Easing the way for stockbroker checks
You can learn more than previously about a broker or financial advisor's background, under some new groundrules for regulatory disclosures
Not a bad idea when one is beginning a relationship with someone who has a big say in what you do with your money and investments.
Bernard Madoff – and a number of smaller-scale fraudsters – to operate with all their regulatory files in order, while consumer protections were nowhere in sight.
But this summer, several changes make looking up a broker or a financial advisor less difficult than it was before the financial crisis began. You don't have to be a lawyer to figure it out, either.
Levine said that when he was picking out a financial advisor, he started poking around online to see what he could find out about the one he was considering, Andrew Horowitz of Horowitz & Co. in Weston, whose firm manages about $80 million.
The Securities and Exchange Commission has a record that gives lots of details about how firms like Horowitz's operate. Now, a website launched in June by state securities regulators and others made access to this information easier to find and the record is more extensive than it used to be.
And starting last week, under another set of reforms, the Financial Industry Regulatory Authority or (FINRA), began providing online records of stockbrokers who have had big disciplinary problems in the previous two years even if that person changes careers.
Why is that important? Because people trained in financial services find it easy to jump into new positions in similar industries, such as insurance or mortgage lending. They could cause more financial harm to the public, which until now had very limited information about the person's background.
Now, BrokerCheck has expanded again. It discloses any historic complaints against a broker that are more than two years old, or that were resolved or settled for more than $15,000 or more than $10,000 if the dispute happened before May, 1999. Previously, fewer historic complaints were disclosed. In November, BrokerCheck records will be expanded to include 10 years of historic complaints for brokers who have left the industry.
Before the expansion of the information on BrokerCheck, bad actors were not easily flagged.
"Let's say I'm a really bad guy," said Horowitz, who has no record at BrokerCheck, which means he has no big disciplinary issues in his past. "After I am no longer registered, it's really like the record is expunged [from the old Brokercheck sit]. It's gone. That's stupid."
It is less stupid now, with the newly expanded on BrokerCheck. And the public has demanded it.
"For investors I think it's a huge win," said Richard Pullano, an executive vice president at FINRA. "They are really interested in seeing the entire picture and making their own decisions. We've heard that loud and clear."
Be warned that the records you find don't have every single detail of brokers and their disputes. And it's still up to the securities firms to notify the regulators about things that should be added to the record. A longtime critic of Finra's disclosure policies, Edward A.H. Siedle, a pension investigator from Ocean Ridge, says securities firms sometims ignore the rules and report problems long after they happen, even years later.
"The BrokerCheck program is working exactly as it is supposed to work – which means it is about a decade behind the Internet, which is exactly like the brokerage industry wants it to operate," Siedle said. "It should be working significantly better to provide investor protection, but that's not what anyone wants it to do."
Levine, the attorney and investor, says investors should go beyond the online records check. When you meet the broker or advisor, do a "gut-check" for whether the person seems trustworthy. "What people have done in the past is not necessarily a predictor for the future," he said. "At the end of the day, you should rely on your own common sense and your judgment."
BrokerCheck is free and available at http://www.finra.org. Also, http://www.adviserinfo.sec.gov stores state and federal regulators' information on financial advisors and firms.
I'd take that a few steps farther. Once you've checked the broker or advisor's credentials, you should ask a few questions -- about the fees you will be charged, the ground rules for communication (how often, will you be talking with the advisor or an assistant or someone in another office?) and exactly how the performance of your portfolio will be measured.
Ask yourself a few questions, as well. Such as how much risk are you really prepared to take. That answer, too, has probably changed from what it was before the financial crisis hit.
Harriet Johnson Brackey can be reached at firstname.lastname@example.org or 954-356-4614.