SEC chairman queries firms on pay methods Use of sales contests, inducements discouraged

March 30, 1997|By BLOOMBERG NEWS

WASHINGTON -- Securities and Exchange Commission JTC Chairman Arthur Levitt has launched an inquiry to find out whether compensation practices at major Wall Street firms keep brokers from acting in their clients' best interests.

Merrill Lynch & Co. and Smith Barney Inc., the two largest brokerages on Wall Street, received letters from Levitt last week asking about their use of sales contests and financial inducements to brokers working at other firms, securities industry executives said Friday.

These practices were discouraged in an April 1995 report by a Wall Street committee headed by Merrill Chairman Daniel Tully. Spokesmen for Merrill and Smith Barney said Friday the firms are in the process of responding to Levitt's letter. The Wall Street Journal reported that Levitt sent similar letters to several Wall Street and regional brokerages selected at random.

"Our practices are consistent with the Tully report," said Merrill spokesman Timothy Gilles.

Smith Barney spokesman Bob Connor said, "Smith Barney's practices are totally in conformity with the report's recommendations."

The Tully report, written at the SEC's request, recommended that firms stop paying brokers extra to push in-house investment products such as proprietary mutual funds. Sales contests should be banned, or based only on broad measures of performance rather than on sales of an individual security, it said.

The Tully report also said recruiting bonuses to brokers at other firms, and accelerated commissions to newly hired brokers, should be eliminated or paid out over a period of years.

Pub Date: 3/29/97

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