SEC Chairman Mary Schapiro is warning broker-dealers against using “enhanced compensation arrangements” to attract brokers–practices she says could “carry with them enhanced risks to customers.”
Schapiro, in an open letter yesterday, said that she read in the press (hey, the SEC is on a tight budget too, this is cheaper than launching an investigation–thanks media for your participation in cutting government costs!) that some firms are offering “substantial inducements to potential registered representatives, including large up-front bonuses and enhanced commissions for sales of investment products.”
“In light of these reports, I want to remind broker-dealer firms and their CEOs of the significant supervisory responsibilities you have under the federal securities laws to oversee broker-dealer activities, particularly with respect to sales practices,” Shapiro writes.
Schapiro is concerned that if a registered representative is aware that he will receive enhanced compensation for hitting increased commission targets, he could be motivated to “churn customer accounts, recommend unsuitable investment products or otherwise engage in activity that generates commission revenue but is not in investors’ interest.”
She adds that she “encourages” broker-dealer firm CEOs to be “particularly vigilant” in ensuring that sales practices are “closely monitored.”
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