The NASD Regulation is aware of a wide range of cash compensation practices wheretting investment companies and distributors, distributors, insurers, investment advisors or associated companies of these companies (Offerors) provide various payments, incentives, bonuses or value-added services to retail brokers/dealers or their suppliers in exchange for the sale, promotion or port of the bidder`s products. Some of these payments (sometimes called “revenue sharing”) are paid to the broker/trader and generally remain at the company level to cover the costs of the business; other payments, such as. B differential commission distributions are transferred to RRs and raise more directly point-of-sale issues related to the payment of differences for proprietary products and competition on sales. FINRA and SEC guidelines and rules provide a clear path for broker brokers to monitor the execution and implementation of cost-sharing agreements with third parties. Among the basic steps to take in preparing regulatory audits or audits, the NASD proposes to amend Rule 2830 to require the publication of revenue-sharing agreements and differentiated cash clearing agreements related to the sale of securities of investment companies. The proposal provides for a member to file these compensation agreements in writing when a client first opens an account or buys shares of funds. The proposal would also require a member to update this information twice a year and provide updates to each customer. Like many investment firms, brokers incur various costs, such as real estate, technology and back-office costs, while conducting their operations. These expenses are often borne by third parties, usually by the broker`s parent company or another related company. The Securities and Exchange Commission (“SEC” or “Commission”) and the Financial Industry Regulatory Authority (FINRA) expect brokers to execute and implement cost-sharing agreements with these third parties and meet related net capital requirements.
Just to point the finger at a wrap, and I`ll tell you that the SEC has been very aggressive in implementing wrap programs. They were on top of everything. If I had written, I don`t think they like wrap programs very much, and they were very critical, and they put a lot of cases in the wrap context. This is a brief overview of some questions about payment and distributed revenue. We`re going to change topics a bit, although the basic concept is the same, and we`re going to move to pay to play. It is a kind of participation in turnover in a defined context. You should take a look at all of them, if you look at the wrap programs on the case of the Royal Alliance, which had a number of trading problems, they also had a sales-sharing problem, but the big deal of the Royal Alliance was the SEC very critical of Royal Alliance for very often with B shares that had no front-end load but had a 12B1 as opposed to A shares that had a pre-end charge. The argument that Royal Alliance made was that many clients didn`t want an A-share with a front-end load, and the SEC looked at that and said, “If you`re historically, many of these clients would have been better at A-shares, even if they had paid a front-end charge.” It was a kind of retroactive application that said, “Hey, you have to make a decision about what`s going to be good for the customer in the long run.