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SEC Issues Warning to Broker-Dealer Executives on Recruitment, ‘Enhanced Compensation’

September 2, 2009
Related Topics: Compensation Design and Communication, Candidate Sourcing, Ethics, Latest News

SEC Chairman Mary L. Schapiro issued an open letter to broker-dealer chief executives on Monday, August 31, warning them to make sure supervisors are vigilant about conflicts of interests as they recruit registered representatives.

The letter was prompted by reports that some firms are offering substantial inducements to reps, including large upfront bonuses and enhanced commissions for sales of investment products.

“Certain forms of potential compensation may carry with them enhanced risks to customers,” Schapiro wrote. “Some types of enhanced compensation practices may lead registered representatives to believe that they must sell securities at a sufficiently high level to justify special arrangements that they have been given.

“Those pressures may in turn create incentives to engage in conduct that may violate obligations to investors,” she wrote.

Schapiro told the broker-dealer executives to monitor sales practices closely and ensure that investor interests are carefully considered in the sale of any security or other investment product.

Filed by InvestmentNews, a sister publication of Workforce Management. To comment, e-mail

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