Reg. D: To “BD” or not to “BD”

 In news

Regulation D, or Reg D as it’s commonly called, can be a benefit or a curse depending on who is relying on it and if that party understands the nuances. Under Reg D, you will find a number of separate Rules which provide definitions of various terms, such as accredited investor; a description of a variety of offerings and the requirements or restrictions for each; and notices to be filed. Understanding the nuances of Reg D is important, since running afoul of the requirements or restrictions could place an issuer in peril of having to register their offerings.

Once the issuer has determined that it may rely on Reg D, the next question becomes whether it can market the offering, or if doing so would require registration or association with a FINRA member broker-dealer.

Section 3(a)(4)(A) of the Securities Exchange Act of 1934 outlines the requirements to register as a broker. In general, the term “broker” means any person engaged in the business of effecting transactions in securities for the account of others.  When determining activities to be used to market its offering, the issuer must consider the following questions:

  1. Will the issuer or its staff participate in important parts of a securities transaction, including solicitation of potential investors or negotiation of the transaction?
  2. Is the compensation that the issuer or its staff will receive for participation in the transaction dependent upon, or related to, the outcome or size of the transaction?
    • Will the issuer or its staff receive trailing commissions, or any other transaction-related compensation be received?
  3. Is the issuer or its staff otherwise engaged in the business of effecting or facilitating securities transactions?
  4. Will the issuer or its staff handle the securities or funds of others in connection with securities transactions?

If the issuer can answer yes to any of these questions, then the issuer may need to be registered as a broker in conducting the offering. But wait…can’t an issuer seek out investors without being registered?  The answer may be yes; however, this will depend upon other activities being undertaken and how compensation is being earned or paid to those conducting the solicitations.

Generally, when an issuer has staff that will market the offering or solicit investors, the SEC will look at factors such as staff compensation and duties with the issuer. Let’s look at the following example:

Issuer A is going to offer a new fund. It is going to rely on its current marketing team to develop materials and reach out to investors of a prior fund offering to gauge their interest in the new fund. The staff is all salaried and will not receive any additional compensation related to the offering.

In this example, registration as a broker may not be required. However, issuers should always verify their ability to rely on Reg D with a qualified securities attorney before embarking on any fund offering or solicitation to intermediaries or prospective investors.

Now let’s change the facts slightly:

Issuer A has decided that in addition to salaries, it will pay the marketing staff a bonus equal to 10% of investments in the fundraised by the staff member.

We now have a transaction-based compensation model. Since compensation is generally considered to be a triggering factor under Rule 3(a)(4)(A), the issuer will likely have to register as a broker to conduct its offering.

Now consider a third variation to our scenario:

Issuer A hires sales and marketing specialists who are solely responsible for marketing this new offering and soliciting potential investors. They will be paid a salary with a discretionary bonus based on their performance and will be either retained to market the next offering or let go, depending on their performance.

This one is a little trickier, but let’s look at the facts.

  1. First, the new hires have no other roles at the issuer; they have been hired only to market the offering and solicit investors;
  2. Second, the compensation includes a bonus based on performance. Given their duties, we should assume that some of that bonus could be determined by the funds raised from investors; and
  3. Third, their continued employment is based on performance.

Given these facts, it appears that the new sales and marketing specialists may be brokers and that this situation would likely trigger registration with a FINRA member broker-dealer. Of course, the issuer must seek guidance from counsel before proceeding.

The determination of whether an issuer may rely on an exemption, may be required to register as a broker, or should hire personnel to market and solicit a fund can be confusing.  As noted in the scenarios above, this determination depends on a number of factors. Seeking guidance from qualified securities counsel can certainly make the process easier and will also avoid making the wrong decision, which could have detrimental consequences including, but not limited to, the rescission of investor monies.

This article is not a solicitation of any investment product or service to any person or entity. The content contained in this article is for informational use only and is not intended to be and is not a substitute for professional financial, tax or legal advice.

  • All
  • news
  • Press Releases


Foreside is proud to announce that it has been named a finalist for two industry awards in connection with its compliance services and proprietary technology ….

