PatriotLedger.com (March 23, 2014 8:20 am) -- New report shows necessity for extra checks on brokers

Many victims of financial frauds and bad brokers could avoid trouble by doing a simple background check before giving money to the bad guys.

So imagine how alarming it is to note that the primary way that consumers check out brokers is flawed.

That was the message sent recently when the Public Investors Arbitration Bar Association (PIABA) issued a report about the BrokerCheck service maintained by the Financial Industry Regulatory Authority (FINRA).

BrokerCheck is a free online database that gives investors access to background information on brokers and firms that are now or that have been registered with FINRA. It includes current licensing status and history, employment history and any regulatory issues, customer disputes criminal complaints and other matters that help investors decide if a broker is a good risk.

FINRA started making records available online in the late 1990s, but created BrokerCheck in 2007. In 2009, more than 20 million searched were conducted on the site, with roughly 18.5 million summary records viewed and nearly 4 million requests for detailed reports.
FINRA’s site (finra.org) says that the BrokerCheck service “should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.”

Having written two books on choosing and working with financial advisers, I’m a big believer in the BrokerCheck service. It’s far from perfect – no system is – but it’s the easiest access the average consumer is going to get, and far too many individuals hire advisers without doing the most cursory of background reviews.

Finding consumers who have done background checks on advisers before they hired them is rare enough, but the one constant I have found from people who have done the proper diligence is that they are the ones who are happy with their adviser. All too often, they come to the good relationship with their adviser – and the savvy to do a background check – having first had a false start or a bad experience with someone they did not check out thoroughly.

And being thorough is the issue here.

The key issues from the PIABA report include that personal bankruptcies and reasons for termination from past jobs are not included in BrokerCheck, but are available from state regulators. Similarly, PIABA noted that information about a broker being under internal reviews for fraud or other wrongdoing, facing tax liens in excess of $100,000 is available from the states, as is information on failed tests for industry qualification exams.

Jason Doss, president of PIABA and co-author of the report, said that “the information should all be available, as it is from the states. … You are better off doing a search with the state securities administrator than through BrokerCheck.”