Finra could force brokers to disclose bonuses
Brokers would be compelled to tell customers about recruiting bonuses and other compensation they get when moving to a new firm under rules proposed by industry regulators to protect clients from conflicts of interest.
The Financial Industry Regulatory Authority's 20-member board of governors voted Thursday to put the proposal out for comment, a person with knowledge of the meeting said. The disclosure would alert clients to incentives their broker received to sign with the new company and lure their business, according to brokers briefed on the plan by Finra staff.
The self-regulatory group is reviewing conflicts of interest at 14 of the nation's largest brokerage firms, focusing on compensation and recruiting arrangements, Finra told brokers in July. Conflicts may arise if the new firm's payments encourage brokers to push products to clients that aren't needed or suitable.
In practice, the rule would apply only to larger brokerages that can afford to pay new employees up-front bonuses, said the person, who asked for anonymity because the voting wasn't public. Such firms typically pay these bonuses in the form of "forgivable" loans, in which the incentive is repayable if the broker leaves the firm earlier than the bonus contract allows, the person said.
Finra didn't disclose the names of the firms it is reviewing. Michelle Ong, a Finra spokeswoman, said the disclosure issue was on the agenda at Finra's meeting Thursday. She declined to comment on the board's action.