SIE Ready🚫 Prohibited Activities · Lesson 4 of 6 · 5 min
Hands Off the Customer's Money
💰 A customer's money is never a rep's money. Not as a loan, not as a 'temporary' transfer, and not as a share of the profits without the paperwork.
💡 Key idea
No guarantees, no unauthorized use of customer assets, no commingling. Loans only in allowed relationships under firm procedures; sharing in an account needs written approval and proportional contributions.
🧠 Why it matters
Using a customer's money or securities without authorization is CONVERSION (Rule 2150) and often ends in a bar. Customers' fully paid securities must never be COMMINGLED with the firm's own. BORROWING FROM OR LENDING TO a customer (Rule 3240) is banned unless firm procedures allow it AND the customer is immediate family, a lender in that business, another rep at the same firm, or someone with a personal or business relationship outside the account; the last three need notice and written pre-approval. GUARANTEES against loss are prohibited. SHARING in a customer's gains or losses needs written approval from the firm and the customer, in proportion to the rep's contribution; immediate family accounts are exempt from the proportion test.
📈 In the real world
🤝 Rep Jamal and customer Elise open a joint account; Jamal puts in 20% of the money. With written approval from his firm and from Elise, he may share in 20% of gains and losses. If he takes 50% of the profits, or tells Elise he'll 'cover any losses,' he breaks Rule 2150 twice.
📌 Takeaways
- Guaranteeing a customer against loss is always prohibited
- Loans with customers only in permitted relationships under written firm procedures
- Sharing: written approval from firm and customer, proportional to contribution (family exempt from proportion)
📖 Terms in this lesson
Guarantee against loss: Promising a customer they will not lose money, prohibited by FINRA rules.
Sharing in accounts: A rep sharing in a customer's gains or losses, allowed only with firm and customer written approval and generally in proportion to the rep's investment.
Borrowing from customers: FINRA Rule 3240 bars reps from borrowing from or lending to customers unless the firm allows it and the relationship falls in an allowed category.
Commingling: Mixing customer funds or securities with the firm's or the rep's own, which is prohibited.
✅ Test yourself
A rep contributes 25% of the money in a joint account with a customer, with all required written approvals. What share of profits and losses may the rep take?
- 50%
- 25%
- Whatever the customer agrees to
- 10%
Answer: B · 25%
Sharing must be in proportion to the rep's financial contribution, so 25%. Customer agreement does not override the proportion rule; only immediate family accounts are exempt from it.
Under FINRA Rule 3240, from which customer may a rep borrow money if the firm's procedures allow it?
- A wealthy customer who offers a low rate
- Any customer who signs a promissory note
- A long-time customer the rep met through the firm
- The rep's sister, who is also a customer
Answer: D · The rep's sister, who is also a customer
Immediate family is one of the permitted relationships. A customer relationship alone, however long or friendly, does not qualify, and signing a note does not create an exception.
A rep tells a nervous customer, 'If this stock drops, I'll make up the difference myself.' What is wrong with this?
- It is allowed if the principal approves it
- It is a prohibited guarantee against loss
- It is fine because the rep pays, not the firm
- It is allowed if the rep puts it in writing
Answer: B · It is a prohibited guarantee against loss
Rule 2150 prohibits guaranteeing a customer against loss. Writing it down, getting approval or paying personally does not make it permissible.
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