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Brokers Must Disclose Bonuses as Finra Passes Rule

Sept. 19 (Bloomberg) -- Stock brokers who are lured to new firms with signing bonuses of at least $100,000 will be required to inform clients under a rule approved by the Financial Industry Regulatory Authority.

Finra’s board of governors passed the proposal today, Wall Street’s self-regulator said in a statement. Brokers would have to tell their customers how much they received before persuading them to bring their accounts to the new firm, the regulator said. The plan must be reviewed and approved by the U.S. Securities and Exchange Commission, Finra said.

Brokerages from Morgan Stanley to Bank of America Corp.’s Merrill Lynch poach salesmen from one another, offering bonuses based on how much revenue they produce. The brokers typically must repay the bonuses if they don’t bring in as much business as promised, a situation that Finra said may create a conflict of interest as they strive to reach their targets.

“It will have an impact,” said Michael King, a recruiter in New York who helps brokers switch firms. “It’s going to make brokers think more carefully about how they’re going to broach it with clients.”

The proposal would require brokers to tell clients of any recruitment compensation they receive in connection with the switch, including bonuses, loans and transition assistance. Customers will be told what the broker received in ranges, such as $100,000 to $500,000 or $500,000 to $1 million.

Broker Backing

Brokerages mostly backed the plan. Morgan Stanley and Merrill Lynch, the two biggest, as well as UBS AG and Wells Fargo & Co., said in March letters to Finra that the disclosure would help clients understand their financial advisers’ motives.

Stifel Financial Corp., with more than 2,000 brokers, said in a letter that the proposal was anti-competitive and would discourage brokers from changing jobs even when that would be better for clients. David Sobel, chairman of the National Association of Independent Broker/Dealers, said the bonuses don’t pose a conflict and that the rule is inconsistent because it doesn’t apply to retention payments designed to keep brokers from defecting.

King said he didn’t think the rule would stop brokers from switching firms because the signing bonuses often amount to more than a year’s salary.

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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