Key takeaways
- The M&A broker exemption is a complex assessment, and the federal test is only the first half of the analysis.
- Two recent court cases wiped out seven-figure advisory fees because the advisor wasn't registered. In both, the fee died on the federal layer, before the state layer even came into play.
- "I mostly do M&A" is not a defense. A single non-exempt deal can take you out of the exemption entirely.
- Every deal has to clear a state-by-state analysis too, and public online trackers of state rules can be wrong.
- For many advisors, registering, whether independently or through a platform, takes these recurring decision points off the table.
The conversation, and who led it
On September 29th, Finalis hosted a live session on a commonly misread rule in independent banking: the M&A broker exemption. Leading it was Steve Price, Finalis' Chief Compliance Officer, who spent six years at FINRA, most recently running the market investigations teams that look into potential misconduct across US securities markets, and before that served as the inaugural head of FINRA's National Cause Program. Finalis CEO Fed Baradello hosted the conversation.
The premise was simple: a lot of independent advisors either don't know the exemption exists or believe it covers far more than it does, and they operate in a gray area without realizing how much risk they're carrying. The webinar was a plain-language look at what the exemption actually requires, where advisors most often get it wrong, and how to think about whether you need a broker dealer. What follows is a summary of that discussion. It's educational, not legal advice.
The risk: two bankers, two lost fees, five years apart
Before getting into what the exemption says, it's worth seeing what happens when advisors get it wrong. There are two real cases: EdgePoint Capital Holdings, LLC v. Apothecare Pharmacy, LLC, 6 F.4th 50 (1st Cir. 2021); Redimere Advisors, LLC v. Plymouth Industrial REIT, Inc. (Mass. Super. Ct. June 2026).
The first, from 2021, involved a Massachusetts pharmacy company with about $26 million in revenue that hired an investment bank to sell it. The bank ran the engagement through an unregistered affiliate to avoid what it called "the FINRA tax." The banker built a buyer list of 400 names and called seven of them. The client later terminated, then sold a year later for $47 million to two names on that list. When the bank sued for its fee under the tail provision, the First Circuit found the contract voidable, because, as Fed put it, "calling 7 potential buyers is an attempt to induce a sale of securities, and an unregistered person cannot do that from the first phone call." The fee, north of a million dollars, was gone, and the indemnity for legal fees with it.
The second case is from June 2026. In a Massachusetts Superior Court case called Redimere, an advisor to a public REIT being taken private said it found the buyer, ran weeks of negotiations, and nudged the price up. It wasn't registered anywhere. It claimed a 2% success fee of roughly $20 million. The case was dismissed with prejudice, and by the advisor's own account this was the only securities transaction it had ever worked on. As Fed summarized the court's reasoning: "One was enough."
Two things stand out. Both fees died on the federal layer, the one most advisors assume they've already cleared. And in both cases the court had a state-law defense available and never even needed to reach it. These weren't outliers, either. Both decisions rested on a line of cases stretching back to 1982.
How we got here
For most of the last century there was no M&A carve-out at all. As Steve explained, the original Exchange Act had no exemption for selling businesses, and that held from 1934 to 2014. In 2014 the SEC staff issued a no-action letter identifying conditions under which it wouldn't pursue enforcement, but it set no size caps on deals. Congress enacted the exemption in December 2022 (Exchange Act §15(b)(13)), effective March 29, 2023. The SEC withdrew the 2014 letter that day. The statute added company-size caps.
Steve's caution: even with a concrete set of rules on the books, "the analysis itself is not as simple as opening a book and taking a look at the rule and knowing what it says."
What the exemption actually requires: the federal test
At a high level, the federal exemption covers the sale of a private company under roughly $25 million in EBITDA or $250 million in revenue. Two points advisors routinely miss: those thresholds attach to the size of the company, not the deal, and capital raises don't qualify under any version of the rule, federal or state.
Beyond size, the buyer has to be taking control. Steve described a general 25% ownership threshold, though not one written in stone, paired with a real-operational-control test: The buyer must acquire control, the power to direct management or policies, presumed at 25%, and be actively involved in managing the company afterward. Selling to a group of passive investors won't qualify.