Compliance Connections: Impact of Regulation BI and Form CRS on Broker-Dealers and Investment Advisers

Dynamic conversation around the key requirements, deadlines, definitions, and major considerations for Broker-Dealers and Investment Advisers ….

Updating Interpretive Guidance for a Rapidly Evolving Mutual Fund Marketplace

The landscape of institutional investing, particularly when it comes to mutual funds, is highly competitive and…

Foreside AdCompliance Named as a Finalist for the 2019 Awards!

Regulation D can be a benefit or a curse depending on…

Foreside Connections:  Looking to Launch a Non-Transparent ETF?

Dynamic discussion around this innovative structure and what Managers should know…

Compliance Connections: Potential Pitfalls Impacting Registered Investment Advisor Marketing Efforts

Discussion around how the SEC Advertising Rule…

SEC Won’t Tolerate RIA’s Indifference to Compliance

A recent enforcement action demonstrates that the SEC…

Unlocking Value with Outsourced Compliance

David Whitaker, President of Foreside Financial Group, discusses the value firms can unlock and the technology that can be leveraged when outsourcing business and compliance solutions.

‘Foreside Letter’ offers industry-leading FINRA guidance expansion for mutual funds

Mutual funds continue to face headwinds that require…

IAA Newsletter – Tips for Filing Form ADV: Annual Updating Amendments

It’s that time of year again when most Registered Investment Advisers are preparing their Annual Updating Amendments to Form ADV. Please click below to read the article that was featured in the February 2019 issue of the IAA Newsletter.

Foreside acquires NCS Regulatory Compliance

Acquisition expands Foreside’s technology capabilities and regulatory and compliance solutions


Foreside hosted Joel Telpner, Partner at Sullivan & Worcester for a discussion on key issues surrounding cryptocurrencies today…

Interval Funds Basics

Foreside has seen an uptick in the number of interval funds hitting the market. The five areas below outline the basics of these non-traditional closed-end mutual funds. Limited Redemption Opportunities – Interval funds typically price daily at net asset value (NAV), however, redemptions are limited. Rather than trade in the secondary market, they periodically offer […]

What You Need to Know on Board Reporting

Every mutual fund, whether it is a proprietary Registered Investment Company (“RIC”) or part of a Series Trust product with multiple advisors…

Marketing to Multi-Family and Single Family Offices

Are you marketing to the Multi-Family Office (“MFO”) or Single Family Office (“SFO”) space? Below are some considerations to keep in mind as you focus your distribution strategy on this target market. Relationships: Most family offices take a holistic approach to investment opportunities, with a focus on the personal rapport with the manager and other […]

Intermediary Transaction Fee Platform vs. No Transaction Fee Platform

Unless you have recently onboarded mutual funds to a major intermediary platform, the acronyms “TF” and “NTF” may not mean much. With the industry’s focus on fee compression, these terms reflect an important aspect of how shareholders access mutual funds. Once approved for a trading platform, one question a Fund Sponsor will likely be asked […]




Foreside hosted Steve Feinour, Partner at Stradley Ronon Sevens & Young, LLP, Ryan Sullivan, Vice President of Global ETF Services at Brown Brothers Harriman, Scott Szever, Director of Exchange-Traded Products at the NYSE, and Christopher Lanza…

Do You Have a Solid Conference Strategy?

Do you have a firm conference strategy? Are you attending conferences with purpose? In today’s world, you can find a specialized event on almost any topic. There are numerous conferences falling within the financial services umbrella, which is why it is essential to develop a firm strategy around how to best spend your time at these […]

Actionable Ideas for Marketing Success

During Foreside’s May 22, 2018 webinar “Actionable Ideas for Marketing Success“, a panel of experts sat down to provide best practices when it comes to our clients brand, social media, and content creation.These ideas included what asset managers can do to make a difference in the immediate future, tips for content development, and how firms […]

Are You a Continuing Education (“CE”) sponsor?

