Wall Street Watchdog seeks broker recruiting bonus disclosure

Sat Dec 8, 2012 1:04am IST

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The Wall Street sign is seen near the New York Stock Exchange, November 19, 2012.

Credit: Reuters/Chip East

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(Reuters) - Wall Street's self-imposed watchdog is pushing ahead with a possible rule that would bring more transparency to the incentives offered to brokers who make a move to a new firm.

Such a rule would shed more light on the "money-talks" brokerage recruiting world, where signing bonuses for top brokers have become outsized over the past year.

New details emerged on Friday about the Financial Industry Regulatory Authority's bonus disclosure rule proposal following a Board of Governors meeting on Thursday. During the meeting the board also agreed to send a separate FINRA rule proposal about the expungement of certain broker records to the U.S. Securities and Exchange Commission.

The bonus disclosure rule would require securities brokerages to provide details to clients about compensation offered to brokers who make a move.

The rule proposal, which FINRA plans to publish for the public to review and comment, would require disclosure of any "enhanced compensation" of $50,000 or more offered to brokers who are brought over, according to a note published to FINRA's site on Friday following the Board meeting.

"People should have as much information as they can get about any person they're doing business with," said San Diego-based securities attorney Erwin Shustak, who said the next step in moving forward with the proposal is educating the investing public about the disclosures.

"Disclosure is great, but if it comes without education, it's a bit like spitting in a lake," Shustak said.

The disclosure requirement would last for one year following the move, and would not apply to bonuses less than $50,000, the note said.

Recruiters and industry lawyers say upfront portions for signing packages have risen to as much as 160 percent to around 195 percent of a broker's annual trailing revenue production at top firms.

That would mean a broker generating $1 million in annual revenue could receive nearly $2 million on day one.

Still, some recruiters say the possible rule implementation could be seen as a positive for top brokers.

"The worst thing a broker can do is be embarrassed," said New York-based financial services recruiter Rich Schwarzkopf.

"It's a plus to say, 'hey, you're with a great broker,' Schwarzkopf said. "They should embrace it and convey that they're that valuable to people who want them."

FINRA separately said it plans to send to the SEC a rule proposal that would allow brokers who believe their public records have been unfairly tarnished by investor complaints to expunge their records of certain complaints.

The rule proposal would be key for brokers who are identified for sales practices claims in arbitrations, but not named as parties. A FINRA rule requires disclosing those arbitrations' on brokers' public records. Some brokers have complained that the rule unfairly tarnishes their records, especially in cases when their firms are to blame for developing faulty products. FINRA said the proposal would provide such brokers "with a remedy to seek redress concerning allegations that could impact their livelihoods," yet ensures "the integrity of the (broker) records."

(Reporting By Ashley Lau in New York; editing by Andrew Hay)

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