More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Brokers’ disciplinary histories are now prominently displayed for the Web-savvy public; they’re no longer filed away at the Financial Industry Regulatory Authority (FINRA), where only the most diligent investors will find them. FINRA has made your disciplinary history freely and easily available to the public by launching a web-accessible discipline database.
Whether the easy accessibility of the information is a positive or negative will depend on a broker’s history. Those with a clean record will undoubtedly benefit from the easy accessibility of the information and the ease with which clients and prospects can canvass their record and compare it to others. Those with a history, whether deserved or not, may now find themselves on the defensive with prospects more often.
The public can search the FINRA Disciplinary Actions Online database (DAO database) by using any of the following criteria, either alone or in combination:
- Case Number
- Document Text
- Date Range
- Document Type
- Individual Name or CRD#
- Firm Name or CRD#.
In the past, the public was forced to contact FINRA to obtain copies of disciplinary actions. Undoubtedly, investors were far less likely to make in-person contact with FINRA through mail or by telephone than to take the easy step of logging onto FINRA’s website and searching its database.
A number of disciplinary documents are available on the site, including Letters of Acceptance, Waivers and Consent,
settlements, National Adjudicatory Council decisions, Office of Hearing Officers decisions and complaints. These documents can be printed or downloaded from the site in PDF form.
Perhaps the biggest improvement over the old system is the DAO database’s direct link with BrokerCheck reports. This interconnectivity is in addition to the links between BrokerCheck and the Arbitration Awards Online database. Investors logging onto FINRA BrokerCheckwill have direct access to disciplinary records through links. Undoubtedly, many investors will find their way to the DAO database through BrokerCheck—which was accessed some 17.2 million times in 2010.
A record of discipline will undoubtedly affect brokers’ bottom lines now more than ever. Whereas in the past only the most diligent clients and prospects were aware of a brokers’ disciplinary history, far more potential clients will come to initial meetings, if at all, with the records in hand. Be ready to answer the hard questions.
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See also The Law Professor's blog at AdvisorFYI.