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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Moving Firms Maybe Getting More Difficult and Possibly Anti-Competitive?

Posted in Broker-Dealer Regulation, Financial Industry Trends, FINRA Compliance, Raiding/Moving Firms

The FINRA Board of Governors is considering implementing new rules that will require brokers to disclose their compensation when they move firms.

In many respects, this will cause issues for those who move firms periodically to obtain bonuses and other compensation increases.  These brokers will be required to disclose to their clientele what their compensation package is, and if has anything to do with the move.   See http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p197599.pdf

Many suggest that such changes, if approved by FINRA, will cause some persons to move to the registered investment advisor framework.  Further, some persons have accused FINRA of entering into a sphere where it need not go.  Moreover, some conspiracy theorists have argued that FINRA is being forced to consider these measures, not for the protection of customers, but, to provide an anti-competitive benefit to FINRA members.  That is, if this information need be disclosed, it could have a chilling effect on brokers switching firms, and, thus, provides a competitive advantage to the current employer.  Essentially, this mechanism, if approved, could lead to compensation being reduced with firms profiting at the expense of their employees.  In any event, the FINRA Board of Governors voted in favor of proposing these new rules, and the comments have already begun to roll-in.

Importantly, we should note that not every broker moves for the money and bonuses.  Many brokers move firms because the new firm provides a better platform for their clientele, and ensures better execution and services for their clients.  Additionally, some firms have internal issues that cause these brokers to leave their firms– not the size of the bonus. 

We shall monitor the process and report periodically on its status.