The Financial Industry Regulatory Authority has filed with the SEC a revised version of its controversial proposal to require disclosure of broker recruitment bonuses.
The new version of the proposal contains several significant changes from the original proposal, first floated for comment in January 2013.
Finra is now proposing a $100,000 threshold for disclosure of recruitment compensation, up from $50,000 in the original proposal. The $100,000 trigger would apply separately to total upfront payments, and to potential future payments that a registered representative could reasonably expect to receive.
The higher thresholds are expected to exempt many advisors recruited into the independent broker-dealer channel, where recruitment bonuses are small relative to wirehouses.
Furthermore, rather than having to specify a dollar amount that a broker received, Finra has revised the plan to show a range of values for both upfront and future payments: from $100,000 to $500,000, $500,001 to $1 million, $1,000,001 to $2 million, $2,000,001 to $5 million, and more than $5 million.
Disclosures would be made to any customers at the prior firm who transfer their accounts based on a direct or indirect solicitation by the broker.
In another change, firms would have to inform Finra of any broker recruit who is expected to increase earnings by the greater of 25 percent or $100,000 during the first year of employment or association with the new firm. This reporting requirement would cover upfront payments, backend bonuses, increased payouts and other compensation.  The information would not be made public, but would be used by Finra in its exams “to detect and prevent underlying business conduct abuses potentially attributable to recruitment compensation incentives,” Finra said in its rule filing.
Additionally, customers would have to be told of potential costs in transferring accounts, and issues with product portability.
Finra included in its new filing a proposed one-page disclosure template firms could use or adapt. The template has a free-text section for providing more information and context about recruitment deals and transfer costs.
Independent contractor firms had been pushing Finra to require disclosure of retention bonuses as well, but the regulator rejected that idea, saying its proposal was focused on providing information to help customers decide whether to follow their representative to a new firm.
The rule proposal is expected to be published by the SEC for comment, after which it would need final agency approval.