SEC Staff Issues Relief for Registered Representatives Using Unregistered PSEs to Receive Transaction-Based Compensation

On November 17, 2025, the staff of the Division of Trading and Markets (the “Staff”) of the U.S. Securities and Exchange Commission (SEC) issued no-action relief allowing for registered representatives associated with registered broker-dealers to use unregistered personal services entities owned by registered representatives to receive transaction-based compensation.[1] The letter responds to a request from the Financial Services Institute and provides important relief for associated registered representatives who wish to channel their transaction-based compensation through business entities for tax and administrative purposes.[2]

What Is a PSE?

A personal services entity (PSE) is typically a limited liability company, S corporation, or other business entity formed by a registered representative to receive income derived from their work with a registered broker-dealer. PSEs are common in the independent financial advisor model and are often used for tax efficiency and administrative convenience. Historically, uncertainty existed as to whether a PSE that received transaction-based compensation (“TBC”), i.e., commissions tied to securities transactions, was itself required to register as a broker-dealer under Section 15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”).

The No-Action Relief

The Staff stated that it would not recommend enforcement action if a registered representative associated with a registered broker-dealer receives TBC through a PSE without registering the PSE as a broker-dealer, provided that:

• Supervision of the registered representatives’ brokerage activities, and the broker-dealer’s brokerage business, remains with the broker-dealer.
• The registered broker-dealer retains the ability to effectively supervise its registered representatives, including by determining and directing the compensation to be paid to each of its registered representatives.
• The SEC, and any applicable self-regulatory organizations, will have access to the supervising broker-dealer’s books, records, and other information they may require to exercise their regulatory oversight.
• The PSE would not be engaged in soliciting, executing, or negotiating securities transactions, or engaged in any other activities that would reasonably cause the PSE to meet the definition of “broker” or “dealer” under Section 3(a)(4)(A) or Section 3(a)(5)(A) of the Exchange Act.

A registered representative relying on this no-action relief must also continue to comply with the anti-fraud and anti-manipulation provisions of the Exchange Act, including Sections 9(a) and 10(b) and Rule 10b-5.

Key Takeaway

This no-action relief modernizes the SEC’s approach to independent contractor models in the financial services industry. It affirms that a PSE may receive TBC without separate broker-dealer registration, so long as supervision, control, and compliance responsibilities remain with the registered broker-dealer, and the PSE’s role is purely administrative.

[1] Response of the Division of Trading and Markets: Financial Services Institute (November 17, 2025).

[2] Incoming No-Action Letter: Financial Services Institute (November 17, 2025).