Jan 8 Securities brokers will have a hard time
convincing the head of Wall Street's watchdog that their clients
don't need to know about generous signing bonuses they accept to
The Financial Industry Regulatory Authority is considering a
proposal requiring the disclosure of signing bonuses, a move
that is opposed by some in the industry.
Such a rule 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
"There is a very real impact for investors of moving from
firm to firm," Richard Ketchum, FINRA's chairman and chief
executive, told Reuters in an interview on Tuesday. 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
That makes it difficult to think of a reason why investors
would not want to know that their brokers were paid a lot of
money to switch firms, Ketchum said.
Last week, FINRA asked the public to submit comments about
the idea, which would require brokers to provide details about
"enhanced compensation" valued at $50,000 or more after joining
a new firm.
Ketchum wants FINRA to iron out a final proposal during the
next six to eight months.
FINRA, which is funded by brokerages, is considering the
proposal as its examiners take a broader look at conflicts of
interest at brokerages and controls to keep them in check. Those
include compensation that may motivate brokers to push certain
securities to investors.
What's more, incentive compensation could potentially drive
some brokers to sell new products unnecessarily so they can
justify their move to the firm and clients who came along,
That doesn't mean bonuses are wrong or that FINRA wants to
hamper brokers from getting a better deal for their skills,
Ketchum added. "We live in a capitalist society and people are
free agents. They deserve to move to better situations," Ketchum
FINRA, which has been pressing brokerages for details about
managing conflicts tied to broker compensation and other issues,
has been discussing the disclosure plan with firms since late
2012. [ID nL1E8MTALK]. It will continue this push through 2013,
The regulatory notice published last week asking for
comments on the proposal provides the most explanation to date.
FINRA's proposal requires brokers to provide details about
signing bonuses, along with annual bonuses and those based on
production while at a firm. The disclosure plan would also cover
"transition assistance" such as moving expenses and office
furniture provided by the new firm.
Under the proposal, brokers would have to disclose the
details for one year after a move.
Signing bonuses for top brokers have become outsized over the
past year, recruiters and industry lawyers say. At top firms,
brokers are receiving 160 percent to around 195 percent of their
annual trailing revenue production to switch employers.
Compensation is typically structured as forgivable loans, with a
percentage of the loan forgiven annually, often during a seven
to ten-year term.
FINRA is seeking Wall Street's input on the plan, including
details about the method of disclosure and whether FINRA should
substitute a different amount for the $50,000 exception.
FINRA also wants to know if the disclosure rule should apply
to all customers recruited by brokers during the first year at
their new firms, instead of focusing solely on previous clients.
Comments are due by March 5.