A controversial proposal has been dropped from the agenda of the Financial Industry Regulatory Authority (FINRA) Board of Governors’ July 11 meeting. The proposal suggests a new FINRA rule requiring disclosure to investors of enhanced compensation received when a registered person transfers their accounts to a new firm. FINRA CEO Richard Ketchum said that investors “should be informed of conflicts involving recruitment packages when they make the important decision to move an account.”
This enhanced compensation practice is common among FINRA member firms, yet is rarely disclosed to investors and consumers. Enhanced compensation means “compensation paid in connection with the transfer of securities employment (or association) to the recruiting member other than the compensation normally paid by the recruiting member to its established registered persons.” Signing bonuses, loans, accelerated payouts, and transition assistance are all examples of enhanced compensation when they are paid in connection with the transfer of securities employment (or association).
The proposed rule requires enhanced compensation greater than $50,000 to be disclosed for a period of one year after the transfer. Currently, there are no plans to include the proposal on future agendas.
Click here to read the proposal.
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