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FINRA to Revisit Recruitment Disclosures of Brokers

Brokers/dealers could soon be forced to reveal recruiting incentives to their clients if the Financial Industry Regulatory Authority (FINRA) has anything to say about it.

As reported Sept. 15 by Investment News, the proposed regulation will be a topic of discussion on FINRA’s agenda this week. Under the original proposal that was developed in January and then postponed for action by FINRA’s board in July, brokers would be required by FINRA to disclose any enhanced recruitment compensation to clients that they had solicited for one year following their transfer to a new firm. The compensation outlined in the proposal included signing bonuses, upfront or back-end bonuses, loans, accelerated payouts and transition assistance, among other arrangements.

According to the Investment News article, FINRA CEO Richard G. Ketchum said the proposed rule is designed to make potential conflicts of interest more transparent to consumers.

Indeed, in a speech given March 14, Ketchum stated that investors have a right to be informed of conflicts involving recruitment packages when deciding to move their account, especially if that decision translates into having to sell off proprietary products and incurring a possible tax hit.

“When a broker moves to a new firm and calls a customer and says, ‘You should move your account with me because it will be good for you,’ the customer needs to know all of the broker’s motivations for moving,” Ketchum said.

The initial proposal generated 65 comment letters, with many independent broker/dealers voicing opposition. If FINRA’s board now gives its approval to the proposal, FINRA staff can then file rules with the Securities and Exchange Commission (SEC).

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