The USA defines an agent as any individual who represents a broker-dealer or an issuer in effecting or attempting to effect transactions in securities for their clients. Agents are individuals in a sales capacity who represent broker-dealers or issuers of securities. As agents, they act, usually on commission basis, on behalf of others. Agents are often referred to as registered representatives, whether sell registered securities or securities exempt from registration. The use of the term individual here is important. Only an individual, or a natural person, can be an agent. A corporation such as a brokerage firm is not a natural person, it is a legal entity. The brokerage firm is the legal person, or legal entity, the agent, a natural person, represents in securities transactions.
Requirements for Registering as an Agent
The requirements for registering as an agent who is not exempt are similar to those for a broker-dealer. An application, generally the Form U4, must be completed. One thing, however, that is on the agent’s application that does not apply to a broker-dealer is disclosing citizenship.
The USA states, “It is unlawful for any person to transact business in this state as an agent unless they are registered under this act.” In other words, an individual may not conduct securities transactions in a state unless that person is properly registered in the state where they conduct business. This is true even when receiving unsolicited orders. If an agent does business in a state, they must be registered in that state, even if there is only one client. This is not like investment advisers and their representatives who enjoy a de minimis exemption. If an agent’s registration is pending, they cannot perform any duties of a registered person until their registration is approved.
An agent’s registration is not effective during any period when the agent is not associated with a broker-dealer registered in the state. Therefore, if the broker-dealer’s registration is terminated, the agent is no longer considered licensed. The terminology depends on the specific state. In some cases, the agent’s license is placed in suspense. In other states, it is put on hold or some such similar language. Whatever the phrase, when the broker-dealer closes up shop, either voluntarily or involuntarily, the agent cannot function because there is no broker-dealer affiliation. When an agent begins or terminates a connection with a broker-dealer or issuer, or begins or terminates those activities that make him an agent, the agent and the broker-dealer or issuer must promptly notify the Administrator.
Financial Requirements of Agents
There are no financial requirements, or net worth requirements, for registering as an agent. The Administrator may, however, require an agent to be bonded, particularly if the agent has discretion over a client’s account.
Multiple Registrations
An individual may not act at any one time as an agent for more than one broker-dealer or for more than one issuer, unless the broker-dealers or issuers for whom the agent acts are affiliated by direct or indirect common control or the Administrator grants an exception. In the event an agent does wish to affiliate with a second broker-dealer, the agent would have to go through the registration process with the second firm in the same manner as the original application, filing another Form U4.
For more information on agent registration, check out our Exclusions from Registration as an Agent for a Broker-Dealer blog being posted to our blog page soon.
For assistance registering as an agent, please contact us.MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.