FINRA Sends Broker Bonus Plans to SEC for Approval

March 14, 2014 – In The News

Joshua Horn’s blog post was quoted in the ThinkAdvisor article, "FINRA Sends Broker Bonus Plans to SEC for Approval." Full text can be found in the March 14, 2014, issue, but a synopsis is noted below.

The Financial Industry Regulatory Authority (FINRA) took another step toward raising the threshold of payments that would need to be reported for recruitment compensation paid to brokers as an incentive to move to a new firm by sending the plan to the Securities and Exchange Commission (SEC) for approval.

Joshua Horn states in a recent blog post that FINRA’s rule, if approved, "will have a chilling effect on the movement of registered representatives."

"FINRA’s rationale for the rule is that it would clarify potential costs that customers incur when they move their accounts from one member firm to another," he writes. "FINRA cited, for example, costs to close the account at the first firm, as well as tax consequences associated with the liquidation of investments that are not transferable."

However, Horn says, "This rationale does not make much sense when considered more fully. These so called costs should be disclosed to a customer who closes an account regardless of the reason. Tying it to compensation paid to a broker who intentionally fails to advise her client about costs rings a bit hollow for a justification."

The opposing view to this rule, Horn continues, "is that it will have a chilling effect on the movement of registered representatives. After all, who would want their clients knowing how much they were paid to move from one firm to another."

If registered reps "are honest with their clients about the costs associated with closing and moving an account, there would be no need for this rule," Horn says. “It unfortunately seems as though FINRA is letting the actions of the minority impact the majority of brokers who move firms. FINRA and the SEC should do more to weed out the bad seeds rather than punish those who are honest with their clients."

Click here to read the original blog post.