FINRA’s Proposed Broker Recruitment Bonus Rule Makes Strange Bedfellows

But that’s not all. Gary Sanders, NAIFA vice president for government relations, sets the record straight in his March 1 letter: “The fact that certain incentives were received by the registered representative in connection with such a move should not, in and of themselves, call into question the motivation behind such a move or serve as an indication that any such move was made for any reason other than the best interests of the representative’s clients.” Really? Is that a sentence that could have been written by anyone but a lawyer? If brokers get paid big bucks to change firms, the reasonable presumption should be that the move was made for the clients’ benefit? You just can’t make this stuff up. 

Not to be outdone, our friends at SIFMA brilliantly tied not disclosing the amount of the recruiting bonus with a fiduciary standard for brokers. Ira Hammerman, SIFMA general counsel, writes: “…consistent with SIFMA’s support for a uniform fiduciary standard … SIFMA has a long-standing record of support for disclosure to investors of potential conflicts of interest. In the context of recruiting-related bonus payments, the most important and relevant information for the client is to understand the potential conflict associated with the payment. Accordingly, SIFMA believes that disclosure about the potential conflicts themselves should be the centerpiece of the proposed rule.” After all, investors might be prejudiced into thinking the move to change brokers wasn’t solely for their benefit if they knew the actual amount of the bonus.

After reading these arguments, I can’t help but wonder if I’m on the wrong side of this debate. I guess it’s times like these that really help us measure our convictions. I still believe that disclosing recruiting bonuses is an arbitrary concern intended to reduce recruiting bonuses—and can’t help but think that SIFMA and NAIFA’s lame legal caterwauling is just cover to look broker-centered.