Up-front recruitment bonuses at broker-dealer firms may push employees to engage in improper sales and trades, the head of the US Securities and Exchange Commission has suggested.
In an open letter, Mary Schapiro, the chairman of the SEC, warned chief executives at brokerages against offering compensation arrangements that may encourage brokers “to believe they must sell securities at a sufficiently high level to justify special arrangements.
“Those pressures may in turn create incentives to engage in conduct that may violate obligations to investors,” she said.
Citing news reports that suggested some firms were leaving consumers at risk because they offered enhanced commission for sales of investment products, Ms Schapiro said that she wanted to remind broker-dealer firms of their duty to oversee their employees’ sales practices.
She encouraged broker-dealer firm chief executives to be “particularly vigilant” in ensuring that investor interests are carefully considered in the sale of any security or other investment product.
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The letter, part of a wider clampdown on executive pay, reminds chief executives that, as their firms grow, their supervisory and compliance infrastructures should retain sufficient size and capacity.