SEC chief warns of risk
The nation’s top securities cop is raising concerns about the rich bonuses that some brokerages routinely offer to lure salespeople from rivals.
In an open letter on the Securities and Exchange Commission’s website Monday, Chairwoman Mary L. Schapiro warned top brokerage executives that “certain forms of potential compensation may carry with them enhanced risks to customers.”
Specifically, Schapiro’s letter focuses on the risk that brokers lured with bonuses might seek to generate commissions big enough “to justify special arrangements that they have been given.”
If a broker “is aware that he or she will receive enhanced compensation for hitting increased commission targets, the registered representative 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 wrote.
Schapiro doesn’t call for bonuses and other incentives to be reined in, but rather advises brokerage executives and supervisors “to be particularly vigilant in ensuring that sales practices are closely monitored and that investor interests are carefully considered in the sale of any security or other investment product.”
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