The Financial Industry Regulatory Authority's (FINRA) BrokerCheck tool has long been used by investors looking to do due diligence when hiring a financial advisor or broker. Some industry organizations, however, are unhappy with how FINRA is running the site. The Public Investors Arbitration Bar Association (PIABA) is one such organization. The group believes that that FINRA is hiding pertinent information about many of the advisors on its site, information that consumers would need to know before signing up to work with a broker or advisor. (For more, see: 7 Steps to Evaluate a Financial Advisor.)
Along with PIABA, a total of nine public interest groups including, Americans for Financial Reform, the Alliance for Justice, the Center for Justice and Democracy, Consumers Union, National Consumers League, Public Citizen, the National Association of Consumer Advocates, US PIRG, and the Public Investors Arbitration Bar Association have formed an alliance to better address their concerns.
One way they are doing so is by pushing FINRA’s self-appointed arbitration task force to provide more transparency and to make available a wide range of data that is currently not being made public. PIABA, in particular, claims that FINRA’s refusal to make crucial information from its database available ends up misleading investors who have a right to know about analysts full background checks. Public Citizen, a non-profit consumer rights advocacy group, is also pushing FINRA to provide comprehensive reviews of the financial advisors and brokers on its BrokerCheck system, so that consumers can make better-informed decisions when choosing the person who is going to manage their assets. (For more, see: When a Dispute with Your Broker Calls for Arbitration.)
More Info Sought
As part of its claim, PIABA asserts that because many state securities agencies now provide investors with more complete financial advisor background information than what FINRA offers, and that this data should be incorporated into the BrokerCheck system, allowing investors to find the information they need to know on one comprehensive site. By having different information on the advisors available from various sources, the quality of the disclosure material is inconsistent around the country. The organization also contends that there is no reason for FINRA to be hiding this “red flag” information from investors who access the BrokerCheck system and that Congress and the Securities and Exchange Commission (SEC) should require FINRA to provide it.
The group also points out that if a registered broker is fired by a broker-dealer, the FINRA BrokerCheck system fails to include the reason for the broker’s termination and offers very little information about the matter in which the broker was fired. It also fails to provide information showing when a broker has been under internal review for fraud or for the wrongful taking of property. Also left undisclosed if whether or the broker violated any investment-related statutes, regulations, rules or industry standards of conduct. (For more, see: Why Clients Fire Financial Advisors.)
Another area of concern for these organizations is that FINRA does not report whether or not a personal bankruptcy has been filed by a broker or if a federal tax lien in excess of $100,000 has been filed against a broker. Similarly, if the broker failed any industry qualification examinations or tests, BrokerCheck does not disclose it, nor does it reveal the test scores or the number of times a broker may have failed these tests.
The nine public interest groups have also requested in a letter to the 13-member task force that it support the group’s request that FINRA release the requested data that FINRA and the SEC have collected over time in studies and reports. The group says that these organizations should provide investors with information about pre-dispute binding mandatory or forced arbitration; the effectiveness of FINRA’s arbitrator selection process; and the prevalence of forced arbitration clauses in brokerage firm and investment advisory contracts. It would also like FINRA to provide any information that FINRA may have gathered from investors about these issues. (For more, see: How Does FINRA Differ from the SEC?)
For its part FINRA contends that Central Registration Depository (CRD) database and BrokerCheck tool both pull their information from from the same pool of information as do state securities agencies. It has, however, stated that the task force will issue a set of recommendations after a full year of review to the National Arbitration and Mediation Committee (NAMC), FINRA’s Standing Board Advisory Committee. (For more, see: FINRA: How it Protects Investors.)
The Bottom Line
Many industry pundits and organizations are pressuring FINRA to reveal more information about the brokers on its BrokerCheck tool. They claim investors need to be better informed before making such an important decision about who should manage their assets. (For more, see: Choosing a Financial Advisor: Suitability vs. Fiduciary Standards.)