There are close to 80,000 CFP professionals nationwide who are required by the CFP Board’s CE policy to complete 30 CE credit hours each reporting period. These 30 credit hours are broken down by 28 credit hours of General CE and two credit hours of Board-approved Ethics CE. A majority of the 80,000 CFP professionals complete 94% of their […]

How to Successfully Cover a Broker-Dealer

Do you have a strategy when covering broker-dealers? We believe getting to know the mindset of the intermediary is critical for asset managers to ensure your firm is approaching and covering them correctly. With hundreds of broker-dealers in the industry, we recommend breaking the broker-dealers into four quadrants which will help you successfully understand and […]

Q2 Foreside Connections: Actionable Items For Marketing Success!

Foreside hosted Sunstar Strategic and Sondhelm Partners, two innovative marketing and Public Relations firms in the financial industry, who provided best practices when it comes to your brand, social media, and content creation of your marketing collateral. Marilyn Dale, VP, Creative & Digital Services at Sunstar Strategic and Dan Sondhelm, CEO at Sondhelm Partners provided […]

2018 Exam Priorities

SEC released their 2018 examination priorities which they have organized around five themes. Although they believe the below areas are critical, this list is not comprehensive. The Office of Compliance Inspections and Examinations (“OCIE”) remains flexible in order to cover emerging and exigent risks to investors and the marketplace as they arise. All examinations will […]

European Union General Data Protection Regulation Update

As you are likely aware, the EU General Data Protection Regulation (“GDPR”) will become effective May 25, 2018. This regulation will enhance the EU’s current data privacy regulations. One key piece of GDPR is that, unlike its predecessor regulations, it applies to certain organizations outside of the EU. Foreside has analyzed the GDPR and its […]

The Fiduciary Duty of Investment Advisers – Understanding its Murky Roots and a Guidepost

The term “fiduciary” has received great attention in investment-services compliance recently. It should not be unexpected. There is discord surrounding the fiduciary obligation: the notion is at the foundation of investment adviser regulation, but the term “fiduciary” does not appear in the Investment Advisers Act (“Act”) nor in its Rules. Understanding how the fiduciary duty […]

Did You Know Foreside Offers More Than One Broker-Dealer Service Option?

Foreside provides broker-dealer services to more than 275 asset managers chaperoning, legal underwriting, registered representative licensing services, NSCC, marketing material review and various other compliance functions…

Are You Connecting with Your Local FPA Chapter?

Do you know how to connect with planning professionals nationally or in your local area? Are you working with your local FPA Chapter?

Fifth Circuit Vacates DOL Fiduciary Rule

In a 2-1 decision, the US Court of Appeals for the Fifth Circuit struck down the US Department of Labor’s (“DOL”) fiduciary rule, deciding in favor of a number of leading financial services industry trade associations. The court found that the DOL unlawfully expanded the definition of the term “fiduciary” to be overly broad and […]

Foreside Partners with NICSA: Penetrating the RIA/Family Office Space

Foreside was excited to partner with NICSA to host Matthew Babcock, Assistant Vice President at Pacific Life, Aaron Gilman, Chief Investment Officer at Independent Financial Partners and Wayne Yi, Head of Manager Research at Massey Quick Simon for an informative discussion on working with key investment research teams. The panelist spent their time discussing best […]

Q1 Foreside Connections: A Closer Look with UBS: ETP Platform Overview

Foreside hosted both Gregory Trinks, Executive Director of Exchange-Traded Products and Derivatives at UBS Financial and Chris Mitchell, Associate Director of Business Development at NextShares Solutions for our Q1 Foreside Connections call. Gregory provided insights into UBS’s ETP platform and their recent announcement to offer exchange-traded managed funds (“ETMF”) to their advisors. He provided insight […]

Q4 Foreside Connections: Embrace the Changing Investor

Foreside hosted Amanda Smith, Senior Vice President at Fidelity Investments for an informative discussion around changing investor needs and how you and your firm can engage this changing investor. Fidelity conducts proprietary studies on investors and the advisors that service them and she shared actionable insights into how to better serve this next generation and […]

Foreside attends the 2017 Advertising Regulation Conference

Foreside is pleased to announce we will be a sponsor of the 2017 Advertising Regulation Conference October 5-6, 2017 in Washington, DC. Please stop by our booth to learn more about Foreside’s proprietary marketing material review software, Foreside AdCompliance™ and how our firm can help you! We will be demoing the software which is a system that […]

