Friday, February 6, 2009

Fair and reasonable commissions

Many people become frustrated with the Series 7 when it seems that all the information they're being forced to learn has "nothing to do with the real world."

Actually, it does.

For example, say you're struggling to memorize the "factors used to determine fairness" for commissions and markups. You may think you're learning a useless set of bullet points, but just the other day a large broker-dealer was fined $300,000 for charging unreasonable commissions, and one of the registered reps was barred by FINRA (which is bad).
Here is a snippet from the FINRA press release:

As a consequence of the firm's inadequate supervision, during the period from April 2002 to January 2006, representative Hernandez charged approximately 27 customers commissions that were substantially in excess of the firm's calculated rate for appropriate charges. He overcharged one customer approximately $1.2 million. In February 2006, the firm terminated Hernandez's employment. In March 2008, in a separate action by FINRA, Hernandez consented, without admitting or denying the charges, to findings against him and he was barred. Two other registered representatives in different branch offices also overcharged commissions on a repeated basis, but on a smaller scale.

Oh well. Don't think I'm picking on a particular firm. If you study the disciplinary actions by FINRA, you'll soon see that virtually all firms get fined and sanctioned for something or other. I'm just recommending that when it comes to rules and regulations, you can dig in a little deeper and see how the "test world stuff" relates to the so-called "real world."

The link to the full press release is:


  1. Thank you for bringing this up. Sometimes I just memorize bullet points just for the sake of memorizing it. I've realized that from taking practice exams, it's about how to apply those bullet points.
    In addition to markups and commissions, there are so many rules to read and understand: MSRB, Rule 77,78, 405, 435, etc. It's ridiculous! I just hope that I don't break any rules when I start working.
    Thank you for the post. I'm taking my first Series 7 next week. I look forward to your posts!

  2. See our updates at, Daniel. Also at under "Get Free Stuff" download the free studysheet. It's a condensed bullet list of factoids likely to show up on your exam. Totally mind-numbing stuff, but still helpful for people about to sit for the marathon exam. If you have time, at download the January summary of disciplinary orders and spend up to 1/2 hour reading through it--you'll be shocked at all the "real world" examples of "test world" bullet points. You'll see a lot of "acceptance, waiver, and consent," that's for sure--many folks prefer not to waste their time trying to prove they didn't mean to execute those 117 unauthorized transactions and then have the trade confirms sent to a bogus PO box to keep the customers in the dark.