FINRA is requesting comment on ways to boost investor use of BrokerCheck, the self-regulatory agency’s website where consumers can find a broker’s disciplinary and employment history.
Specifically, FINRA requests comment on potential changes to the information disclosed through BrokerCheck, the format in which the information is presented, and strategies to increase investor awareness of BrokerCheck.
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The system has been criticized for years for offering too little information about investor complaints, regulatory sanctions against brokers, and reasons for a broker’s termination.
“BrokerCheck excludes information about the reason for termination and any comments from the formerly registered representative,” writes
Brian Willingham, a private investigator who provides support to litigators in investment fraud cases.
Willingham says some “disclosable” events are not reported on BrokerCheck but do get disclosed on a different database, the Central Registration Depository (CRD) system, which only state regulators can access. Consequently, Willingham says, investors must go through the cumbersome process of formally asking state regulators to send them a broker’s CRD report—which in many states only are sent by
mail—to access all of publicly available licensing information about a broker.
Willingham’s cites a query into the employment history of a FINRA-licensed individual who had been terminated from his last job by an employer citing a “loss of confidence” and an ongoing criminal investigation by South American authorities—none of which was available on BrokerCheck and that was only available via querying a state regulator to ask for a CRD report.
Shortcomings of FINRA BrokerCheck have been ignored by FINRA for many years, and investors should not face such obstacles to access information about their financial advisors. Transparency must be the byword of the securities industry’s self-regulating organization. Anything less hurts honest brokers, undermines investor confidence in the markets, and is thus inexcusable.
One way to promote transparency is to consolidate information available on financial advisors into one database. CRD and BrokerCheck should be one system. In addition, it would be good for FINRA BrokerCheck and the SEC database of Registered Investment Advisers and investment adviser representatives were consolidated. An investor may not know his investment adviser also acts as a securities broker and should not have to look in two different places for the same information.
Finally, why not open BrokerCheck and Form ADV disclosures by investment advisers to search engines? This information should be known to consumers. If you hope ever to create a profession of the financial advice business, making it easy for the public to spot bad advisors can help. Transparency would serve as a huge deterrent, clean up the business, and lower the cost of regulation.
Incidentally, the SEC recently asked for comments from the public on improving financial literacy and investor disclosure with regard to financial intermediaries, investment products, and investment services. Investment advisors can view and post comments on how to improve disclosures