Under MSRB rules, a registered representative is prohibited from sharing in gains and losses unless which condition is met?

• A. Written guarantee of performance to the customer
• B. Customer agrees to the arrangement in writing
• C. Contributes capital proportionate to his sharing percentage and receives written approval of the principal
• D. Agree to reduce the commission rate

Answer: (C)

In MSRB rules, a registered representative may share in gains or losses only if there is a genuine financial stake and supervisor oversight. The arrangement requires the representative to contribute capital proportionate to the sharing percentage and to receive written approval from a principal. This ensures the rep has real risk and an approved framework, helping align incentives with the customer’s interests and providing firm oversight.

Why this makes sense: contributing capital shows the rep has skin in the game and isn’t just taking a percentage for advice, while the principal’s written approval guarantees the firm reviews and controls the arrangement to stay compliant.

The other scenarios don’t satisfy the rule: a guaranteed performance promise is not allowed and would create undue risk; a customer's written agreement alone doesn’t establish the required capital stake or supervisory approval; simply reducing the commission rate doesn’t create the proper, oversight-based arrangement.