Firms use looming bonus disclosure rule to turn up the heat on recruits

Some managers are telling prospects that they should consider moving now, while the terms of deals are still private

May 8, 2014 @ 3:05 pm

By Mason Braswell

Strike while the iron is hot and the deals are still private. That's the message some branch managers are sending to prospective recruits.

A proposed Finra rule requiring brokers to disclose recruiting bonuses to clients is still awaiting approval by the Securities and Exchange Commission, but managers at brokerage firms already are taking the opportunity to reach out to potential recruits, encouraging them to make the move before it goes into effect.

“There's no doubt that it's happening,” Danny Sarch, a career consultant with Leitner Sarch Consultants, said of the practice. “I think it's a scare tactic that they use.”

The Financial Industry Regulatory Authority Inc.'s proposed rule, which was sent to the SEC in March, would affect advisers who are paid more than $100,000 to move, requiring them to disclose that compensation to clients, in addition to any fees that the clients may incur as a result of the transition.

Some critics have said that could lead to some awkward conversations with clients and make advisers' transitions more difficult. But the timing of any final rule is still uncertain as many of the large firms have written to the SEC to say that the rule is impossible to enforce as it is currently written.

Meanwhile, complex managers at large brokerage firms are telling some branch managers to tell prospective recruits that the rule could be made final as early as Labor Day, according to a branch manager at Wells Fargo Advisors who spoke on condition of anonymity.

The move was designed to “put the squeeze on exiting brokers,” the manager said.

A Wells Fargo spokeswoman, Rachelle Rowe, declined to comment.

In another instance, Ameriprise complex manager Matthew Davis in Boston sent a letter to the home of a local UBS Wealth Management Americas adviser that had the text of Finra's proposed rule attached and warned of the “impact this impending rule could have on your potential transition.”

“I'm writing to let you know that this disclosure rule has a new name, Finra 2243, and is one step closer to reality,” Mr. Davis wrote in the letter, which was reviewed by InvestmentNews. “With tax season behind us, the timing for us to meet is as good as it's ever going to be.”

Ameriprise spokesman Chris Reese said in a statement that the letter was not a scare tactic, and was meant to be educational.

“Since 2008, we've helped more than 2,000 experienced advisers transition to our firm,” he said. “We know that helping advisers understand the landscape and regulatory changes leads to a smooth transition for their practice and their clients.”

Rick Rummage, a career consultant with the Rummage Group, said that he had heard of recruiters who brought it up to put pressure on advisers when the rule first came out.

“Advisers would sometimes call me and bring it up that they got a call from a recruiter using that, saying, 'You have to move,'” Mr. Rummage said.

Recruiters interviewed for this story denied using the tactic.

“It strikes me as desperation,” Mr. Sarch said. He said that he generally brings the disclosure rule up only as a matter of making sure that advisers understood the potential impact.

“I don't think it's going to be as big of a deal,” he said.

Mr. Rummage estimated that only about one in 10 advisers who are considering moving are worried about it.

Most advisers should be able to handle the conversations with clients if the rule ended up being implemented, according to Andrew Parish, founder of AdvisorHub Inc.

“It's going to be a Y2K event,” Mr. Parish said. “Everybody will make a lot of noise about it. But the reality is that if you have good relationships with clients, there's probably a good portion that will be impressed you're making a move.”

“[Managers and recruiters] are definitely using it,” he added. “But do I think that it is a tactic that has much impact? No.”

Finra spokeswoman Michelle Ong did not respond to a request for comment.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Advisers on the Move

Does your pay stack up?

The Adviser Research Dashboard

Based on data collected through InvestmentNews' annual adviser research studies, this interactive, customizable tool allows you to view detailed data on compensation, staffing and financial performance practices from across the industry.

Learn more »

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

Events

What's the first thing advisers should do when they get home from a conference?

After attending a financial services conference, advisers can be overwhelmed by options, choices and tools. What's the first thing they should do when they get back to their office?

Latest news & opinion

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print