Finra warned on bonus disclosure plan

The main trade group representing independent-contractor broker-dealers will soon go public with its concerns about a Financial Industry Regulatory Authority Inc. proposal to require brokers to disclose recruiting incentives.

Although the Financial Services Institute Inc. has yet to file an official comment letter on the proposal, the group has identified three main areas of concern, said David T. Bellaire, the organization’s general counsel.

The rule, which was proposed Jan. 3, would require registered representatives to disclose details of their enhanced-compensation arrangements to any customers that they solicit for a period of one year after changing firms.

Enhanced compensation — which includes signing bonuses, upfront or back-end bonuses, loans, accelerated payouts, transition assistance and similar arrangements — in an amount less than $50,000 wouldn’t have to be disclosed.

In the comment letter it plans to file, the FSI will argue that the $50,000 threshold is “arbitrary,” Mr. Bellaire said last Tuesday at the FSI’s annual meeting.

The proposal also fails to adequately distinguish between bonus compensation and compensation that is more “transitional” in nature, such as automated customer account transfer fees, he said.

Finally, the Finra proposal also overlooks other forms of compensation that present similar conflicts, such as retention bonuses, Mr. Bellaire said.

The comment period for the proposed rule change, which is known as RN 13-02, ends March 5.

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Related Topics: Financial Industry Regulatory Authority, Financial Services Institute Inc. (FSI)