Finra to Tighten Sales Contest Rules But Raise Client-Gift Limit
The Financial Industry Regulatory Authority plans to tighten rules governing non-cash incentives that broker-dealers use to juice product sales and to raise the value of incidental gifts advisors can give clients or receive from them.
The changes are included in a that the self-regulatory organization’s board discussed last week and that were posted on Finra’s website on Friday.
The planned modification of the sales incentive rule comes amid reports of a possibly illegal sales contest at Morgan Stanley. A Finra spokeswoman declined to comment although for more than two years.
The revision, which Finra will put out for comment to its brokerage firm members, would clarify and tighten restrictions on product-specific contests but continue to allow noncash awards, such as recognition trips, to brokers who meet production benchmarks.
In a , Finra Chief Executive Richard Ketchum congratulated the securities industry for “moving away mostly” from product-specific sales contests.
“This is an important step,” he said about behavioral changes firms have made in retracting incentives on sale of products that investment companies, insurers and other “manufacturers” pay firms to sell. But he said sales managers must do more to oversee the integrity of “how the customer is being served, and across all products.”
Finra did not release a timetable for putting the revised rule out for comment..
Offering some balm to client-advisor behavioral practices, Finra said it plans to lift the value of incidental gifts that advisors can give to, or receive from, clients without the need for record-keeping to $175 from $100.
In another policy decision, Finra announced first steps it will take to execute arbitration reforms
It plans to increase the list of public arbitrators on selection lists to 15 from ten and to lower eligibility requirements for lawyers seeking to serve as arbitrary panel chairpersons. Lawyers who have served on at least one panel would qualify under the new rule, down from the current prerequisite of two panels.
Lay chairpeople will continue to have a requirement of serving on three arbitration panels before they can seek the higher-paying chairperson role.
The new arbitration rules will not be put out for comment but are subject to approval from the Securities and Exchange Commission, as are all Finra rules.
“Each by themselves sounds small, but they will move the process in the right direction,” Ketchum said of the planned arbitration panel changes.