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FINRA Sends Transition Bonus Disclosure Rule to SEC



by Benjamin B. Coulter
Burr & Forman LLP - Birmingham Office

Al F. Teel
Burr & Forman LLP - Birmingham Office

May 23, 2014

Previously published on May 20, 2014

In a move designed to increase transparency between its member firms’ registered persons (“representatives”) and their former clients when they move from one firm to another, the Financial Industry Regulatory Authority ("FINRA") recently submitted FINRA Rule 2243 to the U.S. Securities Exchange Commission for approval. The rule would require representatives who have or will receive “upfront payments” or “potential future payments” exceeding $100,000 to disclose to former customers considering transferring their accounts, within ranges, incentives that the representative is receiving from the representative’s new firm and the basis for those incentives. The rule also requires that representatives disclose “costs, fees or product portability issues, including taxes if some assets must be liquidated prior to transfer, that will result if the former customer decides to transfer assets to the recruiting firm.” The disclosures would be oral if the first contact between the representative and the former customer is oral (to be followed in writing within 10 days) and in writing if the first contact between the representative and the former customer is in writing. In addition, the proposed rule would require members to report “information related to significant increases in total compensation over the representative’s prior year compensation that would be paid to the representative during the first year at the recruiting firm” to FINRA to allow FINRA to “assess the impact of these arrangements on a member’s and representative’s obligations to customers and detect potential sales practices abuses.” FINRA's overarching goal for the new disclosure requirements is to alert clients to any possible conflicts of interest that may arise from representatives changing firms in order to receive enhanced compensation.


 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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