Dean Witter to End Extra Pay for Sale of Own Products

Dean Witter Reynolds Inc. said it will stop paying higher commissions to its brokers for selling its own financial products, the last major brokerage to do so.

Other major securities firms stopped offering enhanced commissions for sales of proprietary products after a Securities and Exchange Commission panel criticized the practice in April.

“More and more of the retail-oriented firms” are taking steps to eliminate potential conflicts of interest, SEC Chairman Arthur Levitt Jr. said. Dean Witter’s action “helps to raise the industry standard,” he said.

Dean Witter, which has 8,100 brokers, also said it will stop paying up-front bonuses to recruit sales people from rivals, except in situations where its competitors use similar tactics. The SEC panel scolded Wall Street for making these payments.

Dean Witter’s changes, which go into effect in January, were expected. The firm said last month it was planning a response to the SEC panel’s recommendations.

The Dean Witter, Discover & Co. subsidiary already complied with parts of the SEC panel’s report and “will adopt the rest of the committee’s recommendations,” said James F. Higgins, president and chief operating officer of Dean Witter Financial.

The SEC panel, led by Merrill Lynch & Co. Chairman Daniel P. Tully, said extra payments for in-house products such as mutual funds, annuities and other investment plans can create conflicts of interest because brokers have an incentive to sell their firm’s products even if they don’t perform as well as those of competitors.

Dean Witter told its brokers last month that the firm would end the preferential payments. The firm, the third-largest U.S. brokerage, previously paid its brokers 6% to 8% more to sell products such as its mutual funds than to sell those marketed by other banks or mutual fund companies.

The nation’s largest brokers, including Merrill Lynch & Co., Smith Barney Inc. and PaineWebber Inc., abandoned the practice in the past few years. Prudential Securities Inc. ended the higher payments in April.

Dean Witter said it will take other steps to comply with the SEC report, including increasing training for brokers, paying salaries to broker-trainees for two years instead of one, boosting deferred-compensation programs and encouraging brokers to concentrate on collecting client assets, not just focus on generating commissions.

The firm also said it will expand its flat-fee program, an alternative to being charged commissions on a transaction-by-transaction basis.