From Uncertainty to Opportunity: FINRA Provides Long-Awaited Clarity on Personal-Services Entity Compensation

In November 2025, U.S. Securities and Exchange Commission (SEC) staff issued a no-action letter permitting registered representative-owned personal services entities to receive transaction-based compensation without broker-dealer registration, subject to conditions. On June 9, 2026, FINRA issued Regulatory Notice 26-12, providing detailed guidance on the application of FINRA rules to broker-dealer arrangements structured in accordance with the SEC’s no-action relief. The notice does not apply new requirements beyond those in the no-action letter.

Background: The Regulatory Problem That Personal-Services Entities Present

The Securities Exchange Act of 1934 (Exchange Act) generally requires (absent an available exemption or exception) persons that effect transactions in securities for the account of others to register as broker-dealers, with the receipt of transaction-based compensation (TBC) being a key consideration in determining registration requirements. This requirement has historically created compliance uncertainty for broker-dealers seeking to pay TBC directly to personal services entities (PSEs), which are typically pass-through entities established by registered representatives for tax, overhead management, and succession planning purposes. As part of the “FINRA Forward” initiative, Regulatory Notice 25-07 sought comment on compensation arrangements between broker-dealers and PSEs, and FINRA received more than 20 comments concerning PSEs in response.

The 2025 SEC No-Action Letter

As summarized in our prior client alert, in November 2025, SEC staff granted no-action relief that permits broker-dealers to pay TBC directly to PSEs without separate PSE registration under the Exchange Act, provided that the following conditions are satisfied:

• Registration of PSE Owners and Representatives: Each owner of the PSE must be a registered person of the broker-dealer, and each of the registered representatives and registered principals at the PSE must be registered with the same broker-dealer.
• Branch Office or Office of Supervisory Jurisdiction (OSJ) Designation: The PSE’s location must be designated as either a branch office or an OSJ of the broker-dealer.
• Pass-Through of TBC: Upon receiving instructions or approval from the broker-dealer, the PSE must promptly distribute TBC to the registered representatives — though the PSE may retain a portion of such payments to pay its overhead and administrative expenses.
• Overhead Retention: The no-action letter permits a PSE to retain a portion of TBC for overhead and administrative expenses, but it does not define “overhead,” set a cap on the amount that may be retained, or specify documentation standards. Notice 26-12 does not provide additional guidance on this point. Broker-dealers and registered representatives operating PSEs should therefore exercise caution in how overhead is defined, allocated, and documented. In particular, where multiple registered representatives jointly own a PSE, broker-dealers should consider whether overhead allocations effectively result in the indirect transfer of TBC to a representative who did not earn the underlying fee — a result that could raise concerns under FINRA Rule 2040 and the terms of the no-action relief. Written policies should clearly define what constitutes overhead for these purposes (and distinguish it from compensation or salaries payable to individual representatives), establish a documented methodology for allocating shared overhead among co-owners, and ensure any overhead retained is proportionate and supportable. Clients should consult counsel before finalizing overhead allocation methodologies for joint-owned PSEs.
• Broker-Dealer’s Payment and Records Infrastructure: The broker-dealer must maintain a bank account for paying TBC to its registered representatives who are also employees or independent contractors of the PSE, instruct (or otherwise approve) the PSE regarding the size and timing of TBC to be paid to the registered representatives, and maintain records as required by Exchange Act Rules 17a-3 and 17a-4 regarding all compensation payments it makes to the PSE, including required details for payments made to each registered representative.
• Policies and Procedures: The broker-dealer must maintain policies and procedures designed to ensure the conditions in the 2025 no-action letter are satisfied.

Written Servicing Agreement Requirements

The broker-dealer and PSE must enter into a written servicing agreement that addresses several critical matters:

• The broker-dealer must have sole and exclusive control over the day-to-day securities-related activities of all its associated persons; be solely responsible for the hiring, proper registration, licensing, training, and supervision of all its registered representatives; and retain the exclusive right to discipline and terminate its associated persons.
• All books and records in the possession of the PSE that are maintained on behalf of the broker-dealer must be made available to the SEC, any self-regulatory organization, or any other regulatory authority with jurisdiction over the broker-dealer’s business for inspection.
• The PSE must not itself engage in any securities-related activities that would require it to register as a broker-dealer and must not hold itself out as a broker-dealer.
• To the extent the PSE employs any person who is not registered, such personnel may not engage in any securities-related activities that would require registration and may only have clerical or ministerial involvement in securities transactions. Moreover, the PSE may not pay any bonuses to unregistered personnel that are tied to TBC paid to the PSE by the broker-dealer.

Key Takeaways and Recommended Action Items

FINRA’s guidance does not impose new obligations but clarifies the application of existing FINRA rule requirements under the conditions of the 2025 no-action letter. Broker-dealers considering or currently utilizing PSE arrangements should take the following steps:

