FINRA strongly rejects the most recent criticism leveled against BrokerCheck that the system leaves out key ‘red flag’ information needed by investors.

The Public Investors Arbitration Bar Association, one of the critics of BrokerCheck, released a study recently saying that key information collected by FINRA is not available through BrokerCheck, but is available through state regulatory agencies that rely on the same database.

PIABA urges that FINRA provide this information, which is in the Central Registration Depository and that the group says is needed by investors, via BrokerCheck.

While rejecting some of PIABA’s claims outright, FINRA acknowledges that there are differences between what information is available through state agencies and what is provided by BrokerCheck. But the self-regulatory organization says that it is right to exclude some information, such as the number of times a broker fails an examination, because it is not material to investors, and that other information, that PIABA says is missing, is included.

‘BALANCING FAIRNESS’

“It is important to note that we do have to make determinations on what information about registered representatives is appropriate to release, while at the same time balancing fairness rather than ignoring it,” FINRA said in a statement.

In a follow-up email, a FINRA spokesperson said: “While BrokerCheck is not perfect, FINRA remains committed to improving the system, and most state securities regulators provide links to BrokerCheck on their own websites. State regulators may also offer access to CRD reports upon written request, but some charge investors for that service and none provide the instantaneous access to information available through BrokerCheck.”

‘MISSING INFORMATION’

PIABA and other advocates say that leaving it out may result in investors entrusting their money with brokers that they would not have otherwise have chosen. According to PIABA, key red flag information left out of BrokerCheck reports, but provided by state securities agencies, includes:

  • Whether a broker has filed for personal bankruptcy.
  • The reason why a broker may have been fired from a firm.
  • Whether a broker was ever under internal review for fraud.
  • If there is a federal tax lien filed against a broker.
  • If a broker failed any industry qualification examinations.

PIABA and other advocates contend that investors should have access to a single system that provides complete disclosure about a broker’s history, and that some may be misled into believing that BrokerCheck reports are the most comprehensive, when in fact state records might have additional information on the broker.
“BrokerCheck reports are not called ‘BrokerCheck-with-your-securities-regulator’ reports,” says Jason Doss, an Atlanta-based attorney and president of PIABA.

In a follow-up email, a FINRA spokesperson responded to the discrepancies between information available in state and BrokerCheck reports: “While BrokerCheck is not perfect, FINRA remains committed to improving the system, and most state securities regulators provide links to BrokerCheck on their own websites. State regulators may also offer access to CRD reports upon written request, but some charge investors for that service and none provide the instantaneous access to information available through BrokerCheck.”

FINRA RESPONSE

FINRA also contends that some of the information advocates have said is missing, is already available through BrokerCheck. Outstanding federal tax liens in excess of $100,000 are included in BrokerCheck reports, the regulator says. If a broker has filed for bankruptcy in the past ten years, then the information is available via BrokerCheck, according to FINRA. Older files are archived.

Advocates, however, say that the complete picture – including satisfied liens and older bankruptcies – are provided by state regulators, who draw upon the same database for their reports. They argue that FINRA should not set time limitations on the information’s availability through BrokerCheck due to its importance to investors.

“If a financial advisor cannot manage their own finances, then consumers would probably not entrust them to be managing their finances. So if someone has ever had a tax lien, whether it’s been outstanding or satisfied, that information may be important to an investor’s deciding whether to invest their live savings with that person,” argues Doss.

FINRA also says that BrokerCheck reports do include information if a broker is fired or resigned due to allegations of misconduct, including fraud or wrongful taking of property.

“Other reasons for termination, which do not implicate investor protection issues, are not reported,” the regulator said in a statement.

FINRA says that BrokerCheck provides the name and date of all qualifying exams that a broker has passed – but it provides neither exam scores nor notes any failed attempts. FINRA says that though the PIABA study “offers no evidence to support a correlation between test scores and broker competence, the authors argue that if an investor decides the information is important, they should be permitted to see it.”

However, that’s not how Doss sees it. “Consumers should be able to determine what’s important to them, not FINRA.”

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