If Your Fund Pays People to Raise Capital, Do They Need a FINRA License?

Private funds spend a lot of time thinking about securities laws — but often focus almost exclusively on the offering itself. Is the fund relying on Regulation D? Are investors accredited? Is the PPM up to date?

What sometimes gets overlooked is a separate question: What about the people doing the fundraising — do they need to be FINRA-registered?

Many funds, independent sponsors, real estate sponsors, and emerging managers compensate employees, investor relations professionals, or business development personnel based on how much capital they bring in. Often it’s called a commission. Regardless of the label, though, if someone's compensation is tied to the amount of capital raised, that personal almost certainly needs to be licensed with FINRA. The reasoning is the same as why independent placement agents need broker-dealer registration.

Why Transaction-Based Compensation Matters

Under federal securities law (Securities Act of 1934), a person may be required to register as a broker if they are engaged in the business of effecting securities transactions for others. Regulators look at a variety of factors when evaluating whether someone is acting as a broker, including:

• Soliciting investors

• Identifying prospective investors

• Participating in investment discussions

• Negotiating terms

• Recommending investments

• Receiving compensation tied to securities transactions

Among all the factors, transaction-based compensation carries the most weight and has historically received the most attention from regulators. SEC staff has repeatedly described it as "a hallmark of broker-dealer activity." Why? Because paying someone based on the amount of capital raised creates what regulators often describe as a “salesman’s stake” in the outcome — a heightened incentive to push the securities — which is precisely the conduct broker regulation exists to supervise.

In recent enforcement, the SEC has reinforced this view aggressively. A series of 2024–2025 settlements reaffirmed that "finders" who solicit investors on behalf of private companies are, in the SEC's view, required to register as brokers — and each order called out transaction-based compensation as a central element of the violation. The Commission even took an expansive view of what counts; in one matter, the compensation took the form of heavily discounted shares rather than cash, and the SEC still treated it as creating the salesman's stake.

“But They’re Our Employee”

One of the most common misconceptions we encounter is: “They’re not a placement agent. They’re part of our team.” Unfortunately, employment status alone does not resolve the issue.

Many fund managers assume an employee automatically falls within an exemption that allows them to raise capital without registration. The reality is more nuanced.

There is a safe harbor under SEC Rule 3a4-1 that allows certain associated persons of an issuer to participate in securities offerings without broker registration. However, one of the key requirements is that the individual must "not be compensated in connection with [their] participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities."

Similar misunderstandings often arise when professionals assume registration requirements stop at state borders or only apply to traditional investment bankers.

Private Placements Are Not a Free Pass

Another misconception is that broker-dealer registration concerns disappear because the offering itself is exempt. They do not.

Whether a fund relies on Regulation D or another offering exemption is a separate issue from whether the person selling the securities must be registered. The offering may be exempt. The salesperson may not be.

We often see this confusion arise among:

• Private equity sponsors

• Real estate investment sponsors

• Independent sponsors

• Venture funds

• Emerging fund managers

• Family-office-backed investment vehicles

The fact that securities are being offered privately does not automatically eliminate broker-dealer considerations. This distinction surprises many professionals because private offerings frequently involve sophisticated investors rather than retail investors. However, the registration analysis focuses on the activities of the person raising capital — not simply who is investing.

Who Bears the Risk — And What It Looks Like

The exposure is not limited to the salesperson. An issuer or fund that pays transaction-based compensation to an unregistered person is itself at risk of violating the Exchange Act, and can face civil and potentially criminal penalties — plus the prospect of having to offer investors rescission rights, which can unwind the very capital the fund worked to raise. The SEC's guidance lists rescission and "future capital-raising challenges" among the consequences of getting this wrong.

For a fund, that is an existential category of risk. A registration defect discovered during a later raise, an LP dispute, or a regulatory exam can call into question the validity of prior subscriptions and chill future fundraising precisely when momentum matters most.

What Are the Options?

For most funds, there are three practical paths forward.

Option 1: Use a Salary-Based Structure

Some firms choose to compensate fundraising personnel through salary and discretionary bonuses that are not tied directly to securities transactions. This is workable for some genuinely passive or administrative roles, but it is usually incompatible with the economics most funds actually want — namely, paying their raisers for what they raise. The moment compensation scales with capital, this option closes.

Option 2: Establish Your Own Broker-Dealer

Some large asset managers maintain affiliated broker-dealers that handle fundraising activity. This gives full control but carries the full weight of FINRA membership, supervisory infrastructure, compliance personnel, net-capital and reporting obligations, and ongoing examination exposure. For most emerging managers and smaller funds, the economics can be difficult to justify.

Option 3: Affiliate With an Existing Broker-Dealer

Many private fund professionals instead choose to become affiliated with an established independent broker-dealer such as Britehorn Securities — which provides the licensing, supervision, and compliance backbone — while the fund retains its entrepreneurial flexibility. For many independent sponsors, emerging managers, and fundraising professionals, this can be the most practical solution. If you're considering this route, schedule a chat with us to discuss the process and logistics.

The Bottom Line

If your fund pays employees, consultants, investor-relations professionals, or business development personnel based on the amount of capital they raise, broker-dealer registration should be part of the analysis.

The fact that the offering is private does not eliminate registration concerns.

The fact that the fundraiser is an employee does not automatically create an exemption.

For many firms, the harder question isn’t whether registration may be required — it’s determining the most practical path forward. If you’re unsure whether your fundraising structure raises broker-dealer questions, it’s worth evaluating before your next capital raise — not during a regulatory exam, investor diligence process, or dispute with a former fundraiser.

Britehorn Securities works with independent sponsors, placement agents, M&A advisors, fund managers, and capital-raising professionals who need a compliant way to receive transaction-based compensation without building their own broker-dealer from scratch. Schedule a confidential conversation to review your capital-raising structure and discuss your options before your next raise.