Daily Finance (March 13, 2014 10:00 am) - When you hire a financial professional, it's natural that you'd want to know that the person you're entrusting with your hard-earned money is solid and reputable. But how much do you really need to know about them?

Two groups are fighting over whether customers are getting as much background information about their financial advisers as they should have. Last week, the Public Investors Arbitration Bar Association made serious allegations about the amount of disclosure that investors get about their financial professionals. According to the association, BrokerCheck -- the free tool that the Financial Industry Regulatory Authority makes available to the public -- doesn't include all the information that investors can get from other sources.

The association -- which calls itself a "voluntary bar association of lawyers who represent claimants in securities and commodities arbitration proceedings and securities litigation" -- pointed to certain disclosures that state securities agencies release from the Central Registration Depository, a database that includes information about investing professionals. According to the association's analysis, FINRA's BrokerCheck tool didn't include all the information that was available from that database, including items like employment terminations, failing securities exams, older bankruptcy proceedings, tax liens and internal reviews of their business practices.

As a result of its study, the association believes that disclosures to the public should be "harmonized," with BrokerCheck, giving the same level of access to professional records that state disclosures provide. The report cites numerous attempts to force FINRA to do so, including requests from the Securities and Exchange Commission to increase access. Moreover, the association suggests that because BrokerCheck has been so successful, with tens of millions of searches done annually, it's reasonable to require BrokerCheck to be the conduit for increased disclosure.

A Balancing Act

After the study was released, FINRA defended its disclosure practices. FINRA argued that in cases where a company terminates a registered representative's employment for reasons that have implications for investor protection, it discloses both the termination and any allegations of misconduct, including breaking securities laws or rules, fraud, theft or a failure to supervise. When terminations aren't related to investor issues, then FINRA respects the employee's privacy and doesn't report the reasons.

In addition, with respect to bankruptcies and other credit-related information, FINRA said that it follows guidelines under federal law for deciding when to stop reporting former events. Specifically, the Fair Credit Reporting Act sets standards for when credit reports should include or exclude bankruptcies, judgments, liens and other credit events from the distant past, and FINRA argued that its practice is consistent with those standards.

Finally, FINRA noted that it sees no evidence of any connection between test scores and broker competence, and therefore reports only the date of any passed exams, omitting any information about specific scores on those tests or on test failures.

More broadly, FINRA's position points to what it sees is its responsibility to consider whether particular information about financial professionals is actually material to investors in their assessment of their performance, rather than simply releasing every single piece of available public information. FINRA notes that checking with other sources, including state securities regulators, is essential to be fully informed about a financial professional's background.

What You Should Do

Clearly, whenever any organization filters information, the inevitable question that arises is whether that filter does a good job of focusing data recipients' attention on the key pieces of information while not leaving out important details.

If nothing else, the PIABA study should alert investors about the information available on financial advisers through state securities agencies, even if it isn't as easily accessible as FINRA's BrokerCheck.