FINRA Rule 2040: Referral Fees and Payments to Unregistered Individuals
A licensed Certified Public Accountant (CPA) refers an ultra-high-net-worth business owner to a registered representative for portfolio asset allocation. The client opens an account and executes significant equity and bond transactions. In appreciation, the representative offers to split 15% of the gross commissions generated by the client's trades with the CPA. Which statement correctly evaluates this arrangement?
Broker-dealers and registered representatives may never pay commissions or transaction-based compensation to unregistered individuals.
Complete Analysis & Legal Rationale
FINRA Rule 2040 (Payments to Unregistered Persons) strictly forbids member firms and registered representatives from paying any compensation, fee, concession, or commission to any person who is not registered as a broker-dealer or associated person if that payment relates to the solicitation, negotiation, or execution of securities transactions. Because the CPA does not hold securities licenses, paying a percentage of trading commissions is an unlawful split of securities compensation.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Transaction-based referral fees cannot be paid to unregistered persons, regardless of written disclosures or contracts.
Commission-splitting requires securities registration; sharing transaction revenue with an unregistered professional violates Rule 2040.
There is no 25% allowance; the prohibition on transaction-based compensation to unregistered finders is absolute.
Professional licenses such as CPAs, attorneys, or real estate brokers do not substitute for FINRA securities registration.
Official Standard: Prohibits payment of transaction-based compensation or referral fees to persons not registered with FINRA.