Schapiro's Open Letter to Broker-Dealer CEOs Questions Incentives

Posted on September 11, 2009 by Jack J. Gravelle

SEC Chairman Schapiro has reminded broker-dealer CEOs in an Open Letter dated August 31, 2009, that they have a responsibility to oversee the sales practices of their registered representatives.  Schapiro states she is concerned with reports of offers of compensation inducements such as large up-front bonuses to prospective registered representatives.  The fear is that enhanced compensation for hitting increased commission targets will encourage registered representatives to “churn customer accounts, recommend unsuitable investment products or otherwise engage in activity that generates commission revenue but is not in investors’ interest.”

The sentiment of the letter parallels current congressional and agency discussions regarding executive compensation: Beware incentives for employees that are counter to the goals of investors.
 

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