Criminal, credit, compliance ... criminal, credit, compliance ... criminal, credit, compliance. Say it three times fast if you can, but ignore it at your own peril. Because neglecting the details behind these three background checks--which virtually every broker-dealer will do before consummating a deal with a new recruit--will turn your visions of upfront dollars into a mere mirage.

When a broker changes firms, the NASD and the relevant states review the candidate's license as if it was new. That means looking at the details of anything criminal in the adviser's past, as well as any prior customer complaints appearing on his permanent record--regardless of the sums involved or how long ago these activities occurred. In effect, brokers are forced to re-examine problems in the past that they'd just as soon leave there.

In addition, brokerage firms now routinely check the credit of their prospective hires. Brokers are professionals responsible for the caretaking of the finances of others. If an adviser has excessive credit card debt or an unexplainable bankruptcy, regulators assume that he will be generating fees and commissions for his own benefit and not for the client's.

As a headhunter, I'd like to tell you that I've seen it all. But it's not so, because every month brings a new surprise. The following anecdotes, provided with the help of my vice president, Jordan Schultz, are true stories from The Headhunter Files. We've selected two cases for each background check option: criminal, credit and compliance. See if you can accurately predict whether the result would be a deal or no deal. The answers are at the bottom; names have been changed to protect the guilty.

CRIMINAL
George is a 45-year-old adviser with a regional firm. He's looking to move to another regional in the same city. Producing about $400,000 per year, George is considered a pillar of his community and a solid citizen who can attract other brokers from his old firm once he moves. He has never had a compliance problem in 17 years in the industry. The background check reveals that as a 21-year-old in college, George was arrested for stealing a keg of beer as a fraternity prank. He didn't remember to mention this to the new firm before the paperwork was run.
Deal or no deal?

Steve is a 47-year-old adviser with a regional firm. A steady $700,000 producer doing mostly fixed income business, he is interviewing with a wirehouse. Steve's compliance record is pristine. Five years ago, Steve was involved in a domestic dispute during which his son called the police. No formal charges were filed, but the event showed up on Steve's permanent record. He disclosed this to the hiring manager early in his interviewing process.
Deal or no deal?

CREDIT
Stacey is a 41-year-old broker with a major brokerage firm. She has produced more than $1 million for the last six years with $150 million in assets. She has moved twice before and has been with her current firm for five years. Her deal is now expiring. Stacey has had two minor compliance problems in the past. On running the credit report, the prospective new firm discovers more than $100,000 in outstanding credit card debt. Stacey is current with her payments.
Deal or no deal?

James is a 32-year-old broker and is already producing $600,000 after only six years in the industry. He has been with only one firm, and his assets are more than $80 million. James has just come through a nasty divorce. He candidly tells the interviewing managers that the reason for his prospective move is to seek cash to recoup the financial devastation of his divorce. He is also considering filing for bankruptcy. His compliance record is spotless, and his credit report is just starting to show the strains of his recent travails.
Deal or no deal?

COMPLIANCE
Lisa is a 37-year-old broker with a major firm. After five years, she is producing $400,000 with $43 million in assets. Last summer, her most important client called her from Europe and instructed her to wire assets from one of his accounts so he could buy property abroad. There was no letter of authorization on file. The client told Lisa: "You are a smart woman--you will find a way to make it happen." The money was transferred. Lisa's branch is now being audited. She confesses the truth to me that she indeed forged the client's name in order to make sure the transfer went through. The client is still with her and promises to vouch for her that she was acting under his instructions. Lisa is terrified that the forgery will be discovered during the audit.
Deal or no deal?