FINRA Proposes to Adopt Rule Regarding Member Recruitment Practices Disclosure

FINRA filed with the SEC a proposed rule change to adopt FINRA Rule 2243, which would establish disclosure and reporting obligations related to member recruitment practices when a representative changes firms and attempts to recruit certain customers from the representative's prior firm.

The required disclosures would include information as to any increases in compensation that might be received by the representative, as well as any potential injury that might be suffered by a client whose assets were transferred. The latter includes fees to close the client's account at the prior firm and taxes that might be owed on positions that had to be closed out at the prior firm because they could not be transferred. According to the FINRA filing, the proposed rule "would provide targeted meaningful information to customers at what FINRA believes to be a relatively low cost to firms and without implying any bad faith on the part of representatives who receive recruitment compensation to move firms."

See: Text of Proposed Rule.