How Breakaway RIAs Can Retain Annuity Trails

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RIAs can be paid to service trails-paying annuities without a broker-dealer.

When broker-dealer registered representatives seek to go independent and become RIAs, they soon learn they cannot receive trails without being registered with a broker-dealer. In this article I will discuss the reason RIAs cannot receive trails, and the typical industry solutions. In conclusion, I will offer a new solution that allows an RIA to drop their series 7 or series 6 and be paid as pure RIAs to service trails-paying annuities.

FINRA Rule 2040 states that broker-dealers may not pay any compensation, fees, concessions, discounts, or commissions to any person who is not registered. The point of this rule is to prevent “commission sharing” between properly registered and unregistered entities. The registration process provides protections to consumers from unqualified salespeople who may not appreciate or adhere to the standards of FINRA and its population of registered representatives and broker-dealers. Circumventing the rules that were established to protect consumers would undermine the purpose and effectiveness of client protection. These rules are aimed squarely at broker-dealers, so naturally, the most widely practiced solution has been for broker-dealers to employ registered representatives with a series 6 or series 7. That way, those representatives can share in commissions for the products they sell.