by Lauri F. Rasnick

FINRA is contemplating a new rule that would require brokers transferring firms to inform clients about their signing bonuses or other compensation they are receiving in connection with their moves.  The potential rule, which is now out for public comment, is being considered to protect customers.   By mandating disclosure of the money offered in connection with a move, the client can consider the true motivation behind the move and whether it is in the client’s best interest to transfer all of his or her business.  Indeed, many firms luring over brokers offer forgivable loans or signing bonuses that are contingent on hitting certain targets.  In order to hit such targets brokers may arguably be incentivized to perform more trades or shift business into particular funds.  With full knowledge of the “enhanced compensation” being provided or promised, the client will therefore be able to make a fully informed decision whether to follow the broker or not, or at least that is the theory behind the rule.  At this point, FINRA’s Board of Governors has given authority for FINRA to seek comment on the possible rule.

Firms need not be concerned about small bonuses or about informing their institutional customers about pay.  The contemplated rule would not apply to institutional customers nor would it apply to bonuses or similar additional compensation less than $50,000.  The disclosure requirement would last for one year.

The proposed rule is already generating a hearty debate with firms voicing concerns that the process will give brokers more control over compensation negotiations, and brokers concerned that their clients could be unduly influenced based on hearing what compensation they may be receiving.  While it remains to be seen whether the rule will ultimately go into effect, such a rule could add transparency to the compensation process and provide employers more information about the deals in the marketplace.