By Chuck Epstein
The Financial Industry Regulatory Authority
has temporarily withdrawn a proposal that would have required brokers to inform clients about recruitment bonus and other incentives.
Rule 2243 would have required brokers to verbally inform clients about their incentives and then follow up with a written notice within 10 days of the initial contact.
A FINRA spokesman said the agency would re-file a new version of the rule later this year.
The 350-page proposed rule, which was sent to the SEC
for its approval in March, received 184 comment letters.
Some of the comment letters said clients would not understand the disclosures or would not want to follow their clients to their new firms. Other letters, such as one by an industry trade association, said they did not want to disclose how much an exiting broker would receive at their new firm since it could violate private, non-disclosure agreements.
The Securities Industry Professional Association, which represents 23,000 registered reps, objected to the rule because it would increase regulation and make it more difficult for compliance officers “to establish and implement at their firm, thus it will take even more time away from their duties of protecting customers and making sure their investments are consistent with their stated investment objective of their New Account form.”
Oddly, the SIPA also said it is concerned “brokers will become the targets of blackmail, extortion (fraud) and more when certain clients receive notice that their representative has been compensated in excess of $50,000. We are concerned that unscrupulous clients and or their attorneys may use a large bonus as a way to extort money from brokers.”
Alternately, the benefit of fiduciary responsibility and full disclosure was raised by Gary P. Ruchin of Vernon, Connecticut, who wrote:
Clients and prospects need to know about this payment as I think it taints the professionalism and in many cases the fiduciary responsibility of all parties involved. I do not think the American investing public is even aware of this practice and the disclosure of this needs to be done in an open manner so the investing public is aware of this additional compensation paid to the registered representative for making a move to another firm. The investing public needs to be aware of all factors as it may relate to investment recommendations made by all registered representatives.
Another comment in favor of the disclosure provisions came from came from Troy E. Bute, Capstone Financial Advisors, Downers Grove, Illinois, who said:
“It doesn't seem to be asking too much to require that an investment advisor disclose to his or her clients how they are being compensated if part of their advisor's compensation is determined by whether or not the client moves their investment assets to the advisor's new firm. Clients should be allowed to be in a position to ask the appropriate questions of their advisors anytime, especially if their advisor changes firms.”
Originally published on BenefitsPro.com