Sharing in Client Profits or Losses
Allowed for agents only with written approval and in proportion to their investment.
What is Sharing in Client Profits or Losses?
An agent may share in the profits or losses of a customer's account only with the prior written consent of the customer and the broker-dealer, and only in proportion to the agent's own financial contribution - except in accounts of immediate family, where proportionality is not required. Guaranteeing a customer against loss is never allowed.
Sharing in Client Profits or Losses: a worked example
An agent who contributed 20% of a joint account's funds may take 20% of its gains, with written approval.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.