Broker-Dealer Compensation Methods

What this video covers

• Why capacity (agent or principal) determines whether compensation is a commission, a markup, or a markdown on any given trade
• How agency transactions generate separately disclosed commissions, and why principal transactions hide profit inside the execution price
• Why a broker-dealer can never charge both a commission and a markup on the same transaction, and how exam writers exploit this rule
• What a markdown actually represents when a broker-dealer buys securities from a customer into its own inventory, and why it is not a discount for the investor
• Which non-transaction fees are permitted (maintenance, inactivity, transfer, wire, custodial, account closing), and the NASAA requirement that all fees be reasonable and disclosed
• How wrap fee programs bundle advice, execution, and administration into one asset-based fee, and why they are regulated as investment advisory programs
• Why wrap fee accounts flip the standard churning conflict into reverse churning, and why both conflicts must be disclosed regardless of fee structure