Activities of Unregistered Persons

Securities regulation requires that anyone who solicits customers, takes orders, or receives transaction-based compensation must be properly registered. This section covers the rules that prevent unregistered persons from performing registered activities.

What You'll Learn

  • What unregistered persons are prohibited from doing
  • What clerical and administrative staff are allowed to do
  • How trailing commissions work for former registered representatives

The Core Prohibition

Firms cannot pay commissions or transaction-based compensation to unregistered persons. Separate rules also restrict what unregistered persons can do in the securities business.

Unregistered persons cannot:

  • Receive commissions or transaction-based compensation
  • Solicit customers (make recommendations or suggest securities transactions)
  • Take orders (accept and process trade instructions from customers)
  • Execute transactions (enter orders into the firm's trading system)

Think of it this way: If an activity could influence a customer's investment decision or generate a commission, only a registered person can do it. Registration is the gatekeeper for anything that touches a trade.

What Unregistered Persons CAN Do

  • Unregistered clerical and administrative staff may describe the firm's products in general terms
  • They can answer basic factual questions ("Yes, we offer mutual funds")
  • They can direct customers to a registered representative for specific questions
  • They cannot make recommendations, discuss suitability, or suggest specific transactions

Exam Tip: Gotchas

  • Describing products in general terms vs. making recommendations is a key distinction. A receptionist saying "Our firm offers a wide range of mutual funds" is permitted. A receptionist saying "You should buy our growth fund" is a violation.
  • Working at a firm is not itself a violation. It depends on WHAT the person does, not WHERE they work.

Continuing Commissions (Trailing Commissions)

  • A registered person who leaves the industry may continue to receive commissions on business written while they were registered
  • These are called trailing commissions: they compensate the rep for business they originated
  • The former rep cannot solicit new business after leaving the industry
  • Example: A broker who sold mutual funds with ongoing 12b-1 fees can continue receiving those fees after retirement, but cannot call clients to recommend new purchases

Exam Tip: Gotchas

  • Trailing commissions to a retired rep are permitted. This is NOT paying an unregistered person for new business.
  • The key test: Is the payment tied to a specific new transaction or solicitation? If yes, the person must be registered. If it is compensation for business originated while registered, it is allowed.