Series 65: Sharing Profits And Loss In A Customer Account

Sharing Profits and Loss in a Customer Account

One of the most important characteristics of good securities professionals is that their advice is objective and free from personal bias. That’s why the NASAA generally prohibits professionals from linking their compensation to the amount of profit or loss experienced in customer accounts. In other words, aside from a few exceptions, securities professionals are prohibited from directly sharing in the profits of customers’ accounts (also called performance-based compensation) or losses in client accounts. The reason behind this prohibition has to do with the belief that it’s difficult for securities professionals to focus on clients’ investment objectives when they have a huge amount to gain or lose personally. If there is an incentive for them to take an above-average risk or to limit the