Finra just rolled out a new proposal that would require hiring firms to provide customers with an “educational communication” prior to their transferring their accounts to their advisor at a their new firm. The piece would advise customers to query their advisors as to costs associated with the transfer of their accounts, if they hold any securities that can’t be transported to the new firm and whether their broker received any financial incentives to join the new firm. FINRA This is a more reasonable and sensible proposal than the previous Rule 13-02 which required brokers to disclose any amounts in excess of $100,000 that they received in recruiting incentives. Here After all, are lawyers, accountants or investment bankers required to volunteer the specifics of their compensation packages when they move elsewhere? Moreover, how likely is it that an advisor’s clients have switched jobs without securing a bump up in compensation? If an advisor’s business owner clients either sold their firms or leased part of their cash flow to an outside entity for say a nine year period, didn’t they receive some compelling re numeration? I hope so. Therefore the fact that their advisor got a nice package to move their practice elsewhere is hardly earth shattering news. As I’ve written before, it just reinforces the client’s confidence that their advisor is a winner.
But somehow, the new scaled back proposal evoked howls of indignation from some in the RIA community. Read this. They claim to be upset by the fact that wirehouse clients are harmed by not being aware that their advisor’s new firm likely offered them a hefty financial incentive to join. But is that what really underlies their opposition to FINRA’s scaled back rule? Are these RIA’s primarily concerned with rectifying what they view as a disservice to customers? Count me as skeptical. The real source of their fury is a lot closer to home.
RIA’s and most independents can’t even begin to compete with wirehouse and regional firm recruiting deals. That’s a tough hurdle in trying to hire advisors. Many in the RIA community were hoping the that FINRA would step in and throw a monkey wrench into the wirehouse recruiting process so that they’d have an easier time hiring advisors. That’s clearly not going to happen. Hence, their intense frustration. They will need to focus on other positives of the RIA model in order to attract talent.
