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MOVES-Nervous brokers reach out before bonus-disclosure rule
October 23, 2013 / 3:38 PM / 4 years ago

MOVES-Nervous brokers reach out before bonus-disclosure rule

* Branch managers get more calls from brokers -UBS executive

* FINRA rule would require signing bonus disclosures

* Regulatory group hasn’t yet sent rule to SEC for approval

By Jed Horowitz

NEW YORK, Oct 23 (Reuters) - With the clock ticking on an impending rule that would require stockbrokers to disclose their signing bonuses to clients, some are weighing a move before the potentially embarrassing regulation takes effect.

Approved in late September by the board of the Financial Industry Regulatory Authority, or FINRA, the rule would require brokers to disclose signing bonuses, loans, accelerated payouts, transition assistance and deferred payments of $100,000 or more to customers whom they ask to move with them.

FINRA has not yet sent a draft of the rule to the Securities and Exchange Commission for approval, a spokeswoman at the industry-funded regulator said Tuesday, but brokers are still nervous, according to some headhunters and firm managers.

“Financial advisers at the competition are calling in to our (branch) managers more, and that’s probably consistent around the Street,” said Paul Santucci, head of national sales for about 7,000 financial advisers at UBS AG’s UBS Wealth Management Americas division.

Hiring, in general, has accelerated over the last several weeks after a relatively sluggish year, Santucci and outside recruiters said, reflecting, in part, a seasonal surge in the weeks before Thanksgiving.


Still, the FINRA proposal, which most big firms hope will rein in expensive recruiting deals for top brokers, appears to be having an effect.

“Entire teams are moving around right now at an accelerated pace,” said Mickey Wasserman, a recruiter in southern California.

Wasserman recruited a group to a major firm just weeks after FINRA announced its proposed rule on Sept. 19.

“One month is the fastest I’ve seen anybody move,” he said, adding that the firm would not let him disclose details.

Ron Edde, another California-based recruiter, said he had no qualms about employing the impending rule as a prod to move brokers who have been on the fence about a move.

“It’s a catalyst” that comes in second to the cash incentives that are typically the main motivator, Edde said.

Most brokers aren’t concerned yet about the proposed FINRA rule, other headhunters said, as the details about what needs to be disclosed are still to be revealed. Brokers with good client relationships also wouldn’t need to worry about the rule, they said.

“I speak to brokers all day long and none has asked me about the FINRA rule,” said Rich Schwarzkopf, a recruiter in New York. “If they did, I’d tell them to say, ‘They paid me $1 million because I‘m one of the best in the business.'”

“Huge signing bonuses can make them look like rock stars in the eyes of some clients,” agreed Mark Elzweig, a New York City-based recruiter.


The FINRA proposal has, nevertheless, been controversial.

Some headhunters and brokers say it’s an invasion of privacy and favors big firms that are not required to disclose retention bonuses paid to keep top brokers from bolting.

Regulators have warned that lucrative recruiting deals may encourage excessive trading behavior and sales abuses by brokers keen to prove their worth.

When announcing the proposed rule, FINRA said clients need the data to make “fully informed decisions” about the costs of following a broker to a new firm. Many brokerage firms charge clients for closing or transferring accounts, and some investment options may not be available for clients at their broker’s new firm.

The rule will require firms to disclose big pay increases to brokers in their first year of employment to help FINRA examiners zero in on potential abuses.

In the tussle for recruiting top talent in recent years, brokers have been promised as much as $3 million to move, though some of it is paid over many years.

Morgan Stanley, the biggest U.S. broker with more than 17,000 advisers after its takeover of Smith Barney, believes that high broker turnover is “inconvenient for clients” while expensive recruiting wars for top brokers is a tax on shareholders, Chief Executive James Gorman said in a conference call with analysts last week.

Fewer advisers have been moving because of industry consolidation and because the taint of scandal against big banks is fading, he said.

The FINRA proposal, for its part, has not led to a “marked increase” of brokers trying to leave or get hired at Morgan Stanley, spokesman James Wiggins said in an email.

Bank of America, parent of Merrill Lynch Wealth Management, said last month it supported the FINRA rule.

A company spokeswoman declined to comment on whether brokers have been trying to negotiate deals before the rule takes effect. In its earnings statement last week, Merrill said turnover among its top brokers was at “historically low levels.”

The biggest brokerage firms, which also include UBS and Wells Fargo & Co’s Wells Fargo Advisors, have been enjoying high retention rates, primarily because of retention deals that are set to expire in two to three years. Once the latter happens, recruiting wars with big packages will revive among the big firms and at smaller competitors, even with the FINRA rule in place, according to two broker-dealer executives who declined to be named.

Even UBS’s Santucci doubts that the rule will put a damper on signing packages in the long run.

“I’ve been in this business since May of 1984 and I’ve heard every year that deals are going to get smaller,” he said.

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