The debate over mandatory compensation disclosure has moved from the floor to the streets.

The Financial Industry Regulatory Authority’s Board of Governors decided it would push the issue forward, allowing the agency to seek comment on the proposed rule to mandate brokers disclose recruitment incentives to clients. 

“The Board authorized FINRA to seek comment in a Regulatory Notice on a proposed rule that would require a member firm that provides, or has agreed to provide, to a registered person enhanced compensation in connection with the transfer of employment (or association) of the registered person from another financial services firm (previous firm), to disclose the details of the enhanced compensation to any former customer of the registered person at the previous firm who is contacted about moving or moves their account to the new firm,” the firm’s board reported in the minutes of its meeting.

The nearly two-decade old debate began under former SEC Chairman Arthur Levitt back in 1993 when he commissioned a committee to investigate the matter for the House of Representatives, but no rule was put into place. Since the financial crisis the issue had been moved to the back burner until FINRA announced in early December that it would reconsider the issue. Now it moves into a second stage as the regulatory body seeks the opinion of the brokerages that would be affected.

“[It’s] taking it one step further,” Mindy Diamond, president of Diamond Consultants, said. “It’s not a nonissue but basically nothing was decided and I think we’re not going to know anything for another one to two months.”

When first announced, the proposal elicited strong reactions from recruiters and advisors. Some believed that the disclosure was a natural part of a transparent advisor-client relationship and would help ensure advisors moved for the right reasons. Others feared that it would unnecessarily hinder advisors’ ability to bring over clients when changing firms. 

According to Diamond, the proposal could affect the 14 largest brokerages the most given that they generally offer the most substantial recruiting packages, have a higher profile and are dealing with more advisors moving in and out of the company.

“They seem to just be targeting the top 14 brokerage firms,” she said.

One presumed goal of the changes would be to prevent recently transitioned advisors from churning accounts to meet the production bonuses required to access back-end bonuses, Diamond said.

“If this rule becomes a mandate the concerns it that the way the firms are structuring transition packages will change,” she explained.

There is no indication in any of its communications, however, that FINRA plans to regulate the size of incentive packages.

In the minutes of its December board meeting, FINRA clarified some additional details of the proposal saying that it would be in effect for one year following the date the advisor associates with the new firm.

Moreover, the mandatory disclosure would not apply to any bonuses under $50,000 or customers who are defined as an “institutional account” under FINRA Rule 4512(c).

FINRA declined to comment further until the Regulatory Notice was issued.