Compensation and Fee Structures: Rapid Fire
Chapters in this video
- 0:00 Agent versus principal capacity and compensation types
- 1:05 The 5% policy: guideline, not hard cap
- 2:22 Seven-factor fairness analysis and disclosure limits
- 3:17 Mutual fund breakpoints and letter of intent (LOI)
- 4:08 Breakpoint selling, churning control requirement, and fund switching
- 5:34 Commission splitting rules and Reg BI scope
- 6:27 Rapid-fire exam recap
What this video covers
- How broker-dealers earn commissions as agents (separately disclosed) versus markups or markdowns as principals (embedded in price), and why double-dipping both on one trade is prohibited
- Why the 5% policy is a fairness guideline, not a ceiling or safe harbor, and how the seven-factor analysis judges whether any charge is reasonable
- What breakpoint selling is, why structuring a purchase just below a breakpoint to preserve a higher commission is always a violation, and how a letter of intent (LOI) lets customers lock in lower sales charges
- The control requirement for churning (discretionary authority or de facto control), and why excessive trading by an independent customer is not churning
- Why fund switching between similar mutual funds without a suitability basis violates NASAA rules even with customer consent
- The strict limits on commission splitting: only with another registered agent at the same broker-dealer (BD) or a commonly controlled affiliated BD
- How Regulation Best Interest (Reg BI) applies to broker-dealers and their associated persons, not investment advisers, and why disclosure never cures unfair pricing
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