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Why FINRA's Broker-Comp Rule Proposal Works for Advisors

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FINRA's new proposal regarding the broker compensation disclosure appears far better to me than the proposal made last year. The earlier one required advisors to disclose to clients when they receive more than $100,000 in compensation (including signing bonuses and other payments) to switch firms. 

I always thought the original version put financial advisors under onerous requirements that I have not heard of any other industry having. Although, there are ways of explaining to clients why and what brokers receive substantial bonuses for switching firms, it still puts financial advisors in a defensive situation. 

For clients who had done well financially with their advisors, it would be easier to explain the bonuses received by their advisor, although it still puts advisors in a difficult position. Clients who did not do well could easily become annoyed, even though this was not a result of any undue action taken by their advisor. I keep hearing that this is easily explained away, but it really isn't.

The new proposal which asks the question "Are there any financial incentives received by the representative that may create a conflict of interest?" This, I feel, should be more easily handled by financial advisors, since a move will rarely create a conflict of interest. 


The following three questions, also in the proposal, are clearer cut, and should be readily answered by the advisor with input from his or her new firm:

1. "Are there assets that may not be directly transferrable and, as a result, could incur costs to liquidate?" 

2. "What are the potential costs related to transferring assets, including differences in fees?"

3. "What are the differences in products and services between the customer’s current firm and the recruiting firm?" 

These questions touch on issues that would generally come up in a conversation between a client and an advisor upon a move, regardless of FINRA's requirements. The new proposal seems inherently much fairer to everyone concerned and does not put the advisor in an adversarial light.

FINRA is accepting public comments on the revised broker compensation proposal through July 13.

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