Wall Street watchdog's board approves broker bonus disclosure plan

Thu Sep 19, 2013 4:10pm EDT
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By Suzanne Barlyn

(Reuters) - The Financial Industry Regulatory Authority's board has approved a measure that would require brokers to tell certain clients about compensation they receive when they switch firms, the regulator said on Thursday.

The board has authorized FINRA to send the proposal to the U.S. Securities and Exchange Commission, which must review and approve all changes to FINRA's rules.

Disclosing a hefty bonus would inform investors of a conflict of interest their brokers may have when they ask clients to switch firms along with them, according to Richard Ketchum, FINRA's chief executive.

Switching firms could be costly to investors, who may have to sell certain securities, such as brokerage-branded mutual funds, that are not available through their broker's new firm, he has said.

"This proposal is about making sure the customer can make a fully informed decision to follow a broker to a new firm and understand the costs associated with transferring his or her account," Ketchum said in a statement.

Firms would also be required to report to FINRA significant increases in total compensation paid to newly recruited brokers during their first year. FINRA will use information in industry-wide examinations to look for certain sales abuses that may be motivated by a broker's compensation increase.

The trigger for reporting would be an expected increase of 25 percent or $100,000 over the prior year's compensation, whichever is greater.

The disclosure requirement would apply to recruitment compensation - including signing bonuses - of $100,000 or more, and to future payments contingent on performance criteria.   Continued...

Snow falls outside the New York Stock Exchange during a winter storm in New York February 26, 2010. REUTERS/Chip East