March 26, 2013 / 4:26 PM / 5 years ago

Making the jump ahead of bonus-disclosure rule

NEW YORK (Reuters) - A plan to compel brokers to disclose their signing bonuses could prompt some brokers to make the leap to a new firm ahead of the passage of the rule, which would force them to reveal how much they’d reap for the switch.

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

The rule proposed by Wall Street’s top regulator, the Financial Industry Regulatory Authority (FINRA), shines a spotlight on the lucrative signing packages, offered to top advisers, which have scaled new highs over the past year.

Many in the industry believe the proposal - which needs approval by the Securities and Exchange Commission - could go into effect over the next year or two.

“Now is not a pleasant time to disclose to clients, ‘Hey, I just got half-a-million bucks to move across the street’,” said Beverly Hills-based securities industry lawyer, Pat Burns, who works with advisers transitioning during a move.

The sky-high bonuses offered by some Wall Street firms could become a touchy subject to discuss with clients, who may feel the brokers, as a result of the generous bonuses they just received, should offer them lower fees going forward.

Industry recruiters say they have seen little concern from advisers at this stage in the proposal process, as FINRA undergoes a review of dozens of comments about the controversial proposal. But they expect to be fielding more questions from advisers once they get more clarity around the details of the proposal and a specific date about when the rule takes effect.


Advisers considering a move to a new firm may want to finalize their plans before the disclosure rule goes into effect, some industry recruiters and lawyers say, to avoid uncertainty in the moving process. But that should not be the main motivating factor, they say.

“If you are considering a move, does it take one more thing out of the equation of things that you’ll have to overcome? Yes - but I don’t view it as something that should drive your decision,” said Mark Albers, a former Merrill Lynch complex manager who now runs his own consulting firm, Albers & Associates Consulting, in Torrance, California.

“What should drive your decision is your client, and how you take of your client,” Albers said. “Is your firm healing or hurting you? That should be driving your decision.”

Leaving before regulators possibly approve a requirement to disclose signing bonuses to customers eliminates at least one headache from the process, said Brent Burns, a lawyer in Alpine, New Jersey. Among his concerns were that disclosing a large bonus figure to clients may mislead in the absence of other details, such as financial incentives for advisers who may service their account at the old firm.

“This is not the time to procrastinate,” said Burns, who noted that brokers who are planning a move should do so for all the usual reasons, including better compensation to a broader suite of products to sell.

Many brokers are simply embarrassed about having to disclose their bonuses, said Tom Lewis, a lawyer for Stark & Stark in Princeton, New Jersey who represents brokers in transitions.

“It’s hard for a lot of people to stomach it,” Lewis said.


There will likely be “a rush to the finish line” after FINRA releases the proposal it sends to the SEC for approval. That could happen as soon as June - the time frame that FINRA is aiming for, the regulator’s chief has said.

Lewis is skeptical of a view among many recruiters that disclosing a plump bonus figure will have a certain cache among clients - by showing their adviser is in demand. Clients may, in fact, resent the knowledge and feel entitled to discounted fees going forward, he said.

“If, all of a sudden, you just got $4 million to move across the street, some clients would be savvy enough to say, instead of paying you 100 basis points, how about I pay you 80 basis points,” said Pat Burns, the Beverly Hills-based lawyer.

The question, for many advisers, is not whether FINRA will require disclosing bonuses, but when.

That recently became more evident when the four largest U.S. retail brokerages filed comment letters with FINRA voicing their support of the plan. The proposal was also earlier backed by the Securities Industry and Financial Markets Association.

FINRA’s chairman and chief executive, Richard Ketchum, needs little convincing that the disclosure is necessary. Signing bonuses may generate “reasonable questions” among clients, he said in an interview with Reuters in February.

“Is it a good idea to know that one of the reasons why your financial adviser moved firms is not just because they provide better services and products, but also because she is being paid, as a result of her sales during the past year, millions of dollars?” Ketchum asked. “Frankly, if it was my account, I’d be interested in knowing.”


But the lack of clarity around the plan, which at this point only specifies that brokers provide details about “enhanced compensation” valued at $50,000 or more after joining a new firm, has many in a wait-and-see mode.

“I’d bring it up if we had a specific date,” said New York-based financial services recruiter Rich Schwarzkopf. “If I were talking to a $1 million broker and there’s a lot of money involved, then sure, I’d bring it up, because I’d want to inform them anyway ... We might move it up a week, but it’s not a major issue.”

Ultimately, the decision to move will come down to the individual adviser and their particular situation, industry experts say. If moving just a week ahead eliminates any lingering uncertainty, some advisers will jump at the opportunity.

“There are some advisers that have been thinking about it, and this is going to prompt them to move sooner,” Albers said. “They don’t know what the change is going to look like... (moving ahead) just adds a little bit more certainty to an uncertain process.”

Additional reporting by Jed Horowitz; Editing by Chelsea Emery and Bernadette Baum

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