The SEC has just ended its comment period for a proposed rule requiring disclosure and reporting of recruitment deals. While several wirehouse and large independent broker-dealers have mixed views on the potential regulation — and suggest major changes — a group of about 150 independent advisors has given the proposal, referred to as Rule 2243, a big thumbs-down.
A key objection of the advisors is that the rule would “stifle competition and threaten succession planning,” according to a letter that was sent separately by 150 advisors and entities to the SEC before Friday.
Another complaint of the independent reps concerns privacy. Many reps live in the same community as their clients. Thus, they say, FINRA’s recruitment-compensation disclosure rule “would force me to disclose part of my income to them, putting me and my clients into a personally and professionally uncomfortable and unnecessary position.”
Rather than sharing the compensation details with clients, the advisors would prefer to give this information to regulators instead. “This way FINRA could examine potential conflicts of interest and enhance investor protection without causing me potential professional and personal embarrassment,” they explained.
The ranges for financial disclosure outlined by FINRA, he adds are “very broad and could give customers the mistaken impression that [reps] who received $100,000 may have received as much as $500,000.”
The Commonwealth Financial executive reminds the SEC that FINRA Rules 2111 and 3010 already address the issue of how to best regulate and supervise reps to deter the “churning” of customer accounts and the use of unsuitable investment recommendations in order to hit certain commission targets.
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