More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
Three of the major wirehouses—Merrill Lynch, Morgan Stanley and UBS—have given their OK to the Financial Industry Regulatory Authority’s plan to require that brokers’ recruitment compensation be disclosed when they switch firms.
Merrill Lynch and UBS weighed in late on March 5, the day the comment period expired on FINRA’s request for comment under Regulatory Notice 13-02, while Morgan Stanley didn’t comment until Monday.
Merrill told FINRA that “disclosure of enhanced compensation makes investors aware of potential conflicts, and, through this transparency, can lead to enhanced investor confidence and trust.”
Morgan Stanley Wealth Management said that it fully supported "the uniform disclosure of firms' recruiting compensation arrangements as outline in [FINRA's] rule proposal."
The Securities Industry and Financial Markets Association told FINRA on March 5 that brokers should only be required to disclose their recruitment compensation packages to clients when there is a potential conflict of interest.
Securities lawyer Patrick Burns (right) told AdvisorOne in a previous interview that “with the support of SIFMA,” FINRA’s “proposal’s chances of becoming a new rule seem to be a done deal."
Now that the wirehouses have weighed with their support, “I don’t see why [a rule] won’t move forward,” Burns told AdvisorOne on Thursday.
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 “FINRA believes 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.”
Burns told AdvisorOne in early March that with SIFMA’s support, “a rule in this area seems to be a foregone conclusion,” with “the only thing to be worked out is the details of the rule.”
Read FINRA’s Broker Bonus Rule Seen as ‘Done Deal’ With SIFMA OK on AdvisorOne.