The Financial Industry Regulatory Authority’s Board of Governors has approved a proposal mandating that brokerage firms disclose how much recruitment compensation they were paid to move to another firm. The rule applies to up-front and back-end bonuses, signing bonuses, accelerated payouts, loans, and transition assistance of $100,000 or greater, as well as future payments upon performance criteria.
While the $100,000 threshold is not going to be relevant for many independent representatives, since the majority of their packages don’t reach this benchmark, this could impact independent brokerage firms with higher forgivable notes of up to 40% and may hurt their recruitment.
Now, it is up to the Securities and Exchange Commission to look at the plan and either give its approval or present the proposal to the public for comment.
If the plan is approved, brokers also would have to tell customers that follow them to their new place of business for a full year after the transfer about their recruitment package. In addition to the disclosure duty, FINRA would have to be notified of any total compensation increases that are “significant” to be paid to representatives that are newly recruited.
Also, firms would have to tell customers about the compensation being paid to transferring representatives according to range—from $100k to $500K and $500K to $1M, and upward. They would need to disclose whether expenses would go up if a customer opted to move its assets to the new firm, as well as if there were assets that would not be transferrable. FINRA is hoping that such reporting will help identify sales abuses that could be motivated by a rise in compensation, as well as help provide information about any rulemaking over compensation incentives.
The SSEK Partners Group represents institutional investors that have suffered losses due to broker fraud. The incentive of more compensation is one reason that securities misconduct can arise. Please contact our stockbroker fraud law firm today.
FINRA Broker Bonus Plan Would Be ‘Nonevent’ for Many Reps: Henschen, ThinkAdvisor, September 19, 2013
FINRA tightens screws on Wall Street broker bonus disclosures, Reuters, September 19, 2013
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Imperial Petroleum Charged by SEC with Defrauding Investors, Stockbroker Fraud Blog, September 18, 2013
Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013
Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013
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