Last week the Board of Governors of FINRA authorized the agency to file a rule proposal with the SEC relating to disclosure of recruiting compensation paid to a broker. According to the press release announcing the approval, "The disclosure requirement would apply to recruitment compensation – including signing bonuses, up-front or back-end bonuses, loans, accelerated payouts, and transition assistance – of $100,000 or more, and to future payments (trade-based or asset-based) contingent on performance criteria. Firms would be required to disclose to their customers the compensation paid to the transferring representative in ranges. The first range would be $100,000 to $500,000; the next would be $500,000 to $1 million; followed by increasingly larger bands."
In addition to these disclosures to customers, firms would also have to file reports with FINRA to disclose certain increased compensation information for FINRA to use when conducting examinations. It seems that FINRA would review this data, and possibly determine whether branch exams or exams focusing on recently transferred brokers were warranted to investigate for possible sales practice violations.
We'll have to wait to see the text of the proposed new rule when it is filed with the SEC, as well as FINRA's stated rationale, to truly evaluate the proposal, but it certainly can leave us wondering if this is really a solution in search of a problem.