Then there are the boundaries that take a deal outside the exemption regardless of size or control. The advisor can't hold customer funds, can't touch public offerings, public companies, or shell companies, and can't engage in lending (though within limits they can help a buyer locate financing, with written disclosure of any compensation they receive for doing so, just not participate in the financing itself). Representing both sides requires clear written disclosure and consent from both sides. And if the advisor assembles the buyer group themselves, that takes the deal out of the exemption, even though a pre-formed group buying to control the company can fit.
Why "I mostly do M&A" doesn't make you exempt
This was one of the most important corrections of the session, and the one most likely to catch advisors off guard. The exemption isn't a description of the kind of work you generally do. It's a requirement about the work you solely do. As Steve put it: "if you're out there doing even one deal that doesn't fit the exemption, you're out of that category. You're no longer exempt from registration."
In other words, an advisor can't do an exempt deal one day and a non-exempt deal the next and assume the exemption still protects them. The moment they participate in a non-exempt deal, they've left the "solely" category the exemption depends on, and registration is required.
The state layer: why federal isn't the end of the analysis
Clearing the federal test only gets an advisor halfway. As Steve stressed, "the federal question is not the end of the analysis." Each state runs its own rules. Some have adopted the federal exemption, some have a partial version, and some, like New York, have none. Those rules change year to year, and a state regulator has no obligation to follow the federal approach.
The trap tends to spring mid-deal. Steve walked through a timeline: an advisor confirms everyone is in friendly states at the outset, the teaser goes out, and then indications of interest come back from states with no exemption, and one of those bids wins. Now the advisor has to disclose to the client that they aren't registered in that state and decide whether to walk away, because proceeding opens up both regulatory risk and the risk of rescission, potentially of the entire deal, not just the fee.
The other warning was practical: don't trust a quick web search on state rules. When Finalis compared public online trackers against the actual state statutes, they found real inaccuracies, trackers telling advisors they were fine in states where they weren't. The state analysis has to be redone, deal by deal, against the current rules.
What's actually at stake
The consequences fall into three buckets. Your fee contract can be voided, leaving little recourse to collect. The other side gets the option to unwind the deal if it suits them. And state regulators do pursue this. As Steve noted, complaints about unregistered activity typically land at the state level, and unregistered M&A activity is, in his words, a state regulator "sweet spot."
Why many advisors find registration simpler
Nearly every decision point above, the federal test, the control analysis, the state-by-state check, the mid-deal surprises, largely goes away once you're registered. Registration carries its own obligations and some added requirements, but it widens the deals you can take and the states you can sell into, and it removes the need to keep re-running the exemption analysis on every mandate.
Through a platform like Finalis, exempt and non-exempt deals flow through a single workflow, which also removes questions about private securities transactions and selling away. Steve's bottom line was about timing: the worst moment to discover you should have been registered is in the middle of a mandate, when your options narrow to placing the deal with a registered firm, trying to register (usually too late), or stepping away. Better, he argued, to decide what you want your business to look like, and what risks you're willing to take, before you start engaging.
FAQ
I've already signed a mandate, and I now think it's outside the exemption. What should I do?
Your options are limited once you're mid-mandate. If you don't qualify, you may have to step away. What you shouldn't do is close a deal in violation of state or federal law, which only invites a larger problem. The better fix is upstream: decide on your registration posture before you start engaging.
Can I split a fee with someone who isn't registered?
Generally, no. Under FINRA Rule 2040, a broker-dealer and its registered persons can't pay transaction-based compensation to anyone who isn't registered, subject to limited exceptions.
If I'm already registered, does any of this exemption analysis matter?
Much less. Once you're registered, the whole question of relying on an exemption falls away. On a platform like Finalis, a registered advisor's deals follow the same workflow regardless of whether a given deal would have been exempt.
This article is a summary of an educational webinar and is not legal, tax, or investment advice, and does not create an attorney-client or advisory relationship. Securities transactions through Finalis are conducted through Finalis Securities LLC, Member FINRA/SIPC.
