Incentive compensation — those large bonuses used to lure brokers from one firm to another — should they be disclosed to the broker’s clients?
The discussion has been on the table for the past three years; since SEC chairman Mary Schapiro stepped in and expressed her concern that the large bonuses “may not be in the best interest of retail investors.” (Her concern was that brokers may feel obligated to “churn” customer accounts or recommend unsuitable products to justify upfront money).
Despite the calls for regulation, there have been no moves to force disclosure of upfront retention bonuses, which remain a fact of life in the wirehouse world.
In fact, while Dodd-Frank regulates compensation for high-level executives, financial advisor bonuses are unaffected and the SEC is not currently engaged in any rulemaking for broker-dealer compensation.
In fact, the recruitment arms race has escalated, with bonuses in the millions of dollars for top teams.
So who wants to change the status quo in broker-dealer compensation? There are two views on this issue…a look at these in my next blog post.