Fair Prices and Commissions

What this video covers

• Why no fixed percentage automatically makes a commission or markup fair or unfair, including why a low markup can violate the rule and a high markup can comply with it
• How the fair-pricing standard applies equally to agency transactions (commissions) and principal transactions (markups or markdowns)
• What the 5% policy actually is: a FINRA guideline, not a ceiling or safe harbor, with charges below 5% not automatically fair and charges above 5% not automatically violations
• When the 5% policy definitively does not apply: securities sold under a prospectus or offering circular at the specific public offering price, such as mutual fund front-end loads
• The seven factors regulators use to judge fairness: type of security, availability, price of the security, dollar amount of the transaction, disclosure, pattern of markups, and nature of the firm's business
• Why advance disclosure of a markup is only one of seven factors and never cures an excessive charge on its own, even with a signed customer agreement
• That the fair-pricing standard applies to all securities transactions with customers, both listed and over-the-counter, not solely to OTC or unlisted securities