MSN via Barron's (October 24, 2023) - Financial advisors can too easily erase customer complaints from official records, but new regulatory reforms may finally add safeguards to a process that has been abused, says an association of attorneys who represent investors.
The reforms may help ensure Main Street investors can rely on the accuracy of official records, the Public Investors Advocate Bar Association says in a new report.
“We want investors who look up brokers to have comfort that their broker doesn’t have any complaints,” says Joe Peiffer, incoming president of Piaba. “We don’t want that to be a false comfort.”.
Advisors are able to remove complaints through a process known as expungement, which is overseen by the Financial Industry Regulatory Authority (Finra), a private self-regulatory organization.
Expungement is intended to be an extraordinary remedy for advisors to remove erroneous or false complaints, according to Finra. Piaba and investor advocates have criticized Finra’s expungement process for rubber-stamping advisor requests to erase valid customer complaints. Such complaints would otherwise be visible on BrokerCheck, a public database maintained by Finra.
Ninety percent of advisor requests to remove complaints made via so-called “straight-in” expungements were granted, according to the Piaba report, which reviewed data on 2,506 expungement awards from January 2019 to Aug. 31, 2023.
In a straight-in case, an advisor files an arbitration against their own brokerage firm requesting expungement of customer complaints. The requests are typically unopposed because the investor who made the complaint isn’t present to challenge the request, according to Piaba, which has conducted three studies of expungement data.