, not the mere existence of an account elsewhere.
Understanding the consent-versus-notice distinction, and which accounts the rule even reaches, is a common exam topic.
The Outside-Accounts Requirement
An agent who wishes to open or maintain a securities account at another broker-dealer or financial institution (other than their employing firm), and in which the agent has a beneficial interest, must:
- Obtain the prior written consent of the employing broker-dealer (the "employing member") before opening or otherwise establishing the account
- Notify the executing firm in writing of their association with the employing broker-dealer, before the account is opened
- The employing member may then request duplicate copies of confirmations, statements, or other transactional information; an executing firm that is also a member firm must supply them on written request. For an account at a non-member financial institution, the employer instead weighs its ability to obtain those records when deciding whether to consent in the first place
Accounts that predate the association work differently. Prior consent is impossible, so the agent instead has 30 calendar days from becoming associated to obtain the employer's written consent to maintain the account, and to notify the executing firm in writing of the association.
The employing broker-dealer has the right to monitor the agent's outside accounts for potential conflicts of interest, front-running, or other violations.
Who is presumed to have a beneficial interest? An agent is presumed to have a beneficial interest in, and to have established, an account held by:
- A spouse
- A child who lives with the agent or is financially dependent on the agent
- Any other related individual over whose account the agent has control
- Any other, unrelated individual over whose account the agent both has control and materially contributes to that person's financial support
The agent can rebut the presumption for a spouse's or child's account by showing they get no economic benefit from it and exercise no control over it.
What is excluded from this rule? The requirement does not apply to accounts limited to unit investment trusts, municipal fund securities, qualified tuition (529) savings programs, variable contracts and redeemable investment company securities, Monthly Investment Plan accounts, or Coverdell education savings accounts under Internal Revenue Code 530A.
Exam Tip: Gotchas
- Consent versus notice is the trap. The employer does not merely get notified: the agent needs the employer's prior written consent to open the account. Written notice is what goes to the executing firm. An answer choice saying the agent simply "notifies both firms" is wrong, and so is one saying notice to the employer is enough.
- The 30-day clock belongs to pre-existing accounts only. An account opened during the association needs consent before it is opened, with no grace period. Only an account that already existed when the agent joined gets the 30-calendar-day window to obtain consent to maintain it.
Relationship to Selling Away
The key distinction between outside accounts and selling away is written authorization, not merely whether the firm has heard about the activity:
| Feature | Outside Securities Account | Selling Away |
|---|---|---|
| What is authorized | The agent's own account at another firm | Securities transactions the agent effects for others |
| Employer's written consent | Yes - required before the account exists | No - never obtained in writing before execution |
| Status | Permitted (with the employer's prior written consent) | Prohibited (without prior written authorization; verbal approval does not cure it) |
| Supervision | Firm can request duplicate statements | No oversight of the transaction is possible |
| Rule | Outside-account disclosure requirement | NASAA Dishonest Practices statement (Agent prohibited activities) |
- These are two different kinds of activity: holding a personal account elsewhere versus effecting securities transactions for others off the firm's books. An outside securities account the employer has consented to in writing is not, by itself, selling away
- Selling away turns on the absence of prior written authorization for the transaction, not on whether the firm happened to know about it; a supervisor's verbal "go-ahead" does not authorize it
- Consent to hold an outside account is not the same thing as authorization to effect a specific transaction off the firm's books; the two consents answer different questions
Exam Tip: Gotchas
The exam may present a scenario where an agent maintains a personal brokerage account at another firm. If the agent obtained the employing broker-dealer's prior written consent, this is a properly authorized outside account, not selling away. If the agent never got that consent, the account rule was violated, but that alone does not automatically prove selling away: selling away requires an actual securities transaction effected off the firm's books without prior written authorization. The two rules are analyzed separately, and a missing outside-account consent is not, by itself, a completed sale.
What Should You Check on Exam Day?
- The employer gets prior written consent; the executing firm gets written notice. Do not swap them, and do not accept "the agent notified both firms" as satisfying the rule.
- Only a pre-existing account gets the 30-calendar-day window; an account opened during the association needs consent before it opens.
- The rule reaches accounts the agent has a beneficial interest in, including presumed-interest family accounts, but excludes accounts limited to certain pooled or insurance-wrapped products.
- An outside account with proper consent is not selling away, but a missing consent is a separate violation from selling away, which additionally requires an actual off-books transaction.