(Adds commentary, background)
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Regulatory Authority has withdrawn a proposal that would require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
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
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)