Wall Street watchdog to review broker bonus disclosure plan
Wall Street’s watchdog will present a plan to its board in July that would require brokers to tell certain clients about compensation they receive when they switch firms, the regulator’s chief said.
Richard Ketchum, the Financial Industry Regulatory Authority’s chairman and chief executive, said he and his staff will review numerous letters about the proposal from industry and investor advocacy groups before the July meeting. Ketchum made the remarks during a briefing for reporters at FINRA’s annual conference in Washington.
FINRA’s plan spotlights the lucrative signing packages, offered to top advisers, that have scaled new highs over the past year. While the largest brokerage firms support the proposal, it has been controversial because others are concerned that customers will misjudge the disclosures and that it would ultimately limit compensation.
Disclosing a lucrative bonus would inform investors of a conflict of interest their brokers may have when they ask clients to switch firms along with them. Such a move could be costly to investors, who may have to sell certain securities, such as brokerage branded-mutual funds, that are not available through their broker’s new firm, Ketchum has said.
Numerous letters to FINRA about the proposal from the securities industry and investor advocacy groups “make some fair points,” Ketchum told reporters.
He said another proposal, requiring that brokerage websites link to the regulator’s “BrokerCheck” background disclosure database -- which includes disciplinary violations as well as licensing information and work history -- may not be ready in time for the board’s July meeting.
FINRA, Wall Street’s industry-funded regulator, must seek permission from its board of governors for sending rule proposals to the US Securities and Exchange Commission for review and final approval.
A final compensation disclosure rule, however, could be a long way off even if FINRA’s board approves it. “There are a lot of steps between now and when any rule would be in place,” Ketchum told reporters.
The regulator withdrew the BrokerCheck database plan from SEC consideration in April after brokerage firms raised questions about how they would apply such a requirement in other online contexts, such as social media sites.
The regulator is also enhancing its regulatory processes to help boost investor confidence in US financial markets, Ketchum said in his prepared remarks to Wall Street professionals. Those efforts include evaluating precautions brokerages are taking to manage certain risks.
A pilot program for FINRA brokerage examinations, launched last October, aims to identify potential risks by requiring brokerages to upload a broad array of data for FINRA to review before examiners visit on-site, Ketchum said.
The new approach gives examiners more flexibility to raise questions about red flags, Ketchum said. FINRA will phase in the program for all brokerages toward the end of this year, he said.