Don't make us laugh

At least it started out as a good idea. What it has evolved into, in the words of one industry attorney, is “a joke.” We have to agree with him. What we're talking about is the Financial Industry Regulatory Authority Inc.'s proposal to bring some transparency and clarity to the movement of brokers from one firm to another. Finra's original proposal would have required firms bringing on brokers to inform clients of their previous firms about any incentive package over $100,000. The purpose was to give clients all the necessary information to decide if they want to follow the broker. As it is, brokers rarely mention to clients that they are getting large bonuses to switch employers. They usually just sing the praises of the new firm and ask clients to come along. The proposal was met with a wave of criticism from many in the brokerage industry who were largely looking to protect their own interests, rather than those of the investing public. What did Finra do? It withdrew the proposal. So much for representing the interests of investors. That would have been bad enough, but on Sept. 19 the regulatory body issued a new proposal. Instead of disclosing compensation packages upfront, firms now would be required to issue an “educational communication” to clients from brokers' old firms. This Finra-created form would suggest questions for investors to ask their brokers — one being about any financial incentives they are receiving.

BOORISH BEHAVIOR

Given that it's regarded as boorish in polite society to ask anyone about salaries or bonuses, it is fair to assume that not too many clients are going to quiz their brokers about compensation. Unfortunately, it comes as no surprise that Finra would bow to the demands of the industry that funds it rather than the investing public it claims to protect. “I think the whole thing is a joke,” said attorney Patrick Burns, calling the educational communication form Finra is proposing “an envelope stuffer.” The best thing Finra can do at this point is to rescind the proposal and go back to the drawing board a third time. Maybe it can come up with a policy that makes more sense than this one, though we're not holding our breath.