Certain activities of unregistered persons would not be permissible under Notice to Members 88-50.


November 11, 1999

 

Mr. Andrew Gotfried
Assistant Vice President
Regional Compliance Officer
Raymond James Financial Services
880 Carillon Parkway
St. Petersburg, FL 33716

 

Dear Mr. Gotfried:

 

This is in response to your letter dated June 1, 1999, which has been forwarded to my attention. We apologize for the delay in providing you with a response. Your letter, and your attached letter from Michael Leslie, ask whether non-registered personnel may be paid certain incentives in connection with performing various marketing activities. Based upon the representations contained in your letters, we understand the pertinent facts to be as follows.

 

Michael Leslie, a registered representative with Raymond James Financial Services, Inc. ("Raymond James"), proposes a two-tier compensation program for an unregistered individual. The unregistered person will: (a) introduce Leslie’s office to owners of local businesses and professional practices; and (b) discuss Leslie’s affiliation with Raymond James, his business and personal background, and qualifications. The proposed two-tier compensation program consists of a base salary of $10 per hour plus certain incentives. The incentives will be as follows:

$1.00

for each future prospect
$5.00 for each workshop/seminar attendee
$25.00 for making an appointment
$125.00

for each new account opened (regardless of commissions generated).

 

NASD Notice to Members 88-50 ("NTM 88-50") describes the permissible activities of unregistered persons. Specifically, NTM 88-50 states that unregistered persons may contact prospective customers solely for the purposes of: 

  • extending invitations to firm-sponsored events at which any substantive presentations or account or order solicitation will be conducted by appropriately registered personnel;
  • inquiring whether the prospective customer wishes to discuss investments with a registered person; and
  • determining whether the prospective customer wishes to receive investment literature from the firm.

In addition, NTM 88-50 states that "unregistered persons are regarded as employees of the member and should not be compensated on any basis other than a salary or hourly wage." A copy of NTM 88-50 has been attached for your convenience.

 

Based upon the foregoing, NASD Regulation staff does not believe that the proposed two-tier compensation system is in accordance with NASD rules. Under NTM 88-50, all types of incentive compensation are prohibited, even if the incentive compensation is not dependent, directly or indirectly, on the number or size of transactions effected by customers. In addition, the staff recommends that you review the scope of activities of unregistered persons soliciting prospective customers to determine that they are in compliance with NTM 88-50. The staff believes that discussing the business and personal background as well as the qualifications of a particular registered representative may be beyond the scope of the activities permitted in NTM 88-50.

 

Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc. This letter responds only to the issues you have raised based on the facts as you have described them in your letters, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.

 

Sincerely,

 

 

 

 

Gary L. Goldsholle
Assistant General Counsel

 

cc:

Alden S. Adkins, Senior Vice President and General Counsel
Alan Wolper, Director, District 7

 

Enclosure