According to the NASD Guidelines, to the extent that a broker-dealer already reflects its expenses and liabilities in its general ledger and provides cost-appropriate backup documentation, no further documentation is required in accordance with points 1 and 2 above. A. Yes. Interpretation also applies in this case, even if the perceived problem on which the interpretation is based does not exist. Companies that have thus generated revenue on the grounds that the parent company bears most of the costs must consider whether those costs continue to be justified for tax and other purposes, or whether the subsidiary should instead pay dividends to its parent company in amounts exceeding the reasonable value of the services provided. Such payments would, of course, be subject to the SEC`s capital withdrawal rules. 1. A broker-dealer must record all costs incurred in the course of his business and any corresponding liability, whether the liability with one person is joint or several and whether a third party has agreed to assume the costs or liability. The record must include the value of all goods or services used in the broker-dealer`s business if a third party has provided the goods or services or has paid or agreed to pay the costs or liability, whether or not GAAP requires cost accounting, and whether or not any liability related to expenses is considered the dealer`s liability for net capital purposes.
7. Broker-dealers must enter into, maintain and comply with written cost-sharing agreements between the broker-dealer and a third party who has paid the fees of a broker-dealer or who has agreed to pay. The agreement must clearly state which party is required to pay for each expense, whether the broker-dealer is directly or indirectly required to reimburse or otherwise indemnify a party for paying the costs, and the nature of the allocation if the broker-dealer enters the costs in an amount determined on the basis of an apportionment made by the third party. If the fees result in payment due to a seller or other party, the seller or other party has agreed in writing that the broker-dealer is not directly or indirectly liable to the seller or any other party to the costs; (5) Where, for the purposes of determining net capital, a dealer-dealer records a capital contribution from a third party who has assumed responsibility for the payment of an issue by the broker-dealer and the issue is not reported in the dealer`s FOCUS report, the broker-dealer shall demonstrate that recognition of a capital contribution was appropriate. In the event of the death of a partner, the cost-sharing agreement must specify what measures are to be taken by the other partners, whether they have the right to buy the deceased partner`s share or whether it can be placed directly on the market, so to speak. If the amortized partner does not wish to acquire the share, provision should be made for the continuing partner to participate in the sale of the deceased partner`s share. Again, the consequences, especially for the loved ones of a deceased partner, can be catastrophic without such a provision. Nicole: So, under an expense-sharing agreement, often a broker-dealer is formed as a subsidiary of the parent company or as a subsidiary of another investment advisor of another organization, and that other organization, the parent company, really bears a large portion of the expenses. He has all the employees, he pays the rent, so the broker-dealer has to spread those expenses in his books to make sure they enter those expenses and continue to see where the spending agreements don`t follow the rules. For limited or smaller businesses, cost-sharing agreements can be quite simple.
The agreement must be in writing, the allocation of expenses must be “fair and proportionate in its purpose” and the allocation method must be applied consistently. Being fair and reasonable means that the costs allocated should be proportional to the benefits obtained by the broker-dealer. These are just a few of the things to keep in mind when preparing and documenting expense-sharing agreements. Oyster Consulting`s finance and accounting team includes former CFOs, finOP, auditors and accountants from broker-dealers, large and small, investment advisors and accounting firms. .
