Series 27: Commissions, Charges, And Markups

Commissions, Charges, and Markups

You will not be surprised to know that FINRA expects charges for services performed to be reasonable and not unfairly discriminatory between customers.

Where a member firm buys from or sells to a customer for its own account, it must buy or sell at a price that is fair, taking into consideration the market, the expense involved, and the firm’s right to a profit. Likewise, if a member firm acts as agent for a customer, it must charge a fair commission or service charge.

A standard FINRA rule of thumb for determining pricing fairness has been the 5% Rule, a policy that states that markups, markdowns, and commissions should hover in the neighborhood of 5% of sales. While 5% is a guide, 5% may be considered unfair or excessive depending on the situation. FINRA gives factors to determine whether a markup or markdown is fair and reasonable. They are:

• • Type of security involved—a higher commission is usually taken for