BrokerCheck could use a checkup
Financial advisers are well-aware that client trust is the key to success, and without it, they simply would have no business.
Financial advisers are well-aware that client trust is the key to success, and without it, they simply would have no business.
If the bedrock principle of trust were applied throughout the financial services industry, we’d be well on our way to restoring investor confidence in the system.
A good place to start spreading trust would be with the Financial Industry Regulatory Authority Inc.’s BrokerCheck system, which lately has received some negative media attention.
Finra officials say BrokerCheck provides “information about Finra-registered firms and brokers to help investors determine whether to conduct, or continue to conduct, business with these brokerage firms and brokers.”
Finra allows online users to search a registered representative’s qualifications, employment records and disciplinary actions. But since the information provided by Finra is not complete, investors cannot truly rely on this online resource.
Finra says it holds data for more than 647,000 registered representatives, but it deletes a broker’s information from the website after the rep has been unregistered for two years.
That’s a flaw.
Consider that every year, Finra bars several hundred brokers for life. As a result, two years after their suspensions, those individuals and their records disappear from BrokerCheck.
Jay Cummings, who oversees BrokerCheck for Finra, has stated in published reports that after the two-year gap, Finra no longer can vouch for the accuracy and completeness of items not provided by securities regulators.
While Finra cannot vouch for a broker’s activities once he or she has left the group’s supervision, there is still value in providing historical data about broker misdeeds. Many of these wrongdoers unfortunately wind up engaging in unsavory activities at other financial firms. With information about them removed from Finra’s public re-cords, there is no easy way for investors to find out whether the individual soliciting them has a checkered past.
Finra must revise its policies and stop giving bad brokers additional opportunities to harm investors. Only by providing reliable, accurate and comprehensive information about all Finra rule violations can investor trust be restored. Transparency is good for investors and for those honest brokers who continue to play by the rules.
InvestmentNews reporter Sara Hansard reported last week that the Securities and Exchange Commission and Finra are looking at ways to provide investors with expanded disciplinary information about brokers.
The folks at Finra have proposed making all data about regulatory actions against a broker part of its permanent records. The Finra plan, however, does not include making permanent the information on former brokerage employees’ criminal convictions, bankruptcies and judgment liens.
While Finra is making strides in this area, according to the North American Securities Administrators Association Inc., state regulators nevertheless object to “the narrowness of the proposals.”
During recent testimony at a House Financial Services Committee hearing, Finra chairman and chief executive Richard Ketchum said: “I am deeply troubled by our system’s failures during the past two years and eager to see changes that could improve the level of investor protection. When so many investors have been harmed, it is vitally important that all regulators take a hard look at their program, identify lessons and make changes that can better prepare them for the future.”
Fixing, and perhaps expanding, BrokerCheck would be a good first step in taking action on those sentiments in order to regain the trust of investors.
Jim Pavia is the editor of InvestmentNews.
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