More On Legal & Compliancefrom The Advisor's Professional Library
- Pay-to-Play Rule Violating the pay-to-play rule can result in serious consequences, and RIAs should adopt robust policies and procedures to prevent and detect contributions made to influence the selection of the firm by a government entity.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Brokers should only be required to disclose their recruitment compensation packages to clients when there is a potential conflict of interest, the Securities Industry and Financial Markets Association told FINRA Tuesday.
Securities lawyer Patrick Burns (right) told AdvisorOne Wednesday that with SIFMA's support, FINRA’s “proposal’s chances of becoming a new rule seem to be a done deal.”
Responding to the Financial Industry Regulatory Authority’s request for comment on its controversial proposal under Regulatory Notice 13-02 to require that brokers’ recruitment compensation be disclosed when they switch firms, SIFMA told FINRA in its March 5 comment letter that “enhanced compensation paid to a registered representative as a recruitment incentive, when a conflict of interest, should be the centerpiece of the proposed rule.”
FINRA’s proposed rule states that “customers would benefit from being told the material conflicts arising from a registered person being paid recruiting incentives to change firms.”
SIFMA says it believes that, at key moments in the investment process, “investors need clear, targeted and understandable disclosure on key factors” to make properly informed investment decisions. SIFMA says it “supports disclosure of information that is sufficient to inform an investor of the potential conflicts of interest when it may arise in connection with recruiting-related bonus payments.”
Ira Hammerman, SIFMA’s senior managing director and general counsel, added in the comment letter that “A tenet of a uniform fiduciary standard of care for both registered representatives and registered investment advisors is necessary and adequate disclosure. Investors should know up front about any potential conflicts of interest, and those disclosures should be in clear, plain English.”
The letter said SIFMA opposed requiring brokers to disclose recruitment packages while still associated with their prior firm, calling such a meaure "unworkable."
Out of all the comment letters regarding the proposed rule—which didn’t include any from the wirehouses—Burns told AdvisorOne that SIFMA’s “carries the most weight,” and that with SIFMA’s support, “a rule in this area seems to be a foregone conclusion.”
“The only thing to be worked out is the details of the rule,” he said.
Burns added that the absence of any comments from the wirehouses was “puzzling, unless you take the view they wanted this rule passed to save money on the massive costs they incur with recruitment deals.”
Burns also noted a recent interview in which Richard Ketchum, FINRA's CEO, said that after the comment period closed—which happened Tuesday—he expected FINRA would promptly request Securities and Exchange Commission approval of the plan.
Check out more stories on Broker Bonuses at AdvisorOne.