A number brokerage firms, including Morgan Stanley Wealth Management, LPL Financial (LPLA), and Stifel Nicolaus (SF) have responded to the Securities and Exchange Commission’s request for comments about FINRA-proposed rule about broker compensation. Proposed rule 2243 would require greater disclosure about the financial incentives that is offered to representatives who change jobs. The information would need to be conveyed to the self-regulatory agency.
Under Rule 2243, clients who go with a broker to a new firm would have to be apprised of any recruiting compensation the representative gets if the amount is $100,000 or greater. This would include bonuses at the front and back ends, signing bonuses, transition assistance, and accelerated payouts. The disclosure would be applicable for one year after the representative begins association or employment with the new broker-dealer.
The rule also would apply if the brokerage firm expects total compensation paid during the representative’s first year of association to result in a $100,000 or 25% increase in compensation from the year prior. Firms also would have to notify FINRA about such a rise in compensation. (The SRO wants to use the data to look for signs of potentially related sales abuses.)
FINRA says that it wants these disclosures to be activated by any action that a recruiting firm makes to convince customers to move their assets to the new firm of a broker. Notice would also have to be provided if such a move were to result in additional costs for a customer.
InvestmentNews reports that based on some of the comments received, there are those in the brokerage industry who worry that complying with the proposed rule could prove challenging. For example, Commonwealth Financial Network is reportedly worried about “transition assistance,” which FINRA views as upfront payment. This money helps new representatives cover their work-related expenses during the time it takes to completely move from one place of business to the next. Meantime, the Securities Industry and Financial Markets Association has expressed concern that it might be hard to set up the needed supervisory systems to make sure the rule is followed.
However, wirehouses generally appear to be on board with FINRA’s proposed rule. These firms typically shell out huge upfront payments to get brokerage teams to join, and the rule could be used as incentive to make these offers smaller.
Brokers are required to provide customers with a certain duty of care. This means making financial recommendations that are in their best interests. Brokers are not allowed to place their own profit over this obligation.
Unfortunately, there are brokers who do take advantage of customers’ trust to make more money for themselves. This can place an investor’s portfolio in peril and result in substantial financial losses.
Please contact our broker fraud lawyers today. We can help you determine whether you have grounds for a securities case.
Brokerage industry sounds off about Finra broker compensation proposal, Investment News, April 18, 2014
Board of Governors Authorizes FINRA to File Recruitment Compensation Proposal With the SEC, FINRA, September 19, 2013
More Blog Posts:
FINRA Broker Bonus Plan Would Require Brokers to Disclose Their Recruitment Compensation, Institutional Investor Securities Blog, September 22, 2013
Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013
FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum, Stockbroker Fraud Blog, April 12, 2014