H.R. 7187: Clarity for Compensation Act

This bill, titled the "Clarity for Compensation Act," aims to amend the Securities Exchange Act of 1934 to create a specific exception in the definition of a broker for personal services entities owned by registered representatives. Here’s a breakdown of what it would do:

1. Definition of Personal Services Entity

The bill defines a "personal services entity" as an organization formed by a registered representative to receive compensation for services rendered, handle administrative matters, and offer other benefits.

2. Exemption from Broker Status

The main feature of the bill is that it allows a personal services entity to avoid being classified as a broker, under certain conditions. This means these entities can receive compensation on behalf of registered representatives without the regulatory implications that typically come with broker designation.

3. Conditions for the Exemption

For a personal services entity to qualify for this exemption, it must adhere to several stipulations:

• The broker must instruct or approve the amount and timing of the payment made to the personal services entity, while also maintaining payment records.
• The personal services entity cannot present itself as a broker.
• The entity is limited to receiving compensation and cannot engage in other broker or dealer activities.
• The broker must maintain appropriate supervision of the registered representative.
• A written agreement should outline the responsibilities and compensation arrangements between the broker and the personal services entity.
• The ownership of the personal services entity is restricted to the registered representative, their immediate family members, or entities wholly owned by them.
• The personal services entity must comply with any additional requirements set forth by the relevant regulatory commission.

4. Oversight and Record-Keeping

To ensure compliance with the exemption criteria, personal services entities must maintain and, upon request, provide access to relevant books and records. These records will be based on what the broker is required to maintain and what the regulatory commission considers necessary.

5. Definitions Clarified

The bill includes definitions for key terms, such as:

• Applicable Self-Regulatory Organization: Refers to organizations that a broker must register with.
• Broker or Dealer Activity: Refers to activities conducted by registered brokers or dealers.
• Immediate Family Member: Includes close relatives such as spouses, children, and siblings.

6. Effective Date

The new provisions introduced by this bill would take effect 180 days after its enactment.

Relevant Companies

None found