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Brokers May Have to Disclose Bonuses

There are some things that brokers would rather not share with clients. Like how much they get paid to jump from one firm to another.

The Financial Industry Regulatory Authority has proposed rules that would force brokers who switch firms to tell clients about any recruiting bonuses they got.

This matters to investors. Brokers who jump from firm to firm are often chasing a bonus – and then they push the new firm’s investment products on their clients for a commission, even if it’s not best for the client. And it’s not unusual for brokers to change firms several times during their career.

Needless to say, forcing a bonus disclosure can protect investors from conflicts of interest. And needless to say, the brokerage industry is already looking for reasons why this is a bad idea.

What they have come up with is that brokers will demand higher pay. The argument is that public disclosure of bonuses will give brokers more bargaining power because they can use the information to negotiate between competing firms.

That could very well be…but protecting investors is a whole lot more important than the ‘risk’ of airing the behind-the-scenes rumblings of brokerage firms and their recruits.

FINRA is reviewing 14 of the country’s largest brokerages, and looking in particular at recruiting and compensation. No names named…but no doubt if we heard them, they are recognizable.


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