finra

FINRA

For Release:
Contacts:

September 19, 2013
Michelle Ong (202) 728-8464
Nancy Condon (202) 728-8379

 

 

Board of Governors Authorizes FINRA to File Recruitment Compensation Proposal With the SEC

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today announced that its Board of Governors approved a proposal requiring brokers to disclose recruitment compensation paid to them as an incentive to move to a new firm. The proposal needs to be submitted to the Securities and Exchange Commission (SEC) for review and approval. If approved, brokers would need to disclose their recruitment compensation to any customers that choose to follow them to their new firm for a full year.

 

Richard Ketchum, FINRA's Chairman and CEO, 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. This proposal reflects our commitment to transparency and investor protection."

 

The proposal contains two components: a disclosure obligation and reporting to FINRA. The disclosure requirement would apply to recruitment compensation – including signing bonuses, up-front or back-end bonuses, loans, accelerated payouts, and transition assistance – of $100,000 or more, and to future payments (trade-based or asset-based) contingent on performance criteria. Firms would be required to disclose to their customers the compensation paid to the transferring representative in ranges. The first range would be $100,000 to $500,000; the next would be $500,000 to $1 million; followed by increasingly larger bands.

 

In addition, firms would be required to report to FINRA significant increases in total compensation paid to a newly recruited representative during the first year. The trigger for reporting would be an expected increase of 25 percent or $100,000 over the prior year's compensation, whichever is greater. This information will be used in risk-based examination targeting to look for sales abuses that may be motivated by the increased compensation and to inform any future rulemaking related to compensation incentives.

 

Firms also would be required to disclose whether costs would accrue if a customer decides to transfer assets to the new firm and that certain assets may not be transferrable.

 

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.