Brokers Balk At Expanding FINRA's BrokerCheck Reports

Thursday, March 15, 2012 09:32
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Brokers Balk At Expanding FINRA's BrokerCheck Reports

Tags: FINRA

FINRA's proposal to give retail investors more disclosure on broker records is getting some blowback from those who don't want their test scores and other historical details made public.

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I'm not a fan of the way BrokerCheck works at the moment and would welcome any overhaul that makes it easier for investors to access and understand the data.

 

The system seems deliberately designed to frustrate research -- and in fact, that's exactly what happened.

 

FINRA went out of its way to prevent corporate users from "strip-mining" the system for broker data, ostensibly to protect these reps and their firms from becoming the target of opportunistic marketers, recruiters, and mailing list operators.

 

But in practice, the system goes so far to protect brokers from being marketed to that it just isn't designed well to do its job of protecting the public. There are too many authentication screens to click through, too many hurdles to get the information, too much jargon to sift once you get it.

 

From that perspective, it's a little ingenuous for brokers to protest that it's not fair to include exam test scores because there's no proven link between how well someone did on a Series 7 and how good a financial advisor he or she is.

 

If test scores don't matter, then why take the test? And if the test matters, then why shouldn't scores be relevant to an investor's choice of advisor?

 

I agree that there are a lot of more important things for investors to think about: compensation model, regulatory record, character.

 

In an ideal world, BrokerCheck would provide a one-stop background check on every advisor FINRA oversees, written in plain English and designed to be easy to navigate.

 

Ironically, the lack of a plain English system is part of what's driven third-party information providers to try to reverse-engineer the database and create a more effective alternative.

 

But balking at test scores underlines a basic truth about BrokerCheck as it currently works: it's not really for the investors.

 

It's a chore that FINRA and affiliated firms have accepted as part of the cost of doing business. They don't enjoy it. They don't find transparency liberating.

 

And they don't want the investing public to actually see that brokers who score really well on FINRA's tests can still turn out to be crooks, just as sure as brokers who only manage a passing grade can be fantastic.

 

The tests don't measure character. 

 

Advisors with character can take the high ground here. Go beyond regulatory requirements. Be honest. Let the prospects decide.

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