The Financial Industry Regulatory Authority has sent a targeted exam letter seeking to examine possible conflicts of interest in the way firms pay brokers. About a dozen brokerage firms received the letter, which the regulator said is aimed at gathering information as opposed to seeking out violations.
In its letter, the self-regulatory organization inquires about each firm’s different compensation practices, including common payout grids, mutual fund fees, and recruiting incentives. FINRA also wants to know about any compensation that firms may receive from product sponsors and how certain products are promoted. It also wants to learn about production thresholds that allow certain brokers to get bonuses and more compensation for additional revenue earned, improved compensation tied to revenue from certain product types, and policies for monitoring conflicts of interest as they relate to compensation.
FINRA Executive Vice President of Regulatory Operations/Shared Services Dan Sibears said that the SRO is conducting the sweeps to see if firms are properly managing conflicts of interest or if additional guidance needs to be issued. Enforcement actions typically do not result from this type of sweep unless egregious violations are discovered.
The conflicts of interest sweep comes almost two years after a FINRA report that took a general look at broker compensation practices. This summer, the SRO asked for comment on a revised proposal that would require brokers to make extra disclosures to clients about bonuses and incentives they may receive for switching to another firm.
Conflicts of Interest
A conflict of interest may prevent a broker from offering investment advice or making a recommendation that is in the customer’s best interests. A conflict of interest can arise when there is incentive to recommend one security over another because profit for the broker is involved.
At The SSEK Partners Group, our securities lawyers help investors who have suffered financial losses due to misappropriate or negligent recommendations made by a broker because there was a conflict of interest.
Contact our securities lawyers today.
Finra sweep homes in on conflicts in broker pay, Investment News, August 20, 2015