FINRA Proposes Broker Information Disclosure on Recruitment Practices

FINRA has unveiled a second-generation proposal for investors to help elicit information from brokers on recruitment practices.

The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms in the US, has revealed a proposal to help investors understand their brokers, according to a recent Reuters report.

More specifically, FINRA’s latest ambition is to help clarify for investors and ultimately determine whether it is in their best interests to follow their broker to a new firm. FINRA’s newly proposed rule would thus require brokerage firms to provide a disclosure to certain customers after luring brokers away from competitors with financial compensation packages.

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Consequently, this information could cast light on the potential that recruitment incentives may encourage brokers and suggest that clients move their accounts to the brokers’ new firm.

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FINRA reported that this data would also indicate that some clients’ assets may not be easily transferred and thus more static in their decision-making, and that some clients may be charged fees to move assets, while certain investment products may not be available at the broker’s new firm.

Ultimately, the newly FINRA-backed proposal is a watered down version of a previous proposal that was abolished last September – the proposal called upon required brokers whose bonuses were $100,000 or more to disclose to clients one of several dollar ranges into which their bonuses fall.

Under the new framework, the proposed rule would necessitate brokers who switch firms to provide clients with educational communication, either emailed or mailed to clients within three business days, notifying them that he or she has changed firms.

Earlier this month, FINRA announced a number of paramount revisions to its Sanction Guidelines. The impetus behind the revisions of FINRA’s Sanction Guidelines stemmed from a review by the National Adjudicatory Council (NAC).

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