Selling away is when a broker solicits a client to purchase securities not held or offered by the brokerage firm. Brokerage firms generally have lists of approved products that can be offered by their brokers to clients of the firm. These approved products have usually undergone due diligence screenings and have been identified by the firm's screening personnel as solid products. When a broker sells away from the firm's list of approved products, they run the risk of selling something for which due diligence has not been completed. As a general rule, such activities are a violation of securities regulations.
Breaking Down Selling Away
Selling away occurs when a broker sells investments that are not a part of the products offered by their firm. At times, a broker may do this because the client wants to purchase a product that has not yet been approved by the broker's firm. The broker wishes to earn a commission, so they break the rules. This can often happen when the investments in question are private placements or other non-public investments. Generally, selling away is a violation of securities regulations.
Example of Selling Away
For example, Bert is a broker at Bert's Brokerage. Ernie is Bert's client. Ernie wants to purchase stock of XYZ company, which is a private company not traded on public exchanges. They are offering stock directly through an agency that underwrites and distributes private placements. Unfortunately, Bert's brokerage has not performed the necessary due diligence on XYZ company, so their private stock is not on the list of approved products for sale. Bert, however, wants to earn the commission associated with this sale of XYZ company stock, so Bert "sells away" from Bert's Brokerage and completes the transaction.