The Financial Industry Regulatory Authority issued for public comment on Friday a proposal that curtails its earlier draft rule requiring, in most cases, disclosure of recruitment bonuses and incentives.
The proposal would require recruiting firms to provide a FINRA-created educational communication to former retail customers of a transferring representative who are considering transferring assets to the rep’s new firm.
Patrick Burns, a lawyer for breakaway brokers, says that the proposed FINRA-created communication would highlight the potential implications of transferring assets to the new firm and suggest questions the customer may want to ask to make an informed decision.
“Among other things, the suggested questions relate to the costs the customer may incur, investments that may not be transferrable, and financial incentives the broker is receiving that could influence his or her recommendation to transfer assets or the products or services that might be suggested to the customer at the new firm,” Burns says.
Many clients, Burns continues, “may not know what to ask their broker, or if they do, be reluctant to ask tough questions which would have been answered by mandatory disclosure,” required by FINRA’s original draft rule on recruitment compensation.
The new proposal, Burns says, “should leave no doubt that FINRA stands squarely behind the interests of big brokerages and that [the self-regulator is] not well suited to regulate advisors,” which FINRA has lobbied hard to do.