Much of the feedback the
Financial Industry Regulatory Authority Inc. received on its proposal to require brokers to disclose recruiting compensation incentives was negative. One of the few pro-disclosure comments has a lot of clout, however.
The proposal's endorsement by the Securities Industry and Financial Markets Association could propel the rule to finalization — a move that might reduce personnel costs for SIFMA's wirehouse members, according to industry observers.
“Conceptually, it appears that it is a done deal,” said Patrick Burns, managing attorney at the Law Offices of Patrick J. Burns Jr. PC, referring to the rule proposal. “There's a school of thought out there that maybe [wirehouses] are not opposed to this because they're going to save a lot of money in recruitment and retention deals.”
None of the wirehouses —
Bank of America Merrill Lynch, Morgan Stanley,
UBS Wealth Management Americas or
Wells Fargo & Co. — filed comment letters with Finra before the Tuesday deadline. But their main lobby, SIFMA, did.
In a letter released Tuesday, SIFMA came out in support of the proposed rule, which would require a broker to disclose incentives — including signing bonuses, upfront or back-end bonuses, loans, accelerated payouts and transition assistance, among other arrangements — to anyone they solicit as a client for one year following their transfer to a new firm. The rule does not apply to incentives totaling less than $50,000.
Ron Edde, director of financial adviser recruiting at Millennium Career Advisors Inc., speculated that the wirehouses have an interest in promoting the rule.
“They each know that it would be suicidal to be the first to stop [offer recruiting bonuses] unless they had assurance the others would soon follow suit,” he said “If Finra does pass this rule, I promise you those bonuses will go away.”
But Ira Hammerman, the trade group's managing director and general counsel, denied that wirehouse influence had anything to do with it.
“SIFMA's position on this proposal is based upon the guiding principle that retail customers should have the benefit of disclosure of material conflicts of interest," he said. "We believe the FINRA proposal was issued for this purpose as well.”
In SIFMA's comment letter, Mr. Hammerman also wrote that SIFMA's stance reflected its support of a uniform fiduciary duty and its requirement to disclose conflicts.
One of the people who filed a comment letter in opposition to the rule said that wirehouses' motive is to make it harder for heavy hitters to leave.
“They don't want their big producers stolen. So of course they would want this rule,” said Peter Chepucavage, general counsel at Plexus Consulting Group LLC.
Merrill Lynch and
Wells Fargo did not immediately respond to requests for comment.
