SEC Chairman Mary Schapiro sent a letter to broker/dealer CEOs on August 31 reminding them of their supervisory obligations under federal securities laws after recent reports arose that some broker/dealer firms may be engaging in special recruiting programs that offer enhanced compensation arrangements.
“Reports suggest some firms are offering substantial inducements to potential registered representatives, including large up-front bonuses and enhanced commissions for sales of investment products,” Schapiro wrote. “In light of these reports, I want to remind broker/dealer firms and their CEOs of the significant supervisory responsibilities you have under the federal securities laws to oversee broker/dealer activities, particularly with respect to sales practices.”
Schapiro went on to say that certain forms of potential compensation may carry with them enhanced risks to customers. As firms’ sales forces grow in size, Schapiro also stressed that “the firm’s supervisory and compliance infrastructure retains sufficient size and capacity.”
While Schapiro’s letter didn’t state which type of broker/dealers she was addressing, most industry officials believe it’s targeted at the large wirehouse firms. Patrick Burns, with the Law Offices of Patrick J. Burns in Beverly Hills, California, writes in his most recent Breakaway Broker newsletter that the wirehouse firms “have had the most aggressive recruitment packages in the broker/dealer arena.” It can be expected, he writes, “that the SEC will be looking at wirehouse firm’s recruitment programs through examinations in the near future.”