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Regulation and Compliance > Federal Regulation > FINRA

SEC Approves FINRA’s Broker Comp Disclosure Rule

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The Securities and Exchange Commission approved Tuesday the Financial Industry Regulatory Authority’s rule requiring brokers to send “educational information” to clients about their move to another firm.

The SEC states in its notice approving the rule that FINRA developed the rule out of concern that former customers “may not be aware of other important factors to consider in making a decision whether to transfer assets to the recruiting firm, including direct costs that may be incurred.”

To provide former customers with a more complete picture of the potential implications of a decision to transfer assets, the rule change requires delivery of an educational communication by the recruiting firm that highlights key considerations in transferring assets to the recruiting firm, and the direct and indirect effects of such a transfer on those assets.

The rule states that an educational communication would have to be delivered when the member firm, directly or through a representative, individually contacts a former customer of that representative to transfer assets; or a former customer of the representative, absent individual contact, transfers assets to an account assigned, or to be assigned, to the representative at the member.

A “former customer” is defined as any customer that had a securities account assigned to a registered person at the rep’s previous firm.

The educational communication should highlight four potential implications of a customer transferring assets to the recruiting firm:

  • whether financial incentives received by the representative may create a conflict of interest;

  • that some assets may not be directly transferrable to the recruiting firm and as a result the customer may incur costs to liquidate and move those assets or account maintenance fees to leave them with his or her current firm;

  • potential costs related to transferring assets to the recruiting firm, including differences in the pricing structure and fees imposed by the customer’s current firm and the recruiting firm; and

  • differences in products and services between the customer’s current firm and the recruiting firm.

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