| March 11
March 11 Wall Street's industry-funded watchdog
has asked the U.S. Securities and Exchange Commission to approve
a measure that would require stockbrokers to tell clients about
bonuses they receive when they switch firms, according to a
The Financial Industry Regulatory Authority late Monday,
sent the plan to the SEC, whose approval it needs. The 351-page
proposal will be subject to a public comment period before the
SEC considers and votes on it.
Brokers often receive hefty signing bonuses when moving from
one securities firm to another. Disclosing these payouts would
inform investors asked to follow their broker of a potential
conflict of interest, FINRA Chief Executive Officer Richard
Ketchum has said.
FINRA also said clients would benefit from knowing that
moving their assets to the recruiting firm would affect the
types of securities they can hold or impose new costs, the
regulator wrote in its proposal.
The proposal would apply to recruitment compensation -
including signing bonuses - of $100,000 or more and to future
payments contingent on performance criteria. Brokers and their
firms would not have to disclose exact dollar amounts, but
rather the ranges in which the compensation falls.
The first range would be $100,000 to $500,000, followed by
$500,000 to $1 million, with others increasing incrementally to
$5 million and up.
Brokers and their firms would have to make the disclosure at
the time of their "first individualized contact" with the former
Brokers who contact former clients in writing would have to
provide them with a written disclosure at the same time. Brokers
who instead speak to former customers about switching firms
would have to make the disclosures orally at that time and send
a written disclosure within 10 business days, according to
FINRA's board signed off on the measure in July, clearing
the way for the regulator to formalize the plan and send it to
FINRA began discussion the proposal in late 2012. The idea
set off controversy in the industry about, among other things,
whether customers would fully understand the information and if
the disclosures would discourage clients from following their
brokers to a new firm.
The largest brokerage firms ultimately voiced their support
for the proposal in public letters to FINRA. Many smaller firms,
however, view the plan as a deterrent to business.