Schapiro Warns Firms that Engage in “Vigorous Recruiting Programs”
SEC Chairman Mary Schapiro issued an open letter to broker-dealer CEOs encouraging them to be “particularly vigilant” in monitoring sales practices after “engaging in vigorous recruiting programs” that might induce recruited brokers to engage in unlawful conduct. Ms. Schapiro indicated that “recent press articles” indicate that firms are offering “substantial inducements” to potential recruits that might encourage them to engage in churning and unsuitable recommendations in order to hit commission targets. Ms. Shapiro also warned firms to ensure the sufficiency of the firm’s compliance and supervisory structure as a firm’s sales force expands.
OUR TAKE: Aren’t all brokers paid on commission? Don’t they all have incentives to meet sales targets? We suppose that firms mentioned in “recent press articles” as engaging in a “vigorous recruiting program” are now on notice that the SEC may be coming soon for a visit. Will firms that lose brokers now have an incentive to report their raiding competitors to the SEC?