Corporate & Securities Law

The SEC?s effort to restrict incentive compensation structures used by both broker-dealers and investment advisers is not likely to extend to up-front bonuses used in adviser recruiting.

The SEC recently voted in favor of issuing a proposed rule that would force broker-dealers and investment advisers to end compensation structures that reward risk taking at the expense of customers and clients.

In making its decision to vote in favor of the proposed rule, the SEC focused on pay practices that were aimed at improving the performance of advisers, rather than traditional recruiting bonuses that are unconditional and cannot be clawed back based on poor performance.

If passed, the new rule would require both broker-dealers and investment advisory firms with over $1 billion in assets to disclose their incentive-based compensation arrangements. The new rule would also restrict financial institutions with more than $50 billion in asset, which would have to defer for a limited time 50% of incentive-based compensation for certain executives. These institutions would also have to, among other things, claw back bonuses if the company loses money.

The proposed rule will be published in the Federal Register and open to comments for 45 days after the regulators give their approval.

Eccleston Law Offices assists advisers in their transition.  If you are an adviser and contemplating a transition that involves transitional bonus compensation, contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 to discuss your transition.