1. Review Existing PSE Arrangements. Assess whether any current arrangements with PSEs meet all conditions set forth in the 2025 no-action letter, including registration of PSE owners, branch office or OSJ designation, and bank account infrastructure for TBC payments.
2. Update Written Supervisory Procedures. Members should review and update their existing supervisory systems and written procedures under Rule 3110 to specifically address each condition identified in the notice, particularly with respect to registration, exclusive member control, and limitations on unregistered PSE personnel.
3. Negotiate and Execute Written Servicing Agreements. Ensure compliant written servicing agreements are in place with each PSE, covering regulatory access, prohibited activities, personnel limitations, and member control over securities-related activities.
4. Audit Communications Compliance. Review all customer-facing communications issued through or by PSE employees to ensure compliance with Rule 2210 disclosure requirements.
5. Verify Recordkeeping Systems. Confirm records of all TBC payments to PSEs with required per-representative details are being maintained and preserved in accordance with Exchange Act Rules 17a-3 and 17a-4.
6. Monitor Proposed Rule 3290. On January 22, 2026, FINRA filed a proposed rule change with the SEC that would delete Rules 3270 and 3280 and replace them with FINRA Rule 3290 (Outside Activities Requirements), which may affect how PSE-related outside business activity obligations are analyzed going forward.
7. Document and Formalize Overhead Allocation Policies. Where a PSE is co-owned by multiple registered representatives, broker-dealers should require the PSE to adopt written policies governing the definition, allocation, and documentation of overhead expenses retained from TBC payments. Such policies should distinguish overhead from individual compensation or salaries, establish a documented and proportionate allocation methodology among co-owners, and be reviewed periodically for compliance with the terms of the no-action relief.

Compensation Payments: Rules 2040, 2320, and 2341

FINRA Rules 2040 (Payments to Unregistered Persons), 2320 (Variable Contracts of an Insurance Company), and 2341 (Investment Company Securities) are the FINRA rules most directly implicated by the relief provided under the 2025 no-action letter.

Rule 2040 generally prohibits members from paying TBC to any person not registered as a broker-dealer under Section 15(a) of the Exchange Act but, by reason of receipt of such payments and the related activities, would be required to register as a broker-dealer. However, the rule permits such payments if a member determines the payment to an unregistered person and the related activities would not require such person to register as a broker-dealer under the Exchange Act. Members can derive support for their determination by, among other things, reasonably relying on no-action letters or interpretations from SEC staff that apply to their facts and circumstances.

Rules 2320 and 2341 address a complementary concern by generally prohibiting associated persons of a member from accepting any compensation in connection with the sale and distribution of variable contracts or investment company securities, respectively, from anyone other than the member with which the persons are associated. However, Rules 2320 and 2341 permit a nonmember company to pay such compensation directly to associated persons of the member provided that the member, among other things, relies on an appropriate rule, regulation, interpretive release, interpretive letter, or SEC no-action letter that applies to the specific facts and circumstances of the arrangement.

Members that wish to pay TBC to a PSE pursuant to the 2025 no-action letter, and associated persons who wish to receive TBC from the PSE, will satisfy Rules 2040, 2320, and 2341 by complying with the conditions of the 2025 no-action letter.

Supervision: Rule 3110

FINRA Rule 3110 requires members to establish and maintain a supervisory system that is reasonably designed to achieve compliance with applicable federal securities laws and regulations and FINRA rules. It also requires them to establish, maintain, and enforce written supervisory procedures that are reasonably designed to comply with such laws, regulations, and rules.

Members that wish to pay TBC to a PSE pursuant to the 2025 no-action letter should review and update their existing supervisory systems and written procedures under Rule 3110 to address the conditions set forth in the 2025 no-action letter. FINRA has specifically highlighted the following supervisory focus areas:

• The member must determine which of the PSE’s personnel are associated persons of the member and maintain sole and exclusive control over the day-to-day securities-related activities of such persons, including hiring, qualification, registration, licensing, training, supervision, discipline, and termination, and approve all compensation payments relating to their securities activities.
• Unregistered PSE personnel may perform only clerical or ministerial tasks in connection with securities transactions and must not engage in securities activities that would require registration or receive TBC (or related bonuses), thus ensuring that only properly registered persons perform tasks that require registration and receive such compensation.
• The member must maintain a bank account for paying TBC to its registered representatives, enter into written servicing agreements with PSEs, and instruct (or otherwise approve) the PSE regarding the size and timing of TBC payments to be paid to the registered representatives.

Communications With the Public: Rule 2210

Even though a PSE cannot hold itself out as a broker-dealer, associated persons of a member who the PSE employs may communicate with customers in writing regarding the member’s securities business. In accordance with FINRA Rule 2210, such communications must be fair, balanced, and based on principles of fair dealing and good faith, and they may not contain false, misleading, or exaggerated statements. Critically, Rule 2210 requires members to ensure any such communications concerning securities activities by the member’s associated persons who are employed by the PSE clearly disclose that such securities activities are conducted through the member.

Recordkeeping

Members are reminded of their responsibility to make, keep current, and preserve records, including certain records associated with the 2025 no-action letter, for compliance with Rules 17a-3 and 17a-4 under the Exchange Act. The member must maintain records as required under the Exchange Act regarding all compensation payments it makes to the PSE with the required details about payments made to each registered representative; ensure full regulatory access to books and records in the possession of the PSE that are maintained on behalf of the member; and maintain policies and procedures designed to ensure all conditions set forth in the 2025 no-action letter are satisfied — without asserting that PSE arrangements limit regulatory authority.

How Goodwin Can Help

The issuance of Regulatory Notice 26-12 marks a meaningful step forward in resolving longstanding regulatory uncertainty surrounding PSE compensation arrangements that has complicated succession planning, tax efficiency, and overhead management strategies for registered representatives and their affiliated broker-dealers for years. As with any new guidance, effective implementation will be key to compliance, and our Broker-Dealer Regulation practice is well-positioned to assist clients in evaluating the applicability of the 2025 no-action letter to their specific arrangements, drafting and negotiating compliant written servicing agreements, and auditing existing supervisory systems and written supervisory procedures for alignment with the notice’s requirements. Please do not hesitate to contact your Goodwin relationship attorney or a member of our Broker-Dealer Regulation practice group with any questions.