Finra to consider new disclosure rule

Board considering requiring disclosure of recruiting incentives to clients

Nov 28, 2012 @ 6:02 pm

By Dan Jamieson

The Financial Industry Regulatory Authority Inc. is considering a rule change that would require disclosure to customers of broker recruiting incentives.

“The Board will consider a proposed rule that would require disclosure to transferring customers of recruitment compensation packages offered to induce registered representatives to move from one firm to another,” Finra said in a notice posted to its site on Wednesday about a board meeting that will take place next month.

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Recruiting incentives have long been a concern for regulators.

Earlier this year, Finra began reviewing conflicts of interest at 14 of the largest brokerage firms, reportedly focusing on broker compensation and recruiting arrangements.

In August 2009, after the brokerage industry ramped up recruiting bonuses to target disaffected wirehouse representatives, Securities and Exchange Commission Chairman Mary Schapiro sent a letter to securities firm chief executives that warned them to carefully supervise brokers for churning or unsuitable sales, given the financial incentives for brokers to meet production and asset targets found in recruitment packages.

Former SEC chairman Arthur Levitt, who ran the agency from 1993 to 2001, called for the disclosure of recruitment packages.

Responding to Mr. Levitt, Finra in 1999 proposed a rule that would have required disclosure of accelerated payout arrangements for brokers who change firms. Finra, then known as the NASD, never acted on the proposal.


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