The Investment Dealers Association is considering allowing principal/agent relationships, dropping its requirement that brokers must be employees of their firms.

The IDA says that it is contemplating this change in the wake of a decision by the new self-regulatory organization for fund dealers, the Mutual Fund Dealers Association, to allow principal/agent relationships. The securities commissions have assented to the MFDA’s position. “In light of this decision, the IDA board has agreed that the IDA should reconsider this issue,” it says in a regulatory notice.

The IDA says that at a board meeting on June 17, the board requested a special committee of members to review the outstanding issues and concerns and to be in a position to make a final recommendation to the board for approval at the next board meeting in October.

In the meantime, the IDA will not be requiring new members to change their structures to that of employer-employee. “Since the rule may be changed, we have decided not to impose the prohibition of principal/agent relationships on existing relationships,” it says. Individuals currently operating under a principal/agent relationship will be permitted to maintain this relationship until a decision is made. The IDA was granting new members a grace period of a year to transition to its requirement for an employment relationship.

New entrants to the industry and individuals transferring their registration from one firm to another who are currently operating under a principal/agent relationship may be hired under a principal/agent relationship. Individuals currently employed as employees of a member firm transferring their registration from one firm to another, must remain as employees of the new firm.

The IDA says that if it decides to allow principal/agent relationships, these relationships must comply with the rules implemented when the change is made. “These new rules will include policies specifying the characteristics of principal/agent contracts between members and their agents. These rules will specify that such contracts must preserve the important regulatory aspects of the employer/employee relationship.” Similar rules frame these relationships under the MFDA’s rules.