Quick Answer
An agent may share in a customer account's profits or losses only with written authorization from both the customer and the broker-dealer. Customer consent alone is never enough. FINRA layers on a proportionality requirement for member firms, but state law's own test is only the two written authorizations.
When an agent wants to participate in the gains and losses of a customer's account, strict rules govern who must approve the arrangement.
Who Must Approve an Agent's Sharing Arrangement?
Under state securities law, an agent may not share directly or indirectly in the profits or losses of a customer's account unless:
- The customer has given written authorization, AND
- The broker-dealer the agent represents has given written authorization
Both authorizations are required; customer consent alone is not sufficient.
Under Financial Industry Regulatory Authority (FINRA) rules, the sharing arrangement must also be proportional to the agent's financial contribution to the account. State law does not explicitly state the proportionality requirement, but FINRA's standard applies to FINRA member firms.
How Does Sharing Differ from Commission Splitting?
These are different concepts:
| Sharing in Account | Commission Splitting | |
|---|---|---|
| What it means | Participating in actual gains and losses - compensation rises and falls with account performance | Dividing transaction-based compensation with another person |
| Rule | State securities law | State securities law |
| Requirement | Written authorization from both customer AND broker-dealer (BD) | Other person must be registered as an agent for the same BD or a BD under common control |
| Prohibition | Cannot share without dual written consent | Cannot split with unregistered persons |
Exam Tip: Gotchas
Sharing in an account requires two written authorizations: from the customer AND the broker-dealer. If a question mentions only customer consent, the arrangement is still prohibited. Always look for both authorizations.
What Should You Check on Exam Day?
- Two written authorizations, always: customer and broker-dealer. Either one alone fails the rule.
- Sharing means compensation that rises and falls with the account; commission splitting means dividing transaction-based pay with another person. Do not confuse the two rules or their required approvals.
- Proportionality to the agent's financial contribution is a FINRA overlay, not something NASAA's own text states as a condition.