FINRA Board of Governors Authorizes Recruitment Compensation Proposal to Be Filed with SEC (with Lofchie Comment)

FINRA approved a proposal requiring securities representatives who are changing firms to disclose to customers whose accounts they seek to transfer to the new firm any recruitment compensation paid to them as an incentive to move to the new firm. If approved by the new firm, representatives would be required to disclose for a full year their recruitment compensation, including signing bonuses, up-front and back-end bonuses, loans, accelerated payouts, and transition assistance, to any customers that chose to follow them to their new firm. Firms would also be required to make certain disclosures as to assets that cannot be readily transferred, or transferred at all.

Lofchie Comment: Perhaps some public good will be achieved by this, but should regulators adopt rules that will affect or limit the ability of employees to change jobs? Why, in particular, should such rules be limited to the securities industry? Doesn't it follow that any time a person changes jobs, the government could and should force that employee to make compensation disclosures before seeking to transfer the clients the employee had at his or her old job?Although there is certainly not an exact analogy between this rule and the SEC's newly proposed pay ratio rule (see yesterday's news) (the pay ratio proposal is much worse), they both seem to be rules that are largely intended to harass or embarrass an individual more than to provide an essential disclosure to an investor or customers. After all, nothing in current law prevents the firm that is losing an employee from fighting to keep the employee's clients, including providing information as to the problems that the client will have in transferring their account.

See: FINRA News Release.