regulatory arm of the National Association of Securities Dealers Inc. to address questionable compensation practices at NASD-member firms.
But they also said the practices do not occur in their backyards.
The NASD proposals would prohibit member firms from paying brokers more to sell proprietary mutual funds than those of third parties. They would also prohibit them from running sales contests for single securities. And the proposal would require the disclosure of "accelerated payouts," which are intended to compensate brokers for potential financial losses associated with their moving to a different firm.
Observers said the proposals would codify practices that the brokerage industry has been moving toward for several years in the wake of a 1995 report by the Securities and Exchange Commission blacklisting such practices.
The issue of paying brokers more to sell proprietary products, for example, was especially nettlesome in the brokerage industry in the mid-1990s. But brokerages, including those owned by banks, have in many cases eliminated that practice.
In fact, brokers who work in a bank often get paid less for selling proprietary funds, because sales charges are lower than those of third-party funds, said Kenneth Kehrer, who authored a compensation study of 54 large and midsize banks.
Nonetheless, some observers said the rules are necessary to ensure customers are protected.
"Everyone should be playing on the same level playing field," said Richard W. Smiley, president of the brokerage arm of San Francisco-based Unionbancal, which is mostly owned by Bank of Tokyo-Mitsubishi Ltd.
Harry Harper, the chief compliance officer at Keystone Financial Corp.'s brokerage arm in Williamsport, Pa., said he supports the NASD's proposal to prohibit higher payouts for proprietary funds. Nonetheless, he said there are several issues the association needs to consider, including how compensation would be handled in cases where proprietary and third-party funds pay different loads.
