“The title of first vice president comes quite often from the amount a broker sells, not because they are necessarily a thought leader on the subject matter,” Murdoch says. “Brokers on approved sales lists who sold less favorable products would get first dibs on more attractive options like IPOs.”
The basis of Rajgopal’s criticism of the Finra evaluation has to do with the assumption that answers to a questionnaire investigating culture will be skewed.
“I would like to know how many brokerage firms are not firing brokers who have been reported multiple times to authorities for misconduct just because they are great salespeople,” Rajgopal says. “Not firing repeat offenders is a sign of ineffective culture.”
An example of how a firm’s culture forms is when there are sales contests and incentives related to selling a broker-dealer’s fund, an IPO or proprietary and syndicate type products.
“Cleaning up a culture based on sales would involve giving brokers more flexibility to sell other products from other companies,” Murdoch says. “It would mean no incentives to sell proprietary products.”
Although Finra’s investigation may not be perfect, Rubin sees it as a very good start.
“I think it will be difficult to measure culture, but they will come up with certain criteria and tests to use as indicative of good culture or bad culture,” he says. “They are trying to get a sense of what firms are doing around culture, and based on that Finra will take additional action.”