A Broker Affiliation Agreement is a legally binding contract that establishes the terms under which a broker operates under a brokerage firm’s license and brand. This agreement is essential for maintaining compliance with regulatory bodies like FINRA for securities brokers, state real estate commissions for real estate agents, or insurance regulators.
The agreement sets clear expectations about the broker’s duties, compensation structure (often commission-based splits), compliance responsibilities, and use of firm resources. It confirms whether the broker acts as an independent contractor rather than an employee, which impacts tax obligations and benefits.
Typical contents include the nature of the relationship, compensation arrangements, duties of both parties, adherence to laws and internal policies, confidentiality, non-compete clauses, term length, and termination conditions.
Broker affiliation agreements are required for real estate agents, securities brokers, insurance agents, and mortgage loan originators who do not hold their own brokerage licenses but wish to conduct business legally under a licensed entity.
The distinction between independent contractor and employee status is particularly important. Brokers classified as independent contractors are responsible for their own taxes and expenses with greater autonomy but without employer benefits. In contrast, employees receive tax withholding and benefits but have less control over their work.
For brokers considering signing such agreements, it’s crucial to thoroughly review the document, understand compensation details, clarify responsibilities, consider legal advice, and understand termination terms to safeguard their professional and financial interests.
For more information, see IRS guidance on independent contractors versus employees IRS Independent Contractor vs. Employee and FINRA’s role in broker oversight FINRA About.
You can also explore related topics like Independent Contractor to understand tax and classification implications better.
