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Jan 1989

What you should know before accepting commissions for investment and insurance sales.

by Rapoport, Larry

    Abstract- Recent rulings by the American Institute of Certified Public Accountants allow certified public accountants (CPAs) to accept contingent fees and commissions from the sales of insurance, securities, and other products. Many accountants are now considering the option to sell products in order to better serve their clients, but other CPAs consider it a conflict of interest. Any CPA considering selling either insurance or securities needs to be acquainted with licensing procedures and other rules that must be followed.

What You Should Know Before Accepting Commissions for Investment and Insurance Sales

On August 30, 1988, the ruling council of the AICPA agreed by a 191 to 5 vote to allow CPAs to accept contingent fees and commissions from the sales of securities, insurance, and other products. This agreement comes as a compromise with the Federal Trade Commission, which began an antitrust investigation several years ago of the AICPA ban on accepting commissions. Before New York CPAs can take advantage of these new compensation arrangements, the AICPA and FTC have to formalize the agreement, and the New York State Licensing Board for CPAs needs to give its approval.

Under the new compromise, CPAs accepting commissions must disclose that fact to their clients. However, the ban on accepting commissions or contingent fees emanating from clients for whom the CPA performs audit, review and compilation services, and examinations of prospective financial statements will remain in effect.

In response to the AICPA/FTC compromise, many CPAs are now seriously considering accepting commissions. Some feel that they can better serve their clients through the sale of products and would welcome commission revenues. Others view receiving commissions as an unacceptable conflict of interest and do not want to add these new activities to their practice. What is clear though, is that CPAs interested in accepting commissions from the sale of investments and insurance will need to become acquainted with licensing procedures and the other regulations that must be followed.

Investment Sales

In order to accept commissions for sales of investments, you must be properly licensed with the National Association of Securities Dealers (NASD). Generally, two exams need to be passed before you can be licensed. The first exam is contingent upon which investment products you plan to offer. The second exam is Series 63, the Uniform Securities Agent State Law Examination, which is required by New York State and many other states.

In order to take the exams to become licensed, you must be sponsored by an NASD broker-dealer. Once licensed, you are required to transact all investment business through that broker-dealer. While affiliations can be changed, transferring accounts to a new broker-dealer can be as disruptive to you as changing accounting firms. Thus, after deciding to become licensed, choosing your broker-dealer is the most important decision you will make.

The rules relating to selling investments and accepting commissions are totally separate from those to be followed if you are giving investment advice and are charging fees. Should fee-based investment advice be provided to clients, you generally must be registered with the SEC as an investment advisor. These rules are not directly impacted by the AICPA's decision on commissions.

Insurance Sales

Licensing for insurance is handled separately by each state. In most states there is an exam for life, accident, and health insurance and a separate one for property and casualty insurance. While it is possible to sit for either the life or the accident and health sections of the exam, most people sit for both. Before taking the life, accident, and health exam, a state approved course consisting of 40 hours of classroom and home study is necessary.

Once you are licensed, insurance business can be transacted through one or more insurance agencies. While some states do not impose limits as to how many agencies you can work with, most insurance companies will only allow you to sell their products through one or two agencies. In addition, you may find that working with too many agencies is an administrative nuisance.

Many of the considerations relating to selecting a broker-dealer also apply when you are selecting an insurance agency. However, there are additional considerations. When deciding on an insurance agency to work with, larger tends to be better. An agency that represents enough insurance companies, in order for you to access the most competitive products, is the right choice. Also, there could be advantages for your clients in the underwriting (approval) process if you are associated with a larger agency. Always investigate the amount of training and sales assistance you will receive, since most agencies provide little or none. In the long run, selection of an agency that provides you and your clients with the best service, rather than the agency that pays the highest commissions, is the best choice.


Should you decide to sell investments or insurance, it would be wise to determine if your present liability insurance covers those activities. Most policies covering CPAs specifically exclude claims arising from engagements for which the CPA received commissions for the sale of investment and/or insurance products.


Once the remaining road blocks are removed, it will be up to each individual CPA to decide if he/she will accept commissions. The manner in which CPAs implement that decision is critical, not only to their personal success, but also as to how the CPA profession will be viewed by the public.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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