SEC Chairwoman Mary Schapiro sent a letter to the CEOs of broker-dealers on Aug. 31 about upfront bonuses, special commissions and other recruiting methods. Her main point was to remind the CEOs of their supervisory responsibilities, according to the SEC.
Enhanced compensation arrangements “could induce brokers to engage in conduct that is not in investors' best interest” and thus CEOs have “an obligation to police for such conflicts.”
In addition, the letter reminds CEOs that, as their firms grow, their supervisory and compliance infrastructures should retain sufficient size and capacity.
“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,” she says.
“[I]f a registered representative is aware that he or she will receive enhanced compensation for hitting increased commission targets, the registered representative could be motivated to chum customer accounts, recommend unsuitable investment products or otherwise engage in activity that generates commission revenue but is not in investors' interest,” Shapiro explains.
For the full text of the letter, see:
www.sec.gov/news/press/2009/2009-189-letter.pdf