FINRA Will Seek Comment On A Proposed Broker Compensation Disclosure Rule

During the December 6, 2012 FINRA Board of Directors meeting, the Board authorized FINRA to seek comment on a proposed rule that would require brokers switching firms to inform customers they are soliciting from their old firm of the recruiting bonus they receive from their new firm. The proposed rule would only apply to bonuses in excess of $50,000 and does not apply to customers that meet the definition of an institutional account pursuant to FINRA Rule 4512(c).

One of the concerns FINRA is attempting to alleviate is that brokers who receive large recruiting bonuses when they move to a different firm may promise their customer new and better securities if they move with the broker to the new firm. Since the broker earns a commission on the sale of those new products, a conflict of interest may arise.

The comment period typically lasts one to two months. After that, FINRA’s proposed rule requires approval from the U.S. Securities and Exchange Commission. Lax & Neville represents a substantial number of brokers switching firms and assists in the review of these very recruiting packages. We intend to submit a comment letter to FINRA. If any brokers have any questions regarding recruiting packages that they have been offered and would like to provide us with their ideas for the comment letter, please contact us at (212) 696-1999.