Finra postpones action on recruitment disclosure rule

The Financial Industry Regulatory Authority Inc. has postponed action on a controversial proposal to require disclosure of broker recruitment deals to customers.

A notice on Finra’s site said that the regulator’s board would “consider an updated [disclosure] proposal” at its board meeting July 11.

But Finra spokeswoman Nancy Condon said that the regulator’s board pushed off consideration of the rule to a later date, due to tight scheduling.

She had no further information.

The regulator’s board must give its approval before the Finra staff can file rules with the Securities and Exchange Commission.

In January, the industry regulator asked for comments about its initial disclosure proposal.

The plan would require a brokerage firm to disclose to customers the upfront or back-end bonuses, accelerated payouts and other forms of transition assistance given to a new recruit. The disclosure rule would apply to customers who were solicited for a period of one year following that broker’s transfer to the new firm.

The rule, as initially proposed, wouldn’t apply to incentives totaling less than $50,000.

Several hybrid financial advisers said that they want Finra to act on the rule.

“LONG OVERDUE’

“I think it’s very much needed and long overdue,” said Jonathan Heller, founder of JG Heller Private Wealth Advisors Inc.

“Reps get an enormous amount of money, and the [recruiting] firms counsel the adviser to just focus on the positives of the new firm. But in reality, if there’s a multimillion-dollar check involved, clients have no knowledge of that,” Mr. Heller said.

“I’m in full favor of it,” Gerard Gloisten, president of GBS Financial Corp., said about Finra’s proposal.

“The reality is, there are a certain number of reps who hop from firm to firm for the bonus,” he said. “It’s not fair for anyone involved.”

Finra’s initial plan generated more than 60 comment letters. In comments, industry trade groups wrote that they support disclosure but want the proposal narrowed or changed.

The Securities Industry and Financial Markets Association urged Finra to adopt a plain-English disclosure model focusing on potential conflicts.

The National Association of Insurance and Financial Advisors wrote that it wants Finra to increase the compensation threshold for disclosure to $100,000 and decrease the time frame to less than one year.

The Financial Services Institute Inc. wrote that the disclosure should also apply to retention bonuses, as well as to recruiting deals.

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Related Topics: Financial Industry Regulatory Authority, Securities and Exchange Commission