Sales Contests and Non-Cash Compensation

Overview

The very substantial limits and outright prohibitions on sales contests, and on non-cash compensation, are another form of anti-bribery rule; although, in this case, the bribery may be from an employer to its own employees. That is, the limits are intended to prevent a firm from inducing its employees to sell high margin products by over-rewarding them for such sales, or to push the hard sell of certain products through the giving of substantial rewards in a short-term sales contest. Notably, the prohibitions apply not only to the bonuses that a firm may give to its own employees but also to the rewards that a firm permits its employees to accept from third-party vendors of securities products (such as direct participation programs and variable annuities). See also the topic page on Reciprocal Dealings or Shelf Space.

Note that the limits on sales compensation do not prevent a broker-dealer from paying its employees more for the sales of one product rather than another. Rather, the limitation is on compensation that is "based on the sales of specific securities
. . .within a limited period of time." It is thus appropriate to recognize that some products take more effort to explain to clients and to sell, provided that those differences, in effort, are genuine; in which case they should be expected to persist over time. See also the topic pages on Muni Suitability and Regulation Best Interest.

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