COMPENSATION PRACTICES
Information to Retail Client, Securities Firm Management, Registered Representative Training and Compensation Practices were issued on April 10, 1995 by a committee established by Securities and Exchange Commission Chairman Arthur Levitt, Jr. The panel studied how management practices, including compensation, affect client-broker relationships. Daniel Tully, Chairman of Merrill Lynch & Co., served as the committee's chairman. Other members were: Warren Buffett, Chairman of Berkshire-Hathaway, Inc.; Samuel Hayes, a Professor at the Harvard Business School; Raymond A. Mason, Chairman of Legg Mason, Inc. and former SIA Chairman; and, Thomas O'Hara, President of the National Association of Investors Corp.
- Payments to registered representatives should be identical for a firm's own investment products, such as proprietary mutual funds, and for investments within the same product category marketed by a firm but created by other organizations.
- "Appropriate" disclosure should be made to clients of temporary accelerated payouts to representatives.
- Sales contests on single products should be prohibited.
- "Appropriate" disclosure should be made to clients of any bonus payment a registered representative receives for joining a firm. Such bonuses should be paid over several years.
- Some part of RR compensation should be deferred for several years and payment linked to the RR's compliance record.
- In part, RR compensation should be based on client assets, regardless of transaction activity.
- New RRs should receive a base salary, which should be supplemented according to their productivity.
- Brokerage firm stock should be part of an RR's compensation.
For more information on Best Practices, please contact Don Kittell.
(Adopted by the Board November 1996)
