Proposed FINRA Rule May Be Game Changer for Broker-Dealers

New regulations proposed by the Financial Industry Regulatory Authority may affect brokers that move from one firm to another.

Proposed FINRA Rule 2243, sent just this week to the Securities and Exchange Commission for final approval, would force brokers that join a new firm to disclose to their clients if their bonus exceeds $100,000, one industry expert explained.

Bao Nguyen, risk advisory services manager with Florida-based accounting firm Kaufman Rossin, explained that the idea behind the rule has been “kicked around” since early 2013, and is currently pending before the SEC.

Nguyen told PAM that it is very common for brokers to receive a bonus when they move from one firm to the next, and often times clients make the jump with them. When clients transfer to their assets to new firm, they may have to sell their prior holdings which may consist of proprietary product.

“This rule really stems from a potential conflict of interest in that a broker is being incentivized to come to the new firm and [potentially causing] the client who joins them to sell existing holdings [at the first firm] to buy new products at the new firm. This action may have costs and tax implications to the clients.” Nguyen explained.

Nguyen said that the proposed deal will likely not affect smaller brokers, but may push mid-tier broker dealers to keep bonuses under the $100,000 threshold.

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Bao Q. Nguyen, MBA, CAMS, is a manager in Kaufman Rossin’s Boca Raton, Florida, office. He can be reached at bnguyen@kaufmanrossin.com.