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

May 8, 2014 @ 3:05 pm

By Mason Braswell

Finra, wirehouses, recruiting, Ameriprise
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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.

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