alliances with other professionals

12 replies [Last post]
JimmytheRocker's picture
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Joined: 2006-06-27

I have a guy who has his own independent mortgage/loan practice.  He's looking to be a one stop shop for his customers and will be doing P&C insurance also.  He is shying away from handling investments.  If I want him to open his book up to me...what can I arrange?
He's not a registered rep, but I am.

JCadieux's picture
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Joined: 2005-01-23

This is an excellent way to build a business.  I've known a lot of FAs who are very happy with their referral relationships.  It's also something that my hiring managers like to see.I'd suggest speaking with your BOM and compliance people first.  There may be internal "rules" that you don't know about.Also, get to know the rules of his industry.  I know that rules in dealing with mortgage and P&C referrals are not as complex as those for a CPA (for example), but you'll still want to know where he's coming from before getting into negotiations.

NASD Newbie's picture
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Joined: 2005-08-01

JimmytheRocker wrote:
I have a guy who has his own independent mortgage/loan practice.  He's looking to be a one stop shop for his customers and will be doing P&C insurance also.  He is shying away from handling investments.  If I want him to open his book up to me...what can I arrange?
He's not a registered rep, but I am.

The only thing you can do legally is, once a year, give him a gift worth $100.
There are NASD rules against sharing commissions, or paying finder's fees, to people who are unregistered.
Entering into any arrangement with the guy is among the surest ways to be barred for life.
Theoretically the guy could get licensed, then theoretically you could share commissions and fees with him--however it is unlikely that any firm would approve such a relationship because of their inability to control his activities.
Back to that "failure to supervise" issue that hangs so many people.

FreedomLvr's picture
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Joined: 2006-02-10

JimmytheRocker wrote:
I have a guy who has his own independent mortgage/loan practice.  He's looking to be a one stop shop for his customers and will be doing P&C insurance also.  He is shying away from handling investments.  If I want him to open his book up to me...what can I arrange?
He's not a registered rep, but I am.

Definitely check with your compliance department to see what options they have for you, but if you want to share commissions he'll have to get registered.  If you feel he's dependable and trustworthy (and knowledgeable) why not trade referrals?  Everybody wins and there's no compliance issues.

JCadieux's picture
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Joined: 2005-01-23

Absolutely you shouldn't enter into a commission-sharing agreement (I should have said that up front).Some firms don't like FAs referring business that can be referred elsewhere within their organization.  So be careful about things like mortgages.

knucklehead's picture
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Joined: 2006-07-27

You can get him an insurance license and split Index Annuity business with him.

NASD Newbie's picture
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Joined: 2005-08-01

A reputable broker/dealer is not going to allow it's reps to split commissions with anybody who is not employed by that broker/dealer.
Simply too much exposure to bother with it.

knucklehead's picture
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Joined: 2006-07-27

NASD Newbie wrote:
A reputable broker/dealer is not going to allow it's reps to split commissions with anybody who is not employed by that broker/dealer.
Simply too much exposure to bother with it.

You are wrong. It's perfectly legal in my state to split commissions with another insurance agent. It's called "outside business."

FreedomLvr's picture
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Joined: 2006-02-10

knucklehead wrote:NASD Newbie wrote:
A reputable broker/dealer is not going to allow it's reps to split commissions with anybody who is not employed by that broker/dealer.
Simply too much exposure to bother with it.

You are wrong. It's perfectly legal in my state to split commissions with another insurance agent. It's called "outside business."

And all outside business activities have to be approved by the reps broker/dealer.  Many b/d's won't approve EIA's as outside biz activities anymore, they want to supervise them since they're such a hot topic right now.
A insurance license only rep should be able to split, say a UL, term, or traditional fixed annuity commission with a rep that has his securities license.  If both are licensed with different b/d's then it's going to need approval from both broker dealers beforehand and most will say no (some still allow dual-registration, yes?).

TexasRep's picture
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Joined: 2006-02-18

 
you could lease office space from the guy-
it cannot look to be calibrated upon the GDC generated- but it's done all the time-
get w/ your OSJ for the details-
 

bankrep1's picture
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Joined: 2004-12-02

NASD Newbie wrote: A reputable broker/dealer is not going to allow it's reps to split commissions with anybody who is not employed by that broker/dealer.
Simply too much exposure to bother with it.

Newbie,

Big wirehouses all have revenue sharing programs for attorneys and CPA's do you really work in this business?

Beagle's picture
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Joined: 2005-03-21

NASD Newbie wrote:A reputable broker/dealer is not going to allow it's reps to split commissions with anybody who is not employed by that broker/dealer.
Simply too much exposure to bother with it.From my experience, I would totally agree.  Once you start sharing commissions you instantly have liability exposure when it comes to managers having oversight of the activity.  Many reps at firms like Ed Jones get around it by hiding the activity (face it, managers 1,500 miles away don't know everything) but it doesn't eliminate the liability.  Opening your book of clients is also a risk unless you are absolutely sure about the credibility of the other person.  If you are running a clean business and they are scum, your credibility is going to shrink faster than you know what in cold water!  Plus, how can you guarantee he isn't going to get an investment license in 6 months after your book of business is open to him?

Kargon's picture
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Joined: 2005-02-15

bankrep1 wrote: NASD Newbie wrote:
A reputable broker/dealer is not going to allow it's reps to split commissions with anybody who is not employed by that broker/dealer.
Simply too much exposure to bother with it.
Newbie, Big wirehouses all have revenue sharing programs for attorneys and CPA's do you really work in this business?
For attorneys and CPA's, but not other "non-professionals".  They also have them for banks.  However, there is one thing you are failing to remember.  The banks, CPA's, and attorneys have to get a form signed by a lawyer saying they are exempt from registration.  Also, the revenue sharing is only from fee-based business and must be disclosed to the client.

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