IM-2420-2. Continuing Commissions Policy

The Board of Governors has held that the payment of continuing commissions in connection with the sale of securities is not improper so long as the person receiving the commissions remains a registered representative of a member of the Association.

However, payment of compensation to registered representatives after they cease to be employed by a member of the Association — or payment to their widows or other beneficiaries — will not be deemed in violation of Association Rules, provided bona fide contracts call for such payment.

Also, a dealer-member may enter into a bona fide contract with another dealer-member to take over and service his accounts and, after he ceases to be a member, to pay to him or to his widow or other beneficiary continuing commissions generated on such accounts.

An arrangement for the payment of continuing commissions shall not under any circumstances be deemed to permit the solicitation of new business or the opening of new accounts by persons who are not registered. Any arrangement for payment of continuing commissions must, of course, conform with any applicable laws or regulations.

This policy recognizes the validity of contracts entered into in good faith between employers and employees at the time the employees are registered representatives of the employing members. Such a contract may vest in an employee the right to receive continuing compensation on business done in the event the employee retires and the right to designate such payments to his widow or other beneficiary.

It is not to be implied that the Board suggests that members must enter into contracts with registered representatives for continuing compensation. Nor will the Board specify or rule on the terms of such contracts.

The Board has also considered the question as to whether Rule 2830(c) requires that a sales agreement be in effect in order for a dealer-member to receive continuing commissions. The Board has concluded that the sales agreement requirement is intended to apply to new business, such as the sale of a new plan or a "wire order." It is not intended that a sales agreement be required in order for a dealer to receive commissions on direct payments by existing clients to the fund or its agent, or on automatic dividend reinvestments. (See Notice to Members 74-33, Aug. 9, 1974).

Under no circumstances shall payment of any kind be made by a member to any person who is not eligible for membership in the Association or eligible to be associated with a member because of any disqualification, as set forth in Article III of the Association's By-Laws, such as revocation, expulsion, or suspension still in effect.