Principal Transactions by Advisers vs Agency Cross Transactions
Selling to or buying from a client for the adviser's own account needs consent each time. The adviser brokers a trade between an advisory client and another party.
What is the difference between Principal Transactions by Advisers and Agency Cross Transactions?
Principal = the adviser is the other side of the trade; consent per transaction. Agency cross = the adviser brokers between two parties, one an advisory client; prior written consent, and it cannot have recommended both sides.
| Principal Transactions by Advisers | Agency Cross Transactions | |
|---|---|---|
| In one line | Selling to or buying from a client for the adviser's own account needs consent each time. | The adviser brokers a trade between an advisory client and another party. |
| Example | An adviser affiliated with a dealer wants to sell a client bonds from inventory; it needs consent for that specific trade. | An adviser's affiliated broker matches a client's sell order with another customer's buy order, earning commission on both sides. |
| Unit | Ethics & Fiduciary Obligations | Ethics & Fiduciary Obligations |
| Series 65 | Section 4: Laws & Ethics | Section 4: Laws & Ethics |
What is Principal Transactions by Advisers?
An adviser acting as principal for its own account in a trade with an advisory client must disclose in writing the capacity in which it is acting and obtain the client's consent before completion of each transaction. Blanket, advance consent does not satisfy the rule.
What is Agency Cross Transactions?
Permitted if the client has given prior written consent after full disclosure, receives a confirmation stating the adviser's capacity and compensation, and receives at least an annual statement of these transactions. The client may revoke consent at any time. The adviser cannot have recommended the transaction to both the buyer and the seller.