FINRA Proposes Disclosure of All Recruitment Compensation
FINRA has requested comment on a proposal to require member firms to disclose details of all enhanced compensation paid to brokers recruited from another firm. The disclosure would include specific details of any compensation “other than compensation normally paid” to the firm’s existing brokers and would include signing bonuses, back-end bonuses, forgivable loans, accelerated payouts, and transition assistance. Such disclosure would be required for one year to any customer solicited to transfer his/her account or any customer that seeks an account transfer to the new firm. FINRA believes that customers need to understand the reasons the broker is moving the account. FINRA also raised concerns about churning to meet financial goals.
OUR TAKE: We believe most customers already assume that if his/her broker changes firms, the broker has some financial incentive to make the switch. If FINRA’s concern is churning, it already has a rule prohibiting churning. The obvious effect of the proposal will be to make it harder for brokers to move firms.