DISE Shared-Service Arrangements: Where Employee Compensation Analysis Gets Dicey

By the time most broker-dealers and advisers reach the shared-services analysis, they have already determined whether DISE applies and which expense categories require disclosure. The remaining challenge is often operational: identifying who legally employs the people performing the work, understanding how intercompany charges flow through the organization, and determining whether existing data can support the required disclosures.

Key Takeaways

• A reimbursement paid to a parent or affiliate under a cost-sharing arrangement cannot be included in employee compensation within DISE disclosures, even if the underlying cost is entirely staff-related, because the people doing the work are not the paying entity's common-law employees.
• The reimbursement must appear on its own line in the DISE table, with a plain-language description of what it covers.
• A caption made up solely of an organization's own employee compensation can be left alone, but adding a reimbursement to that caption makes it relevant and requires its own breakout table.
• A single lump-sum invoice from a parent or affiliate gives an organization nothing to disaggregate; breaking that invoice into underlying cost types is often the deciding factor in whether the disclosure can be prepared on time.
• Selling expenses require a total disclosure in both annual and interim periods, along with the organization's own definition of the term at least annually, since the standard does not define it.
• The data work behind DISE, separating compensation, depreciation, and shared-service costs cleanly enough to support the required categories, should start well before the first adoption year closes.

The first two articles in the series focused on scope and disclosure requirements. In the final part, our team discusses one of the key challenge areas of DISE implementation: shared-service arrangements and reimbursement structures.

Explore Part One

Explore Part Two

Why Can’t the Reimbursement Be Employee Compensation within DISE disclosures?

This is where things get more complicated for broker-dealers and advisers that sit inside a larger structure. Say your firm pays a parent or an affiliate for a share of costs, such as compliance staff or trade support, often billed as a management fee or a cost-sharing charge. Under DISE, that reimbursement cannot simply be absorbed into employee compensation, even when most of what is being reimbursed is, at its core, employee cost. Whether a particular management fee is a cost-sharing or cost-reimbursement arrangement depends on how the contract is written and how the charge is presented, so it is worth reading the agreement rather than assuming.

The reason goes right back to the common-law point. If the people doing the work are on the parent’s or affiliate’s payroll, they may not be your employees, so what you pay for them may not be your employee compensation. The standard tells you where that payment goes instead. A reimbursement paid to another entity under a cost-sharing or cost-reimbursement arrangement is presented on its own line in the DISE table, with a plain-language description of what the reimbursement covers, such as employee compensation at the parent. It cannot be buried in the employee compensation category, even if every dollar of the reimbursement relates to staff cost. If the firm receives a reimbursement rather than pays one, a separate gross-or-net presentation election may be available, but most broker-dealers and advisers will be focused on the payment side of the arrangement.

When a Compensation-Only Caption Becomes a Relevant Caption

There is also a knock-on effect that is easy to miss. Normally, a caption that is nothing but your own employee compensation would not need to be broken out at all, since a caption made up of a single category is left alone. But the minute that same caption also picks up a reimbursement to the parent, it stops being a single category. Now it is a relevant caption under DISE, and it needs its own small table, showing employee compensation, the reimbursement on its own line, and whatever else is in there.

What If the Parent Bills a Single Lump Sum?

That is a real problem for any organization whose parent bills a single lump sum for shared services. One number covering office space, back-office support, and staff time gives you nothing to disaggregate. Getting that invoice broken into its underlying cost types, well before year-end, is the piece of legwork that decides whether the disclosure can be prepared at all. Handled early, it can take real pressure off the close.

None of this is a broker-dealer-only problem, and on the adviser side, it is often the norm rather than the exception. Advisers routinely share people and overhead with an affiliated broker-dealer, a holding company, or sister advisers, and settle it through a management fee or an expense-sharing agreement. Every point above carries over: a reimbursement the adviser pays for staff who are legally employed by an affiliate cannot be folded into employee compensation, it comes out on its own line with a description of what it covers, and a single lump-sum affiliate invoice has to be broken into its underlying cost types before any of it can be disclosed. If your firm runs on shared services, that invoice is the place to start.

A few things worth raising internally sooner rather than later:

• Is there a cost-sharing, management-fee, or reimbursement arrangement with a parent or affiliate, and what is actually included in it?
• Who employs the people doing the work under common law? Your firm, the parent or the affiliate?
• Does the invoice from the parent already separate costs by type, or does it arrive as one number?
• If it is a single number, can the parent provide a breakdown in time to support the disclosure?

Do Not Overlook Selling Expenses

Separate from the table, there is a second requirement that is easy to lose track of. You have to disclose the total of your selling expenses in both annual and interim periods, and say how you define the term at least once a year, updating that definition only if it changes during the year. The standard does not tell you what a selling expense is; that is left to management, based on your own facts. For a broker-dealer, this one slips by because the costs involved almost never fall under a heading labeled “selling.” Depending on the shop, they might be marketing, business development, client relationship work, or distribution costs. For an adviser, the same items are easy to miss, and can include marketing, distribution, and solicitation or referral fees paid to bring in clients. If anything like that is in your numbers, it is better to settle on a definition now and know where those costs live than to be working it out when closing the books at year-end.

Frequently Asked Questions

Our parent bills us one lump sum for shared services. Is that a problem?

It can be. One combined charge for office space, back-office support, and staff time cannot be split into the categories DISE requires, and any reimbursement of affiliate staff costs still needs its own line. Ask the parent for an itemized breakdown of the invoice well ahead of year-end.

We do not have a line called selling expenses. Do we still have to disclose them?

Most likely, yes. These costs are often grouped under marketing, business development, distribution, or referral fees. The standard asks for both a total and your definition of the term, so it helps to define selling expenses and find where they sit now, not during the audit.

The Data Work Needs to Start Now

This doesn’t change how your income statement is presented. The work sits upstream of that. Does your general ledger separate compensation, depreciation, and amortization cleanly enough to support the categories DISE requires? Can a parent or affiliate cost-sharing arrangement actually be broken into something you can describe in a footnote? For a lot of broker-dealers and advisers, the honest answer right now is not yet.

The fix is not complicated, but it takes lead time. The earlier you look at whether your existing systems, supplemental calculations, reasonable estimates, or a combination can produce the required detail, the less of a scramble the first DISE footnotes become. The standard does not prescribe a single systems solution, and transaction-level tagging is only necessary in some cases, most often where a caption contains inventory, which is uncommon for a broker-dealer or an adviser. What takes real time is pulling itemized details from a parent, sorting out who legally employs whom, and settling how the information will be produced. Working through it while you are still planning gives your team room to fix what needs fixing. Finding out once the audit is underway does not.

Moving Forward with EisnerAmper

If your firm has a shared-services or cost-reimbursement arrangement with a parent or affiliate, that is the place to start the conversation with your finance team this year. Understanding how employee compensation impacts the footnote and how costs are allocated will make the transition smoother when DISE becomes mandatory.

As 2027 approaches, organizations need to begin evaluating scope, disclosure requirements, and data availability to identify and close gaps prior to the first filing period. EisnerAmper's financial services team works with broker-dealers and investment advisers to get your firm DISE-ready. If a second set of eyes on your scope, your expense captions, or your expense-sharing arrangements would help before 2027, connect with our team.