Q3 Foreside Connections: Penetrating the RIA/Family Office Space

Foreside hosted Mark Yusko, Chief Executive Officer and Chief Investment Officer of Morgan Creek Capital Management, James McGrath, Partner and Director of Research at Forbes Family Trust, and Roger Scheffel, Principal and Portfolio Manager at Wilbanks, Smith & Thomas for an informative discussion on working with key investment research teams. They discussed best practices penetrating […]

Foreside Partners with Delta Data

Foreside in partnership with Delta Data is pleased to offer a robust, comprehensive solution designed to help asset managers gain added insight into their intermediary relationships and distribution fees.  Delta Data’s Oversight Solution Platform is a suite of oversight products that leverage distribution transparency data integrated with reporting, analytics, and counterparty management.  This platform allows […]

FINRA T+2 Rules Are Approved

In May 2017, Regulatory Notice 17-19, FINRA announced the SEC approval of a variety of its proposed rule amendments relating to the upcoming move of the U.S. securities markets to the T+2 settlement cycle. To coincide with the effective date of the revisions to SEC Rule 15c6-1(a), these amendments will take effect on September 5, […]

Investment Company Reporting Modernization – Are you ready?

In October 2013 the Securities and Exchange Commission (“SEC”) voted to adopt changes to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and Exchange Traded Funds (ETFs).The new rules will enhance the quality of information available to investors and will […]

FINRA’s Capital Acquisition Broker Rules Offer Reduced Regulatory Burdens

FINRA’s Capital Acquisition Broker (“CAB”) rules took effect on April 14, 2017.  CABs are defined as firms engaged in limited activities including advising companies and private equity funds on capital raising and corporate restructuring and acting as a placement agent for sales of unregistered securities to institutional investors under limited conditions.  As such, FINRA applies […]

Changes Coming to FINRA Qualification Exams

Big changes are coming to the Financial Industry Regulatory Authority (“FINRA”) qualification exams.  FINRA recently announced that it had filed a proposal to streamline exams and provide opportunities for individuals to demonstrate a fundamental knowledge of the industry before joining a firm by creating a Securities Industry Essentials Exam (“SIE”).  The SIE does not need to be […]

Q2 Foreside Connections: Merrill Lynch Platform Rationalization and Impact Call

Foreside hosted Mary Beth Swisher of the Merrill Lynch Managed Solutions Group for our Q2 Foreside Connections conference call. As Vice President of the Managed Solutions Group/Global Funds, Ms. Swisher provided critical insight into Merrill’s rationalization process and their new research coverage model. To instantly listen to the replay, enter your information below.

Asset Manager “Chaperoning” under SEC Rule 15a-6

Recent enforcement actions and public statements reflect increased scrutiny by the SEC on whether private fund managers should register as broker-dealers.  Foreside provides “chaperoning” services to asset managers located outside the United States that want to market private funds to U.S. institutional investors under SEC Rule 15a-6 and avoid the need for broker-dealer registration with […]

Are you (still) wearing too many hats?

Fund sponsors who have bootstrapped their way from initial registration through to the profitable operation of a mutual fund or ETF will likely appreciate the pressures associated with juggling multiple roles and responsibilities within their organization. In the early days of growing a 1940 act fund business, one or two individuals might be forced to […]

DOL: Broker-Dealers and the “T” Share

The DOL fiduciary rule is accelerating and requiring broker-dealers to commit to the type of fee models their advisors can operate under, as well as require rationalization of the over 24,000 CUSIPs available today. With that, the industry has seen the introduc­tion of a new commission share class, better known as the transactional or “T” […]

Are you registered and did you know?

  Are you a Registered Representative, licensed with Foreside or another broker dealer? Did you know you can access your Form U4 directly from FINRA’s website? Visit and search for “snapshot” or visit to access your personal registration and licensing information including examination scores, continuing education data, and previous registration history. Are you […]

      +1 866-251-6920

Contact Us

Please send us an inquiry anytime and we'll get back to you, asap.

Not readable? Change text. captcha txt
Foreside - Unlocking value