Guide to FINRA BrokerCheck
FINRA (Financial Industry Regulatory Agency) regulates more than 4,000 broker/dealer firms, 160,000 branch offices, and 630,000 representatives (reps) who hold licenses (Series 6, Series 7) that permit them to sell investment products and securities for commission.
What is FINRA?
FINRA is a Self Regulatory Organization. The board of governors is comprised of senior executives from the financial services industry and members of the public. You would be right if you concluded the industry regulates itself, therefore it has a major conflict of interest.
FINRA Help Desk
As much as FINRA may try to make its website as user-friendly as possible, it is almost impossible for the typical investor to find what he is looking for and understand what he is reading. There is a solution. You have access to an Ombudsman’s Office that is supposed to provide objective, confidential support to confused investors. Visit www.FINRA.org/Office of the Ombudsman for more information.
How About BrokerCheck?
This is the most valuable service on the FINRA website. It enables investors to learn more about advisors and review their history of compliance with industry rules and regulations. Following are descriptions of the primary steps you must take to access and review BrokerCheck data.
Use this link to access FINRA’s BrokerCheck service.
Name or CRD Number
You can enter the representative’s first and last name, however, common names can produce several results. You will be shown a list of legal names based on the name you input into the BrokerCheck system. In this case, it helps to know the person’s legal name. A better solution is to ask the representative for his or her CRD (Central Registry Depository) number and enter it.
Broker or Advisor
You can view a representative’s record as a broker or as an investment advisor. Select broker if that option is available to you.
This page contains information about the exams an advisor has passed, the firms that have held his licenses, and whether he has any disclosures on his record. Your primary interest should be disclosures. Does he have any? Are they open or closed? How were they resolved?
Not FINRA Registered
If the advisor is no longer licensed by a brokerage firm, the system will display “Not FINRA registered since month/year.” This tells you the representative has let his securities licenses lapse, which means he should be providing investment advice for compensation as a Registered Investment Advisor or Investment Advisor Representative.
This section describes the representative’s licensing at the national and state level. Make sure the representative is licensed to do business in your state. Examinations list the licensing examinations that have been successfully completed by this representative.
Registration & Employment History
This section lists the representative’s current and past employers. It may be important if the representative has a history of job-hopping or has significant gaps in his or her employment. Make sure there are no gaps and the advisor did not change firms to maximize bonus money.
This is the most important section of the BrokerCheck service. It is also the most confusing. An investor, the representative’s company, or a regulatory agency can initiate an event that requires a disclosure that describes the complaint and the resolution. Are there any events that require disclosure? If BrokerCheck’s answer is “No,” you do not have to look any further. If the BrokerCheck answer is “Yes,” you should read the disclosure. Disclosures may be serious, non-events, or frivolous. The most serious disclosures describe events with the following outcomes:
- The representative participated in restitution to the investor
- The representative was suspended from the industry
- The representative was terminated by a company
A non-event disclosure occurs when the complaint is withdrawn. Frivolous complaints result in a ruling against the person or organization that initiated the complaint.
Watch out for advisors who have multiple disclosures on their records. You want to be cautious even if some of the complaints are frivolous. You may be alarmed that repeat offenders can retain their licenses and continue to sell investment products to the public. This is a big reason why you always check the advisor’s FINRA record.
An Investment Advisor Representative (IAR) registration is not a securities license. It is a form of registration that permits the advisor to provide financial advice and ongoing services for fees.