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What To Make Out Of FINRA’s Proposed Rule On Bonus Disclosures

Posted in Broker-Dealer Regulation, Conflicts of Interest, FINRA Compliance, SEC Compliance

Bonuses and other forms of compensation are frequently used by one firm to attract talent away from another firm.  FINRA has now proposed a rule that would require brokers who receive in excess of $100,000 to disclose that payment to their customers.  Does this make any sense? 

FINRA’s rationale for the rule is that it would clarify potential costs that customers incur when they move their accounts from one member firm to another.  FINRA cited, for example, costs to close the account at the first firm, as well as tax consequences associated with the liquidation of investments that are not transferable.idea.jpg 

This rationale does not make much sense when considered more fully.  These so called costs should be disclosed to a customer who closes an account regardless of the reason.  Tying it to compensation paid to a broker who intentionally fails to advise her client about costs rings a bit hollow for a justification. 

The opposing view to this rule is that it will have a chilling effect on the movement of registered representatives.  After all, who would want their clients knowing how much they were paid to move from one firm to another. 

In my view, if registered representatives are honest with their clients about the costs associated with closing and moving an account, there would be no need for this rule.  It unfortunately seems as though FINRA is letting the actions of the minority impact the majority of brokers who move firms.  FINRA and the SEC should do more to weed out the bad seeds rather than punish those who are honest with their clients.

 

* photo from freedigitalfotos.net