FINRA Revives Broker Bonus Disclosure Plan

FINRA Board to also mull other ‘important considerations for a customer deciding whether to follow the rep to the new firm’

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  • 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.
  • Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIA’s failure to stay within the scope of the Section 28(e) safe harbor may violate the advisor’s fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients’ transactions.

A revised plan to require that brokers’ recruitment compensation be disclosed when they switch firms will be considered at the Financial Industry Regulatory Authority’s Sept. 19 board meeting.

FINRA CEO Richard Ketchum said in late May that FINRA’s broker bonus disclosure plan would be brought up at the self-regulator’s July 11 board meeting. However, a FINRA spokesperson said in mid-July that “due to scheduling considerations,” the rule had been pushed to a later date.

FINRA said late Wednesday that disclosures related to recruitment practices and account transfers would be one of the four rulemaking items discussed at the meeting.

The board will consider an updated proposal to require disclosure of compensation a registered representative receives in connection with changing firms and other important considerations for a customer deciding whether to follow the representative to the new firm."

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