The Financial Industry Regulatory Authority has failed to fix serious flaws in brokers’ background information provided on BrokerCheck, and Congress should step in if changes aren’t implemented soon, the Public Investors Arbitration Bar Association charges in a new report.
PIABA, a group of lawyers who represent investors in cases against securities firms, maintains that FINRA has not addressed the flaws cited by a March 2014 PIABA report, and that FINRA “made things worse by spending millions in advertising to get unwary investors to rely on the flawed” BrokerCheck system.
Information that is still not included in BrokerCheck reports, but available from many state securities agencies, include: the circumstances of a broker’s termination of employment (especially when the broker quits during the course of his firm’s investigation of his conduct), bankruptcy filings, tax liens and test scores, PIABA says.
FINRA advertises the BrokerCheck reports as being “complete,” PIABA says, “and helpful to investors wanting to learn more about specific brokerage firms and financial advisors.”
The 2014 report “discussed the fact that, in reality, BrokerCheck reports often omit information about brokers that is highly relevant and necessary for investors to make informed decisions about who they may want to hire.”
PIABA President Hugh Berkson, who co-authored the just-released report, said that “Before FINRA spent millions of dollars advertising BrokerCheck, it should have fixed its broken disclosure system. The current incomplete BrokerCheck reports are of limited value.”
In a statement shared with ThinkAdvisor on Thursday commenting on the latest PIABA report, FINRA said that the self-regulator “is committed to investor protection and offers BrokerCheck as a free tool for investors to educate themselves about their brokers and brokerage firms.”
FINRA, the statement continued, is “always looking for ways to make enhancements to BrokerCheck. A FINRA Board working group is currently considering a number of these issues, is developing recommendations for the full Board to discuss, and will consider topics raised in PIABA’s report in their deliberations. We continue to welcome input from those who share our goal to protect investors.”
The PIABA report notes the June 1, 2015, FINRA promotion of BrokerCheck in TV, print and online campaign, which was reported to have cost $3.5 million. FINRA’s annual report for 2015 “indicates that a substantial portion of the self-regulatory organization’s $27.4 million in expenditure for ‘professional and contract services’ went to BrokerCheck hype,” PIABA says.
“As things stand now,” Berkson said Thursday, “FINRA claims to offer information ‘You might want to know about,’ but fails to offer information you definitely want to know about. Investors should not be subject to the vagaries of their local public records laws to ensure that they gain the information necessary to fully and fairly assess their potential financial advisor. The answer to the problem is so simple, and the result so meaningful, FINRA cannot be allowed to continue to hype a broken system it knows is of limited utility.”
BrokerCheck should also tell investors to check with state securities regulators about a broker’s history, PIABA said. “There is nothing on the BrokerCheck homepage that tells an investor looking at it for the first time that they should also contact their state securities regulator for more information.”
PIABA called on FINRA to implement the following:
- Ensure that all complaints, arbitration awards, and settlements are promptly and accurately recorded in a broker’s and/or firm’s CRD record(s);
- Ensure that the data disclosed via BrokerCheck is, at a minimum, congruous with the most liberal state sunshine law;
- Include in BrokerCheck reports data concerning whether arbitration awards or settlements were actually paid;
- Add statistical information on the BrokerCheck home page to allow an investor to put an individual BrokerCheck report into context (e.g., include statistics showing the total number of registered brokers in the industry and the total number in the industry with one, two, three, four, or more investor complaints on their record);
- Open the entire BrokerCheck database to the public (e.g., academics and other third parties) to allow deep data analysis and development of quantitative and qualitative reports concerning brokers and brokers’ co-workers.
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