| March 5
March 5 An influential trade group for the U.S.
securities industry is backing a controversial plan that would
require brokers to tell certain clients about compensation they
receive to join a different firm, according to a letter dated
The Securities Industry and Financial Markets Association
(SIFMA) is concerned, however, about how its key regulator may
require brokerages to explain the details to customers.
The plan, introduced by the Financial Industry Regulatory
Authority, Wall Street's industry funded watchdog, would bring
more transparency to the incentives that brokerages offer
brokers who move to new firms, say Wall Street observers and
"SIFMA supports disclosure of information that is sufficient
to inform an investor of the potential conflicts of interest
when it may arise in connection with recruiting-related bonus
payments," wrote Ira Hammerman, SIFMA's general counsel in a
letter to Wall Street's industry-funded watchdog. The group
represents hundreds of Wall Street firms.
FINRA is discussing a possible rule that would require
brokers to provide details about "enhanced compensation" valued
at $50,000 or more after joining a new firm. FINRA asked for the
public's input about the plan in January. Replies are due on
Supporters of such a rule say it would shed more light on
the brokerage recruiting world, where signing bonuses for top
brokers have become outsized, and conflicts of interest can
arise due to compensation packages. There may be financial
impacts for customers who agree to move firms along with their
brokers, FINRA's chief, Richard Ketchum, has said.
Among them: securities branded with one brokerage's name
often cannot be moved to another. As a result, investors may be
forced to pay commissions to sell branded mutual funds and other
securities to update their portfolios.
While SIFMA does not oppose the measure, it is concerned
about how to convey the information to investors in a way that
makes sense. "The most important and relevant information for
the client is to understand the potential conflict associated
with the payment," wrote SIMFA's Hammerman. The disclosure
should use simple language, Hammerman wrote.
SIFMA is also concerned about a question in FINRA's request
about whether brokers should disclose details about upcoming
recruiting bonuses before they leave their current firms,
Hammerman wrote. That measure would be "unworkable" because the
soon-to-be new firm could not supervise the broker's behavior at
the firm he or she is leaving, Hammerman wrote.
The group's support of the broader disclosure idea, however,
clashes with views of many respondents who vehemently oppose the
idea. Janney Montgomery Scott LLC, for example, believes the
rule would ultimately curb competition among brokerages or limit
compensation, wrote Carrie Chelko, the brokerage's deputy
general counsel for litigation and regulatory affairs, in a
March 1 letter to FINRA.
"It feels like we would be airing our dirty laundry
unnecessarily," wrote Warren Bischoff, who oversees the
Washington, D.C. complex for RBC Wealth Management, a unit of
Royal Bank of Canada in a January 8 letter. "FINRA will
shock clients again and again," Bischoff wrote.
Letters from 35 respondents, not including SIFMA's, appeared
on FINRA's website late Tuesday.
SIMFA's overall support for the measure does not surprise
many securities industry observers who say the disclosures are a
sound ethical practice. "As a professional organization, I don't
see how they can oppose it," said James Fanto, a securities law
professor at Brooklyn Law School in New York.