Levitt Wants Disclosure of Broker Incentives

SEC Chairman Arthur Levitt Jr. has directed the NASD to make brokers disclose to clients recruitment incentives and special payouts for selling proprietary products.Levitt told a Florida compliance conference in April that the NASD is considering rules that would require these disclosures, as well as a rule that would ban single-product sales contests."[It] is imperative that customers know the incentives

SEC Chairman Arthur Levitt Jr. has directed the NASD to make brokers disclose to clients recruitment incentives and special payouts for selling proprietary products.

Levitt told a Florida compliance conference in April that the NASD is considering rules that would require these disclosures, as well as a rule that would ban single-product sales contests.

"[It] is imperative that customers know the incentives that were offered to their brokers," Levitt said.

Nancy Condon, an NASDR spokesperson, says the regulator is "moving forward with a proposal. ... At this point, it is a bit premature to say what course it will take or when it will be ready," she says.

Levitt is known to be deeply concerned about the practice of paying brokers to move.

"I understand that the competition for representatives can get very intense, and I have no intention of interfering with that competition," Levitt told the conference. "But reps who are paid to switch firms may feel pressure to trade more after the switch."

T. Sheridan O'Keefe, president of the National Association of Investment Professionals (NAIP), supports the move to eliminate special incentives. But recruiting deals exist "because reps can lose 20% to 70% of their asset base when moving from one firm to another," O'Keefe says, adding that brokers actually feel less pressure to trade when they have a financial cushion.

(RR's publisher sits on the NAIP board.)--D.J.

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