HR7187-119

What This Bill Does

The Clarity for Compensation Act lets registered representatives use personal services entities to receive compensation without the entity automatically being treated as a broker. The exception applies when compensation is paid by the representative's broker at the representative's direction, the broker approves or instructs the amount and timing of payment, and the broker maintains payment records. The personal services entity cannot hold itself out as a broker or engage in broker or dealer activity beyond receiving compensation. The broker must maintain supervision and control over the registered representative, and the broker and personal services entity must have a written agreement covering responsibilities for compensation arrangements. Ownership must be limited to the registered representative, immediate family members when the representative is an individual, or entities wholly owned by those parties. To keep the exception, the personal services entity must maintain books and records that the broker is required to keep and any additional records the SEC determines are necessary, making them available to the SEC and the applicable self-regulatory organization. The SEC can prescribe further requirements by rule, and the amendment takes effect 180 days after enactment.

Who Benefits and How

Registered representatives, personal services entities, financial advisers operating through approved compensation entities, immediate family owners, and broker-dealers with supervised representatives benefit from clearer statutory treatment of compensation-routing entities. The exception may reduce broker-registration uncertainty for personal services entities that only receive compensation and do not conduct securities activity. Tax and business-planning advisers may benefit from clearer rules around representative-owned entities.

Who Bears the Burden and How

Broker-dealers must approve payment timing and amount, maintain payment records, supervise representatives, enter written agreements, and ensure personal services entities stay within the exception. Personal services entities must avoid broker activity, keep required books and records, allow SEC and self-regulatory organization review, and meet any SEC rule conditions. SEC staff and FINRA or other self-regulatory organizations must examine records and police misuse. Entities that hold themselves out as brokers or conduct dealer activity cannot use the exception.

Key Provisions

• Creates a broker-definition exception for registered representative-owned personal services entities receiving compensation on behalf of the representative.
• Requires the broker to approve payment timing and amount, maintain payment records, and supervise the registered representative.
• Bars the personal services entity from holding itself out as a broker or engaging in broker or dealer activity beyond receiving compensation.
• Requires a written agreement governing broker and personal services entity compensation responsibilities.
• Limits ownership to the registered representative, immediate family members, or wholly owned family structures.
• Requires records to be maintained and produced to the SEC and applicable self-regulatory organizations, with SEC rulemaking authority and a 180-day effective date.