On September 19, FINRA’s Board of Governors approved a proposal that would require brokers to disclose recruitment compensation paid to them as an incentive to move to a new firm. The original proposal stirred a great deal of controversy. The good news is that the final version is significantly scaled back. The SEC must still approve the rule.
“This proposal is about making sure the customer can make a fully informed decision to follow a broker to a new firm and understand the costs associated with transferring his or her account,” said Richard Ketchum, FINRA’s Chairman and CEO.
Under the final proposal, the recruiting firm would have to disclose recruitment compensation, such as signing bonuses, up-front or back-end bonuses, loans, accelerated payouts, and transition assistance, of $100,000 or more, as well as future payments contingent on performance criteria The disclosure would have to be made to any former customer who is contacted about following the broker to the new firm or who decides to transfer assets to the new firm. Disclosure would be in ranges rather than precise dollar amounts
Firms would also have to report to FINRA significant increases in total compensation paid to a newly recruited representative during the first year. A “significant increase” would be 25 percent or $100,000 over the prior year’s compensation, whichever is greater. According to FINRA, this information will be used, among other things, in risk-based examinations targeting sales abuses that may be motivated by the increased compensation.
As always, if you have questions or comments, please call, e-mail or tweet me @Bettina Eckerle.
Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz. She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.
