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By Jed Horowitz and Elizabeth Dilts
NEW YORK, June 23 The Financial Industry Regulatory Authority has withdrawn a proposal that would require brokers to disclose to customers signing bonuses and other compensation they receive to move to a new firm, but it plans to refile it later this year.
FINRA, as the brokerage industry self-regulator is known, asked the Securities and Exchange Commission on Friday to withdraw consideration of the rule that it had submitted on March 10, 2014.
"The proposal generated 184 comment letters, and due to the rigid time lines ... by which the SEC must act on a proposal, FINRA did not believe it could fully address the comments within those time frames," spokesman George Smaragdis wrote in an email to Reuters.
The long-discussed proposal has been attacked by some brokerage firms and headhunters who feared that brokers, embarrassed at having to tell clients their compensation and bonuses, might be less inclined to move firms.
Regulators have warned that lucrative recruiting deals may encourage excessive trading behavior and sales abuses by brokers keen to prove their worth. However, some brokerage firms and headhunters said FINRA has not cited any evidence that brokers who accept bonuses are more prone to abuse than others.
In an interview last week at Reuters Wealth Management Summit, FINRA Chairman and Chief Executive Richard Ketchum conceded the point and hinted at a delay.
"I'm not aware of anything statistically that finds (abuse) one way or the other," he said.
But he said the rule is in keeping with FINRA's mandate to protect investors. The problem with the rule, he added, was procedural because the Dodd-Frank Act has tightened the timeframe in which the SEC must act on rule proposals. "Having the SEC turn that around in 45 days is hard," Ketchum said.
FINRA's board initially approved the rule in September. It would require brokers to disclose signing bonuses, loans, accelerated payouts, transition assistance and deferred payments that total at least $100,000 or more to customers whom they ask to move with them. They do not have to disclose exact amounts but must give bands of pay.
In the tussle for recruiting top talent in recent years, some of the largest brokerage firms such as Morgan Stanley , Bank of America's Merrill Lynch and UBS AG's Wealth Management Americas unit have paid as much as $3 million to a broker, often over many years.
Several headhunters and firms have been trying to coax brokers to move before the disclosure takes effect. Ameriprise Financial Inc, which has been on a campaign to rapidly grow its brokerage force, has mailed recruitment letters to financial advisers at rival firms mentioning the short time window before the disclosure rule would likely take effect.
Some brokerage firms have welcomed the proposal, saying it would stop expensive recruiting wars. Others expressed concern over the difficulty of quickly compiling and publishing all the details that FINRA was asking for in its proposal.
Morgan Stanley, the biggest U.S. broker with almost 17,000 advisers, believes that high broker turnover is "inconvenient for clients" while expensive recruiting wars end up as a tax on shareholders, Chief Executive James Gorman said in a conference call with analysts last year. (Reporting by Jed Horowitz and Elizabeth Dilts; Editing by Dan Grebler and Jonathan Oatis)