Quick Answer
Unregistered persons cannot receive commissions, solicit customers, take orders, or execute securities transactions. Clerical and administrative staff may describe products in general terms but cannot recommend specific trades or accept orders. Trailing commissions let a departed registered representative keep earning on business written while registered, without soliciting any new business.
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.
- One test decides whether registration is required. 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.
What Should You Check on Exam Day?
- Can you list the four things an unregistered person cannot do?
- Do you know the difference between describing products in general terms and making a recommendation?
- Can you explain why trailing commissions to a retired representative are permitted?
- Do you know the one test that decides whether registration is required for a payment?