SEC warns brokers against big bonuses

Posted Sep 2nd 2009 1:00PM by Connie Madon
Filed under: Management, Employees, Market Matters, Personal Finance

If you've worked as a broker you know the game. The house sets quotas. You must meet the quotas or its good-bye.

As a broker, your first and foremost obligation is to the client. You can make recommendations, but in the last analysis, the decision to buy or sell a security rests with the client. Brokers, however, are often under the gun by management to tout certain securities to their clients that may not be in their best interests.

BusinessWeek reports that Mary Schapiro, Chairperson of the SEC, warned brokerage firms in a letter not to use large bonuses or large commissions as way of luring brokers. Brokers then feel that they must live up to the firm's expectations and could use unethical practices such as "churning" a personal account. This means that the broker encourages clients to keep buying and selling securities or buying more securities than are needed to make quotas or high commissions.

Schapiro reminded firm supervisors to monitor potential "conflicts of interest" to ensure that clients' interests are "carefully considered."

Today, many traders bypass their brokers by trading electronically online. This has changed the financial landscape by leaving fewer investors who use a regular broker.

Do you believe that it is better to do your own trading online or should you rely on your broker to help you?

Tags: bonuses, brokers, churnings, commissions, inthenews, Mary Schapiro, SEC

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Reader Comments (Page 1 of 1)

9-02-2009 @ 2:13PM

jd said...

Why anyone would use a broke-r with today's access to Level 2 trading and many online platforms is incredible. Ditch the broke-rs. They know nothing you can;t learn yourself. Use your brain.