General obligations
The advisor’s compensation is subject to specific standards of conduct, which are explained in this section. In summary, the advisor must:
- meet certain conditions to receive compensation
- disclose certain information when compensation is received
- when applicable, meet the conditions for working a second job (;
- follow the rules for contests and promotions
- follow certain rules for commission sharing () and client referrals (.
A firm, dealer, or independent partnership may also establish specific rules for compensation offered to advisors working for them, in which case the advisors must be aware of them and follow them.
Forms of compensation
In general, compensation is defined as “the price of work or service rendered,” no matter its form.
The scope of advisors’ activities, compensation is the amount received for the sale of a product or the provision of financial services.
There are several forms of compensation. Most of the time, compensation is paid:
- as fees (or emoluments), for example according to an hourly rate or a flat rate agreed upon with the client
- as an employee salary, for example on an annual basis
- as commissions, for example a sum calculated based on a method linked to the sale of a product or the provision of a service
- as bonuses, when the advisor’s base salary is supplemented by an amount established based on various factors, such as achieving a certain sales volume, growth, or maintained business
There are other forms of bonuses and advantages that may be considered part of compensation, such as product cross-selling incentives, contests, (qualifying securities, and access to privileges or resources.
When the term “compensation” is used without specifications, remember that it may refer to any of the forms listed above.
Under certain conditions, amounts paid for a client referral () agreement are not considered part of the advisor’s compensation, unless it is commission sharing. (
Commission types
Several types of commissions exist in the financial sector, including those described below.
As its name indicates, this commission represents the compensation a person receives for selling a product or providing a service.
This commission is the compensation received upon the sale of a product or provision of a service. It is usually calculated based on the premiums or amounts invested.
In insurance, this commission must be vested for it to be paid to the advisor. If the policy is cancelled before the end of the vesting period, the advisor must pay back the commission received.
This is a commission that person registered in the National Registration Database (NRD) has the right to receive at regular intervals once they have received the initial commission from the sale of financial products.
The renewal commission is generally paid when an insurance contract is renewed, while the maintenance commission is linked to business maintenance and the fact that the person continues to provide after-sales service for the product sold.
This is an amount paid to a advisor or a registered person who led a client to another advisor or another registered person, who can provide them with the financial product or services they need, or to another professional. Rules in this respect vary greatly between the insurance and securities sectors. It is important to distinguish this commission from commission sharing.
This type of commission is common in the field of insurance. It is a commission that relies on the fact that the insurance policies sold by an advisor lead to claims that remain under the threshold specified in the contract. Therefore, it is always an uncertain commission.
In general, this commission is paid at the end of an agreement when the advisor contributed to increasing the sales figures of their employer or the insurer for which they distribute products.
