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FINRA Withdraws Broker Bonus Plan

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The Financial Industry Regulatory Authority has withdrawn its proposed rule to require brokers to disclose recruitment compensation paid to them as an incentive to move to a new firm.

However, FINRA said in a Monday statement that although it has withdrawn the proposal, the self-regulator plans to develop a revised proposal and file it with the Securities and Exchange Commission later in the year.

In mid-March, FINRA sent the plan to the SEC for approval. The proposal generated 184 comment letters, and FINRA stated that “due to the rigid timelines imposed by Dodd-Frank by which the SEC must act on a proposal, FINRA did not believe it could fully address the comments within those time frames.”

FINRA said in its statement that it continues to believe that former customers would benefit from knowing:

  • that financial incentives may have motivated their representative to change firms;
  • costs associated with transferring assets to a new firm; and
  • whether moving their assets to the recruiting firm will impact their holdings (e.g., that some assets may be orphaned).

FINRA said that it “intends to carefully consider the comments, continue a dialogue with the commission and file a proposal as soon as practical.”

FINRA raised the threshold of payments that would need to be reported. Rule 2243, approved by FINRA’s board last September, was to 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 last year, FINRA proposed a $50,000 threshold.

“Many of our members have concerns regarding FINRA’s recruitment compensation disclosure proposal, including a lack of transparent cost-benefit analysis,” the Financial Services Institute said in a Monday statement.

In reproposing the rule, FSI said that FINRA should “conduct a thorough cost-benefit analysis of the rule, share the results with the industry and carefully assess the proposal’s impact on firms, financial advisors and investors.”

Industry officials had complained that FINRA’s plan would have “a chilling effect” on the movement of registered representatives.

Check out FINRA’s Broker Bonus Rule to Have ‘Chilling Effect’ on Recruiting, Advisors Say on ThinkAdvisor.


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