The U.S. securities industry lobby group, the Securities Industry and Financial Markets Association (SIFMA), says that it supports a regulatory proposal that would require brokers to inform clients about extra compensation they may receive after being recruited to a new firm, where a potential conflict exists.

The proposed rule from the Financial Industry Regulatory Authority (FINRA) would require a firm that provides “enhanced compensation” in connection with recruiting a rep to join the firm to disclose the details of the enhanced compensation to any former client who is solicited to move to the new firm, or seeks to transfer to the new firm. The enhanced compensation would include things such as signing bonuses, loans, accelerated payouts, transition assistance and similar arrangements.

SIFMA submitted a comment letter to FINRA Tuesday in response to the proposed rule, which says it believes that disclosure of enhanced compensation, when a potential conflict of interest exists, should be the centerpiece of the proposed rule. It says that it supports “disclosure of information that is sufficient to inform an investor of the potential conflicts of interest when it may arise in connection with recruiting-related bonus payments.”

The letter notes that the potential conflict identified in the FINRA proposal arises where a registered rep will receive enhanced compensation for hitting increased commission targets, which could motivate the rep to engage in trading activity that generates commissions, but is not necessarily in the clients’ interest.

“In the context of recruiting-related bonus payments, the most important and relevant information for the client is to understand the potential conflict associated with the payment. That is the answer to, ‘Why are you telling me this?’ Once the client understands the practical and personal import of the potential conflicts, the client can then make an informed decision about whether to switch firms with their broker,” it says.

SIFMA also says that it believes that, “at key moments in the investment process, investors need clear, targeted and understandable disclosure on key factors to make properly informed investment decisions”; and, that simple, plain-English disclosures permit investors to make informed choices.

“A tenet of a uniform fiduciary standard of care for both registered representatives and registered investment advisors is necessary and adequate disclosure,” said Ira Hammerman, senior managing director and general counsel of SIFMA. “Investors should know up front about any potential conflicts of interest, and those disclosures should be in clear, plain English.”