Finra's broker-comp proposal raises hackles

As comment period closes, SIFMA, NAIFA say bonuses don't always mean conflicts

Mar 5, 2013 @ 4:11 pm

By Mark Schoeff Jr.

finra, sifma, naifa, bonus, adviser, broker, compensation
+ Zoom

Two major financial market lobbies have criticized a regulatory proposal that would require brokers to reveal the compensation incentives they receive when moving from one firm to another.

In comment letters to the Financial Industry Regulatory Authority Inc., the National Association of Insurance and Financial Advisors and the Securities Industry and Financial Markets Association both asserted that recruiting bonuses do not always present a conflict of interest. The deadline for comments on the proposal was Tuesday.

In its letter, NAIFA said that Finra's focus on what the regulator calls “enhanced compensation” overshadows other more central factors in an investor's decision to establish an account at a brokerage. The group said that the firm's “platform, products and services offered” as well as the investor's satisfaction with his or her broker were more important.

“The fact that certain incentives were received by the registered representative in connection with such a move should not, in and of themselves, call into question the motivation behind such a move or serve as an indication that any such move was made for any reason other than the best interests of the representative's clients,” Gary Sanders, NAIFA vice president for securities and state government relations, wrote in a letter dated March 1.

SIFMA asserted that “consistent with SIFMA's support for a uniform fiduciary standard … SIFMA has a long-standing record of support for disclosure to investors of potential conflicts of interest.” The group went on to imply that recruiting incentives do not always hurt investors.

“In the context of recruiting-related bonus payments, the most important and relevant information for the client is to understand the potential conflict associated with the payment,” Ira Hammerman, SIFMA general counsel, wrote in a letter dated Tuesday. “Accordingly, SIFMA believes that disclosure about the potential conflicts themselves should be the centerpiece of the proposed rule. [D]isclosure should be concise, direct and written in plain English.”

In early January, Finra proposed a rule that would require a broker to disclose incentives — including signing bonuses, upfront or back-end bonuses, loans, accelerated payouts and transition assistance, among other arrangements — to anyone they solicit for one year following their transfer to a new firm. The rule does not apply to incentives totaling less than $50,000.

NAIFA was more prescriptive than SIFMA in its letter, calling on Finra to increase the compensation threshold for disclosure to $100,000, decrease the time frame to less than one year and not require that the disclosure be made at the time an account is opened.

“The rule, if adopted, should only apply to persons who were clients of the registered representative during his/her employment at the previous firm,” the NAIFA letter added.

The NAIFA and SIFMA letters were sent to Finra on the last day that the agency was scheduled to receive feedback on the proposed rule. The next step is for Finra to consider the responses and promulgate a final rule. The time line for that move is unclear.

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