| NEW YORK, March 26
NEW YORK, March 26 A plan to compel brokers to
disclose their signing bonuses could prompt some brokers to make
the leap to a new firm ahead of the passage of the rule, which
would force them to reveal how much they'd reap for the switch.
The rule proposed by Wall Street's top regulator, the
Financial Industry Regulatory Authority (FINRA), shines a
spotlight on the lucrative signing packages, offered to top
advisers, which have scaled new highs over the past year.
Many in the industry believe the proposal - which needs
approval by the U.S. Securities and Exchange Commission - could
go into effect over the next year or two.
"Now is not a pleasant time to disclose to clients, 'Hey, I
just got half-a-million bucks to move across the street'," said
Beverly Hills-based securities industry lawyer, Pat Burns, who
works with advisers transitioning during a move.
The sky-high bonuses offered by some Wall Street firms could
become a touchy subject to discuss with clients, who may feel
the brokers, as a result of the generous bonuses they just
received, should offer them lower fees going forward.
Industry recruiters say they have seen little concern from
advisers at this stage in the proposal process, as FINRA
undergoes a review of dozens of comments about the controversial
proposal. But they expect to be fielding more questions from
advisers once they get more clarity around the details of the
proposal and a specific date about when the rule takes effect.
Advisers considering a move to a new firm may want to
finalize their plans before the disclosure rule goes into
effect, some industry recruiters and lawyers say, to avoid
uncertainty in the moving process. But that should not be the
main motivating factor, they say.
"If you are considering a move, does it take one more thing
out of the equation of things that you'll have to overcome? Yes
- but I don't view it as something that should drive your
decision," said Mark Albers, a former Merrill Lynch complex
manager who now runs his own consulting firm, Albers &
Associates Consulting, in Torrance, California.
"What should drive your decision is your client, and how you
take of your client," Albers said. "Is your firm healing or
hurting you? That should be driving your decision."
Leaving before regulators possibly approve a requirement to
disclose signing bonuses to customers eliminates at least one
headache from the process, said Brent Burns, a lawyer in Alpine,
New Jersey. Among his concerns were that disclosing a large
bonus figure to clients may mislead in the absence of other
details, such as financial incentives for advisers who may
service their account at the old firm.
"This is not the time to procrastinate," said Burns, who
noted that brokers who are planning a move should do so for all
the usual reasons, including better compensation to a broader
suite of products to sell.
Many brokers are simply embarrassed about having to disclose
their bonuses, said Tom Lewis, a lawyer for Stark & Stark in
Princeton, New Jersey who represents brokers in transitions.
"It's hard for a lot of people to stomach it," Lewis said.
There will likely be "a rush to the finish line" after FINRA
releases the proposal it sends to the SEC for approval. That
could happen as soon as June - the time frame that FINRA is
aiming for, the regulator's chief has said.
Lewis is skeptical of a view among many recruiters that
disclosing a plump bonus figure will have a certain cache among
clients - by showing their adviser is in demand. Clients may, in
fact, resent the knowledge and feel entitled to discounted fees
going forward, he said.
"If, all of a sudden, you just got $4 million to move across
the street, some clients would be savvy enough to say, instead
of paying you 100 basis points, how about I pay you 80 basis
points," said Pat Burns, the Beverly Hills-based lawyer.
The question, for many advisers, is not whether FINRA will
require disclosing bonuses, but when.
That recently became more evident when the four largest U.S.
retail brokerages filed comment letters with FINRA voicing their
support of the plan. The proposal was also earlier backed by the
Securities Industry and Financial Markets Association.
FINRA's chairman and chief executive, Richard Ketchum, needs
little convincing that the disclosure is necessary. Signing
bonuses may generate "reasonable questions" among clients, he
said in an interview with Reuters in February.
"Is it a good idea to know that one of the reasons why your
financial adviser moved firms is not just because they provide
better services and products, but also because she is being
paid, as a result of her sales during the past year, millions of
dollars?" Ketchum asked. "Frankly, if it was my account, I'd be
interested in knowing."
But the lack of clarity around the plan, which at this point
only specifies that brokers provide details about "enhanced
compensation" valued at $50,000 or more after joining a new
firm, has many in a wait-and-see mode.
"I'd bring it up if we had a specific date," said New
York-based financial services recruiter Rich Schwarzkopf. "If I
were talking to a $1 million broker and there's a lot of money
involved, then sure, I'd bring it up, because I'd want to inform
them anyway ... We might move it up a week, but it's not a major
Ultimately, the decision to move will come down to the
individual adviser and their particular situation, industry
experts say. If moving just a week ahead eliminates any
lingering uncertainty, some advisers will jump at the
"There are some advisers that have been thinking about it,
and this is going to prompt them to move sooner," Albers said.
"They don't know what the change is going to look like...
(moving ahead) just adds a little bit more certainty to an
(Additional reporting by Jed Horowitz; Editing by Chelsea Emery
and Bernadette Baum)