FINRA Board Puts Broker Disclosure Rule Out for Comment

FINRA Board Puts Broker Disclosure Rule Out for Comment

The question on the minds of most advisors is whether or not the Financial Industry Regulatory Authority (FINRA) would promulgate new rules at its board meeting yesterday that would compel them to disclose the terms of any recruiter bonus they would receive for moving to another firm.  This proposed rule change would also likely force brokerage firms to significantly change the structure of their transition packages in order to eliminate any possibility that advisors who receive these deals could “churn” in order to meet back end bonus hurdles. FINRA is already in the process of reviewing potential conflicts of interest related to compensation and recruiting arrangements at 14 of the largest brokerage firms. FINRA’s 20-member board of governors voted yesterday to put the proposal out for comment.  It is our understanding that FINRA will go to any interested and potentially impacted parties (the large brokerage firms, for sure) and solicit their feedback.  After the comment period, which will likely last 1-2 months, the plan would need approval from the SEC. 

So, what does all this mean?  Is it fair that only the nation’s top brokerage firms that are in a position to offer the most robust recruiting packages be impacted by this proposed rule change?  The notion of mandating broker disclosure to clients has been one that has been revisited many times. The industry has dodged this bullet over and over again. Will this time be different? How will the major brokerage firms respond when asked for comment? Will the big brokerages proactively make changes to their transition packages or will they wait and see how all of this plays out?  How will advisors react- will this cause them to change firms sooner rather than later?

We simply don’t know what will happen next and I don’t believe that any brokerage firm wants to be the first to make changes or publicly comment about how they will respond to this regulatory pressure. To be sure, any financial advisor who believes that he will look to change firms at some point- but has been waiting for an economic milestone or other catalyst to occur first- is hoping that FINRA will have bigger fish to fry.  (Many industry experts, firm leaders and advisors alike believed that FINRA would simply vote against the disclosure requirement or table the discussion for another date because of the ongoing, yet unresolved, debate about how to best enforce the fiduciary standard.) The truth is that almost every quality advisor might be comfortable disclosing the amount a transition deal paid to them but they DO NOT want to be dictated to as to when and how.  Our advice to advisors has been the same for a long time: whether or not this disclosure rule is mandated, we believe there is little question that things will change at some point.  So, if you have a move in you and were hoping to take advantage of the high water mark deals being offered today, especially by the wirehouse firms, then you should do it sooner rather than later.  Further, we believe that any significant change to transition packages will push more and more advisors to the independent space.

FINRA seems to be targeting the top 14 brokerage firms.  It would never be fair to force the big firms to change their recruiting practices but still allow smaller regional, boutique or independent firms to continue to offer outsized deals.  It seems to me that the standard of free enterprise should prevail for all brokerage firms under the assumption that the firms themselves are in the best position to monitor their advisors’ behavior and to protect client best interests.  I believe that the vast majority of financial advisors are always looking out for their clients, would never make a move to another firm unless they felt the move would be in their clients’ collective best interests, and wouldn’t look to increase their revenue for any reason other than to meet their clients’ goals.   

Changing the structure of transition packages would likely do little to curtail the nefarious behavior of the unscrupulous few. 

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.