More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
BrightScope, an independent rating firm of 401(k) plans, announced Tuesday it had launched a background check service for the public to gain insight into the compliance history and performance of the nation’s registered brokers and advisors.
The site has 450,000 listings in its database so far, and includes information about customer complaints, judgments and terminations. Mike Alfred, co-founder and CEO of BrightScope, says the platform will eventually include advisor performance and fees, and will expand to include state registered insurance agents as well.
“This is a big step forward for the public when it comes to transparency in the financial services space,” Alfred says. “It will look like night and day in six months when compared with what we’ve released today. We eventually plan to add customer reviews as well, but they will be rigorous in their documentation, not just some advisor slamming his competitor.”
When asked if the new service is supposed to compete with similar databases compiled by the SEC and FINRA and offered to the public, Alfred responded with an emphatic “no,” and noted the regulatory agencies had done a notoriously bad job in offering background checks and red flags on advisors to the general public.
“FINRA is good at setting a standard and enforcing a sanction, but they are terrible at providing transparency to investors," he says. “I’m not embarrassed at all to say this, which I say to them directly. They are more interested in protecting their member firms than they are at acting in the best interest of investors.”
Alfred is most interested in adding advisor performance information across all firms to the database.
“This is one of the most important measures of an advisor’s competency, and yet [FINRA and the SEC] completely abdicate their responsibilities on this issue,” Alfred says. “This service is about clearly disclosing as much information as possible to the public to help them decide on an advisor to hire. It’s about filling in the informational gaps that currently exist.”
FINRA spokesperson Nancy Condon had no commment when asked to respond to Alfred's comments.