FINRA’s Broker Bonus Rule Seen as ‘Done Deal’ With SIFMA OK

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.”