For the record, let me just say that I was for SIFMA’s and NAIFA’s position before I was against it. I’m talking about the responses of two of my favorite trade organizations to FINRA’s proposal to require the disclosure of the bonuses that brokers are paid to change firms. In the interest of full disclosure, my Jan, 11, 2013 blog clearly stated that I thought FINRA’s proposed rule change was a dumb idea: If brokers and their firms had to start disclosing the payments and fees that created conflicts with their clients, the list would be virtually endless.
But I have to admit that my resolve started to waver when I read that in their comment letters to FINRA, both SIFMA and NAIFA agree with me. Yikes! Fortunately, their reasoning is so typically convoluted that I can at least take issue with their arguments, if not their conclusion.
(See Melanie Waddell’s latest article on the broker recruitment proposal.)
As best as I can tell, both organizations are arguing that FINRA is barking up the wrong tree because recruiting bonuses do not always present a conflict of interest. As a non-lawyer I may be a bit fuzzy on the legalities here, but it’s my understanding that both SEC and FINRA regs identify areas of potential conflicts of interest, and then require disclosure of each occurrence, so that investors can make up their own minds about their comfort level with the specific circumstances. That would be the time for the broker or their firm to point out why they believe that no material conflict exists. Then their clients could be the judges. If the standard for disclosure was that a circumstance always created a conflict, it’s doubtful if anything would qualify for disclosure (even some proprietary products are less profitable than their alternatives).