Personal Services Entities: FINRA Confirms Rules Align With SEC No-Action Relief on Rep-Owned Entities

What You Need to Know:

FINRA confirms its rules align with Securities and Exchange Commission (SEC) no-action relief on personal services entities. In November 2025, SEC staff issued a no-action letter (NAL) providing that it would not recommend enforcement action against a registered representative-owned personal services entity (PSE) solely for receiving transaction-based compensation (TBC) without registering as a broker-dealer under Section 15 of the Exchange Act, subject to specified conditions. The Financial Industry Regulatory Authority Inc. (FINRA) issued Regulatory Notice 26-12 (Notice) confirming that existing FINRA rules and their interpretations are consistent with the relief provided in the NAL.

The Notice is confirmatory, not substantive. Issued as part of FINRA’s broader FINRA Forward initiative, the Notice does not impose new obligations but clarifies the application of existing FINRA rule requirements under the conditions of the NAL. Section 15 of the Exchange Act continues to require broker-dealer registration for persons effecting securities transactions. The Notice confirms what most firms had already assumed: that so long as the NAL’s conditions are satisfied, existing FINRA rules (including rules 2040, 2320, 2341, and 3110) do not present an independent obstacle to PSE compensation arrangements.

Background and the 2025 NAL

As part of its FINRA Forward initiative, FINRA issued the Notice to confirm how its rules apply to PSE compensation arrangements following the issuance of the NAL. Many independent registered representatives establish PSEs—typically limited liability companies—to receive compensation for financial services and to obtain tax and succession-planning benefits. However, prior to the SEC’s no-action relief, uncertainty over whether a PSE’s receipt of TBC triggered broker-dealer registration requirements under Section 15 of the Exchange Act slowed adoption.

The NAL addressed this uncertainty by providing that SEC staff will not recommend enforcement action against a PSE solely for receiving TBC, provided key conditions are met, including that (i) all PSE owners and registered representatives are registered with the same broker-dealer; (ii) the PSE’s location is designated as a branch office or an office of supervisory jurisdiction (OSJ); (iii) the broker-dealer must instruct or approve all TBC payments and maintain required records under rules 17a-3 and 17a-4; and (iii) the parties have entered into a written servicing agreement ensuring the broker-dealer’s sole control over securities activities, regulatory access to books and records, and restrictions on unregistered personnel.

Application of FINRA Rules

As expected, the Notice confirms that compliance with the NAL’s conditions satisfies the FINRA rules most directly implicated by PSE compensation arrangements:

Compensation payments (rules 2040, 2320, and 2341). Rule 2040 generally prohibits members from paying TBC to unregistered persons but permits such payments where the member reasonably determines, including by relying on SEC NALs, that the recipient is not required to register as a broker-dealer. Rules 2320 and 2341 similarly permit associated persons to receive compensation from nonmember entities in connection with variable contracts and investment company securities where the member relies on appropriate SEC no-action relief. Compliance with the NAL would satisfy all three rules.

Supervision (Rule 3110). Members should review and update their supervisory systems and written procedures to address the NAL’s conditions, with a particular focus on the registration of PSE owners and personnel, the member’s sole control over securities-related activities, limitations on the PSE’s business activities and unregistered personnel, payment administration, and recordkeeping and regulatory access.

Communications with the public (Rule 2210). Associated persons employed by the PSE may communicate with customers regarding the member’s securities business, but such communications must be fair and balanced and must clearly disclose that securities activities are conducted through the member.

Recordkeeping (rules 17a-3 and 17a-4). Members must maintain records of all compensation payments made to the PSE with details as to payments to each registered representative and must ensure regulatory access to all books and records in the PSE’s possession maintained on behalf of the member.

Practical Takeaways

The Notice provides administrative confirmation of what most firms had already concluded: that compliance with the SEC’s NAL and the conditions therein is sufficient to satisfy applicable FINRA rules governing TBC payments. FINRA has not adopted new interpretations or otherwise affected the scope of the SEC’s relief; rather, the NAL remains the controlling source of interpretive guidance under the federal securities laws supporting the ability to pay TBC to PSEs, and Section 15 of the Exchange Act continues to require broker-dealer registration absent that relief. The Notice’s principal practical value is in removing any residual ambiguity about whether FINRA’s own rules might present an independent obstacle.

Firms considering PSE arrangements should ensure that written servicing agreements address all NAL conditions, that supervisory systems and written procedures are updated to cover PSE-related oversight, and that recordkeeping systems can track compensation payments at the individual registered representative level. Firms should also assess the registration, office designation, and supervisory implications of widespread PSE adoption, including whether unregistered PSE personnel must be fingerprinted under Exchange Act Rule 17f-2. Additionally, firms should monitor the proposed rule that would replace FINRA rules 3270 and 3280 with new Rule 3290 (Outside Activities Requirements), as PSEs engaging in non-securities business activities will remain subject to outside business activity requirements.