The Financial Industry Regulatory Authority announced Thursday that its Board of Governors approved a proposal requiring brokers to disclose recruitment compensation paid to them as an incentive to move to a new firm.
The regulator raised the threshold of payments that would need to be reported. The rule would apply to recruitment compensation — including signing bonuses, up-front or back-end bonuses, loans, accelerated payouts, and transition assistance — of $100,000 or more, and to future payments (trade-based or asset-based) contingent on performance criteria.
Earlier this year, FINRA proposed a $50,000 threshold. Jon Henschen (right) of the BD recruiting firm Henschen & Associates calls the change a “positive” development.
“This higher amount will make this a nonevent for many of the independent reps making moves since most of the independent packages fall under this benchmark,” he says.
However, he adds, “for those independent broker-dealers that offer higher forgivable notes up to 40%, this [higher disclosure amount] will have a negative impact on recruiting efforts. But for the firms that stick to notes in the 10%-20% range, or for the majority of firms that only cover initial transition expenses, this will have little to no impact on daily recruiting efforts.”
The proposal will be submitted to the Securities and Exchange Commission for review and approval. The SEC could then put the proposal out for public comment or approve it.
If ultimately approved, brokers would need to disclose their recruitment compensation to any customers that choose to follow them to their new firm for a full year after the broker’s move.
“This proposal is about making sure the customer can make a fully informed decision to follow a broker to a new firm and understand the costs associated with transferring his or her account,” said FINRA CEO Richard Ketchum, in a statement. “This proposal reflects our commitment to transparency and investor protection.”