Broker-dealer firms that are "vigorously" recruiting representatives with large, up-front bonuses and enhanced commissions were warned by the SEC that the agency will be watching for conflicts of interests.

In an Aug. 31 letter, SEC Chairman Mary Schapiro reminded broker-dealer CEOs of their supervisory responsibilities following reports that special recruitment programs at some firms are premised on enhanced compensation arrangements. Schapiro said some enhanced compensation arrangements could induce brokers to engage in conduct that is not in investors' best interest and reminds CEOs that they have an obligation to police for such conflicts. In addition, the letter reminds CEOs that, as their firms grow, their supervisory and compliance infrastructures should retain sufficient size and capacity.

If a registered representative is aware that he or she will receive enhanced compensation for hitting increased commission targets, that person could be motivated to churn customer accounts, recommend unsuitable investment products or otherwise engage in activity that generates commission revenue but is not in the investor's interest, the SEC said.