As expected, Finra is going to try once more with its controversial recruitment disclosure rule.
The Finra board on Friday authorized its staff to publish a regulatory notice soliciting comments on a revised plan. The regulator withdrew an earlier proposal in June in the face of industry opposition.
A brief description of the revamped proposal posted Friday to Finra’s website said the new rule “would require a recruiting firm to provide a Finra-created educational communication to former retail customers of a transferring representative who are considering transferring assets to that firm.”
Language in the disclosure “would highlight the potential implications of transferring assets to the new firm and suggest questions the customer may want to ask to make an informed decision,” Finra said. “Among other things, the suggested questions relate to the costs the customer may incur, investments that may not be transferrable, and financial incentives the broker is receiving that could influence his or her recommendation to transfer assets or the products or services that might be suggested to the customer at the new firm.”
The new plan may get a better reception than Finra’s prior proposal, which would have required disclosure to customers of recruitment incentives totaling $100,000 or more. The disclosure would have shown a range of values for upfront and future payments. In addition, firms would have had to inform Finra of any broker recruit who was expected to increase earnings by the greater of 25 percent or $100,000 during the first year at the new firm.
The older proposal also had disclosures about potential costs in transferring accounts.
The brokerage industry argued that collecting and disclosing the kind of specific information required in the prior proposal would have been burdensome, and warned that a lack of a cost-benefit analysis could doom Finra’s plan.
“Based on feedback from firms and the SEC, we’re taking a different approach focused directly on the type of questions customers should be asking when making a decision about whether or not to move their accounts,” said Finra CEO Rick Ketchum in a video update after the board meeting.