SEC's Proposal Could Create Confusion with Broker Referrals, says Consumer Bankers Association

WASHINGTON – The Consumer Bankers Association is concerned that the SEC’s broker/dealer exemption proposal will create confusion with referrals of customers to registered broker-dealers. “Regulation B appears to prohibit all bonus plans that include any incentive for referring business to a securities broker-dealer and will require many banks to restructure their bonus programs,” wrote Marcia Sullivan, CBA vice president, director of government relations in a Sept. 14 comment letter. “We urge the Commission not to limit the flexibility of banks to structure their bonus plans in accordance with each bank’s internal organizational structure, business development priorities, customer service objectives, and other factors that are unique to each bank.” Under the SEC’s networking exemption, a bank or CU is allowed to pay unlicensed employees a “nominal one-time cash fee of a fixed dollar amount,” which can include an employee’s base hourly rate of pay; $25; or a dollar amount that does not exceed the whole dollar amount nearest to $15 in 1999 dollars adjusted by the cumulative annual percentage change in the Consumer Price Index All Consumers-(CPI-U) published by the Department of Labor that was reported on June 1 of the preceding year. Sullivan wrote that the exemption does not allow a bank to distinguish between referrals of retail customers and referrals of wealthy individuals or institutional customers. With the latter case, “many hours” may be needed to analyze their needs. As a result, the CBA is urging the SEC to exempt from the referral fee restriction referrals of customers that meet the definition of an accredited investor. The CBA is also concerned that Regulation B will “unduly interfere with bank bonus plans that take into consideration employee customer service activities involving referrals of customers to registered broker-dealers. “Bank bonus plans typically are designed to improve customer service by motivating bank employees to interact with customers, ascertain customer needs, and ensure that customers are referred to the unit of the bank or its affiliates that can best meet the customer’s needs,” Sullivan wrote. She also wrote bonus plans vary from one institution to the next and may reflect profitability goals based on bank-wide, branch, or departmental objectives. Bonus plans may be structured differently for different personnel categories and different categories of customers. “Bank referral fee and bonus programs are designed to reward employees for taking a proactive approach to customer service and banks should not be denied flexibility to structure their programs for this purpose when securities brokerage services are an option for the customer,” Sullivan wrote. -