What You Should Know About Your Advisor that FINRA Might Not Tell You and Three Things You can Research About Your Investment Advisor or Broker on Your Own
Every educated investor knows that conducting proper due diligence before investing with a broker, adviser, or other financial professional is essential to investor protection. And, usually, that means researching the professional through FINRA’s BrokerCheck and/or the relevant state securities regulator. Unfortunately, many investors stop there, which is often a mistake.
First, state securities regulators and FINRA can only provide information on registered professionals whom they know about. If you use BrokerCheck to find information on a broker or your state securities regulator’s website to find information on an adviser and you come up empty handed, you should consider that a red flag that the so-called professional may not be who they appear to be.
Even if you do find information on them, however, be aware that there is a long list of information that may not be disclosed online, including:
• A complete history. If a broker has a long history, it is unlikely that the entire history will be chronicled in BrokerCheck. To obtain information on all the actions reported against a broker since he or she first became registered with FINRA, you would need to obtain a “legacy file.”
• Why a broker was terminated. FINRA’s BrokerCheck may include a record of termination, but it won’t give you a specific reason. It’s worth finding out whether the termination was due to serious misconduct – like stealing or churning accounts – or something more innocuous.
• Records and actions that have been expunged. Brokers have the right to petition for expungement of customer disputes, arbitration awards, and orders against them. If the expungement is approved, all the records are taken out of BrokerCheck’s central database, which means a search in BrokerCheck could reveal a clean record, even if the broker has been in trouble.
State securities regulators usually include more information in their reports than the information provided by FINRA, but that information can be confusing and/or buried in long reports, which may make it difficult to find. Try to verify the information you receive with a second or third source before investing with any financial professional, and consider asking for references. Unfortunately, even the best attempts at due diligence cannot protect you from investment fraud completely, but every extra step helps.
Taking these simple steps in selecting or researching your broker or advisor can make for a smarter and more secure investment experience. However, breach of fiduciary duty continues to be the most common type of claim filed with FINRA, followed by negligence, failure to supervise, misrepresentation, unsuitability claims and breach of contract.
Recently, the percentage of FINRA panel decisions in which investors were awarded damages has steadily increased - offering a positive trend for those seeking to reclaim lost investment monies. So far, a large number of the claims filed throughout 2011 - 2012 involve common stock securities and mutual funds. You can read more in our blog posting here.
If you've had a bad financial experience with an investment broker or advisor - there may be recourse. Contact us with the scope of the situation via the form at the top of this page.