Broker-dealer rules and the finders question

What makes someone a broker

There is no single bright line, but regulators and courts consistently weigh a recognisable set of factors:

• Soliciting investors — actively marketing an offering rather than making an introduction
• Participating in negotiations — advising on or negotiating terms
• Making recommendations — giving advice on the merits of an investment
• Handling funds or securities — touching investor money or the instruments themselves
• Regularity — doing this as a business rather than once
• Transaction-based compensation — being paid as a function of whether and how much capital closes

The last is the most significant single factor. It is not necessarily dispositive on its own, but it remains one of the strongest indicators of broker activity, and it is the first thing an examiner looks for.

The finders question

The status of a pure "finder" — someone who introduces parties without soliciting, advising or negotiating — has been contested for decades. Market participants have historically relied on narrow no-action letters rather than any general rule.

In October 2020 the SEC proposed a conditional exemptive order creating two tiers of finder. Tier I could provide contact information for a single issuer's capital raise once in twelve months, without communicating about the investment. Tier II could distribute offering materials and arrange meetings, subject to disclosure conditions, but could not advise on valuation, negotiate terms or handle funds. Both would have been permitted transaction-based compensation.

The proposal passed 3–2 with two commissioners dissenting, drew heavily critical comment, and was never adopted. It lapsed. As matters stand, no general federal finders exemption exists.

In February 2026 the SEC's Small Business Capital Formation Advisory Committee approved recommendations supporting a limited exemption. That is a signal of continuing interest, not a change in the law.

Two adjacent rules people misread

The M&A exemption is the most frequently misapplied. It is genuinely useful for brokers facilitating the sale of privately held operating companies. It has nothing to say about raising capital for a fund, and assuming otherwise is an expensive mistake.

State law and public plans

Federal analysis is never the whole picture. States operate their own broker-dealer registration regimes; some have limited finder provisions, many do not, and requirements differ meaningfully. Separately, business with public pension plans carries pay-to-play restrictions on political contributions and placement agent arrangements — introduced after the scandals of the late 2000s — which can require disclosure or registration, or prohibit intermediary involvement entirely. These vary by jurisdiction and by plan.

What this means practically

Where SeRuM sits

SeRuM is not a registered broker-dealer and not a placement agent. We provide introduction and networking services. We do not offer or sell securities, do not solicit investments, do not negotiate terms, do not handle investor funds, and do not provide investment advice. Engagement terms are discussed directly and are a matter for each manager's own counsel to review alongside ours.

Frequently asked questions