Brokers Who Switch Firms to Come Under More Scrutiny

Brokers with large books of business who switch firms will be under more scrutiny than ever from the New York Stock Exchange regulation arm this year, according to Dow Jones. Grace Vogel, executive vice president of member regulation for NYSE regulation, said her staff will be looking this year at registered representatives who change firms to make sure they are not hurting customers in the process. She said she has seen instances where a broker gets a “lucrative pay package” at a new firm. Before the broker leaves, she said, he persuades his customers to liquidate their holdings in funds that aren’t offered at the new firm—and then once he makes the switch puts the clients in similar products. Customers can end up paying fees and taxes to change to products that were no better or different then the ones they left, Vogel said. Also, a concern is brokers running up commissions before they move to get higher compensation packages, Vogel said. Based on U-4s and U-5s, disclosure documents that must be updated when brokers change forms, “We’re going to select a group of brokers and follow their books to see if they’re acting appropriately.” However, it is fairly common for brokers to take their clients out of non-transferable products before taking them to a new firm, and it’s not necessarily a problem, recruiters say. “I don’t think anyone’s doing anything under the table here,” said Alan Reed, a recruiter with Michael King Associates, saying investors can choose to go with a broker or can stay at their current firms if they are happy with the funds they are in. “It’s all out in open.” Carri Degenhardt-Burke, a recruiter who works with brokers, said the problem isn’t that brokers take their clients out of proprietary funds when they want to change firms; it is that firms offer non-transferable funds at all. “The firms themselves are the ones creating policies to virtually keep clients there,” she said. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.