SEC’s Schapiro issues warning to broker-dealer executives

Securities and Exchange Commission Chairman Mary L. Schapiro last week issued an open letter to broker-dealer chief executives, warning them to make sure supervisors are vigilant about conflicts of interests as they recruit registered representatives.

Securities and Exchange Commission Chairman Mary L. Schapiro last week issued an open letter to broker-dealer chief executives, warning them to make sure supervisors are vigilant about conflicts of interests as they recruit registered representatives.

The letter was prompted by reports that some firms are offering substantial inducements to reps, including large upfront bonuses and enhanced commissions for sales of investment products.

“Certain forms of potential compensation may carry with them enhanced risks to customers,” Ms. Schapiro wrote. “Some types of enhanced compensation practices may lead registered representatives to believe that they must sell securities at a sufficiently high level to justify special arrangements that they have been given.

“Those pressures may in turn create incentives to engage in conduct that may violate obligations to investors,” she wrote.

Ms. Schapiro told the B-D executives to monitor sales practices closely and ensure that investor interests are carefully considered in the sale of any security or other investment product.