Section 135. Continuing commission by retiring agents

The payment of compensation to a registered agent after he terminates his employment with a registered broker-dealer either by retirement, disability, death, or payment to his surviving spouse or other beneficiaries, will not be deemed to be a violation of commission regulations, provided the broker-dealer enters into a bona fide contract with either the retiring agent or the surviving spouse or beneficiaries, and the following conditions are met.

1. The retiring agent must have been continuously employed by or otherwise associated with the firm for a minimum of three years, as of the date of his retirement.

2. The sharing of commissions will be limited to commissions derived from accounts held for continuing customers of the retiring agent regardless of whether customer funds or securities are added to the accounts during the period after retirement.

3. The retiring agent must have demonstrated that he conducted himself in a manner exhibiting appropriate professional conduct. At a minimum, retirees must have been subject to no more than a low incidence of investment-related customer complaints and arbitrations settled or decided for more than $25,000 in the three years prior to the retirement date.

4. If the retiring agent has been subject to such complaints, the firm must have determined that the complaints did not require disciplinary action or heightened supervision, and that the retiree was not at fault for improper sales practices.

5. The retiring agent must not have been subject to a statutory disqualification during the three years prior to retirement.

6. The retiring agent must comply, to the extent applicable, with federal and state securities statutes and regulations, all policies, procedures, and rules of relevant regulatory and self-regulatory bodies, and must certify compliance with the policy at least annually.

7. The broker-dealer must establish parameters for a reasonable time period, not to exceed five years, following retirement and a percentage scale (that is either fixed or decreases the percentage the retiring agent receives each year) regarding the sharing of commissions by the retiring agent and the receiving registered agent.

8. The retiring agent must certify at least annually to the broker-dealer that he has adhered to the requirements and conditions of the agreement.

9. The broker-dealer must contact a representative sample of the account holders including a significant set of high grossing customer accounts subject to the agreement at least annually to confirm that the retiring agent has not provided investment advice or solicited trades in securities in any way. For example, the broker-dealer may contact annually: (i) holders of the top 10 highest grossing client accounts for that year and (ii) holders of one-half of the next 25% highest grossing client accounts.

Historical Notes

Derived from Volume 25, Issue 22, eff. July 1, 2009.

Statutory Authority

§§ 12.1-13 and 13.1-523 of the Code of Virginia.