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On Nov. 17, 2025, the staff of the SEC Division of Trading and Markets issued a no-action letter to the Financial Services Institute permitting a registered representative-owned personal services entity (PSE) to receive transaction-based compensation without registering as a broker-dealer. This is a significant shift from the staff’s prior position that a PSE established by a registered representative for purposes wholly unrelated to the securities business could not receive any portion of transaction-based compensation if it was not registered as a broker-dealer.
Key Conditions of Relief
The staff’s no-action position (the relief) is predicated on the broker-dealer’s ability to effectively supervise the registered representatives, including by determining and directing the amount of compensation payable to each registered representative, and on its full regulatory access to applicable books and records.
The relief is also based on the satisfaction of certain other conditions, including:
- The broker-dealer has sole and exclusive control over the day-to-day securities-related activities of all associated persons.
- The broker-dealer maintains a bank account for payments related to broker-dealer registered representatives who are also PSE employees or independent contractors.
- The broker-dealer determines and directs (or approves) the amount and timing of all transaction-based compensation paid to each registered representative.
- The PSE does not (i) solicit, negotiate or execute securities transactions, (ii) hold itself out as a broker-dealer; and (iii) engage in securities-related activities requiring broker-dealer registration.
- Each owner of the PSE will be a registered person of the broker-dealer.
- The PSE’s location will be designated as a branch office or as an office of supervisory jurisdiction of the broker-dealer.
- The PSE performs only clerical or ministerial functions through unregistered personnel and does not pay them bonuses tied to transaction-based compensation.
- Any books and records maintained by the PSE on behalf of the broker-dealer will be made available for inspection by the SEC, any applicable self-regulatory organization or other regulatory authority with jurisdiction over the broker-dealer’s business.
- Upon receiving the broker-dealer’s instruction or approval, the PSE will promptly distribute transaction-based compensation to the registered representatives, retaining only a portion for overhead and administrative expenses; the broker-dealer will maintain records of all compensation payments made to the PSE and details of payments made to each registered representative as required by Rules 17a-3 and 17a-4.
The relief includes a requirement that the broker-dealer maintain policies and procedures reasonably designed to ensure that these conditions are satisfied. The relief also contemplates a written agreement between the broker-dealer and the PSE addressing each of these conditions.
Observations and Practical Considerations
This shift in the staff’s views will allow for operational flexibility for independent contractors who commonly use PSEs for business efficiency, tax planning and other purposes. Because the staff’s position is limited to enforcement discretion, arrangements should be calibrated to the conditions summarized above and documented accordingly.
Broker-dealers and PSEs should consult advisers on state law, tax and employment issues related to such independent contractor and compensation structures.
For questions about this alert, please contact the authors or your McGuireWoods contact.
McGuireWoods’ Securities Enforcement & Regulatory Counseling (SERC) Practice Group is a national leader in securities enforcement defense and broker-dealer and investment adviser regulatory counseling. Anchored by former SEC and FINRA attorneys from enforcement and trading and markets as well as prominent federal prosecutors, the team manages complex securities investigations at every stage — from informal inquiries and routine exams through investigations, litigation and appeals — all while staying at the forefront of developing issues confronting the securities industry.