The rules on borrowing and lending between securities professionals and their customers are one of the most frequently tested topics on the Series 63. The critical distinction is between agents (absolute prohibition) and investment advisers (limited exceptions).
Agents - Absolute Prohibition
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
This is a bright-line rule with zero flexibility.
Contrast: Investment Advisers Are Not Under an Absolute Ban
For the Series 63, the agent rule above is the focus. The useful contrast is that investment advisers are 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, and 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.
Side-by-Side Comparison
| 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
- Common trap: "An agent's client is a bank. May the agent borrow from the client?" The answer is no. The financial institution exception applies only to IAs, not to agents. Agents face an absolute prohibition regardless of who the client is.