TAG | broker discipline
Comments off · Posted by Securities Lawyer in FINRA
The Financial Industry Regulatory Authority Inc., also known as FINRA, is proposing a new rule that would allow investors to access information about a financial advisor’s business and disciplinary history directly from the firm’s web page.
FINRA filed a regulatory notice in the Jan. 25 edition of the Federal Register. FINRA said the rule would require its broker-dealer members to include “a prominent description of and link to BrokerCheck on their websites, social-media pages and any comparable Internet presence.”
BrokerCheck contains information on brokers, including professional background, the type of practice they run and whether they have been disciplined by FINRA or other regulators. Under the new proposal, a broker or firm’s website would have a direct link to the broker’s or firm’s specific BrokerCheck page. Investors would be able to click and go right to those pages.
“FINRA believes that the proposed rule change would increase investor awareness and use of BrokerCheck, thereby helping investors make informed choices about the individuals and firms with which they conduct business,” the Federal Register notice stated.
This proposal responds to a January, 2011 study by the Securities and Exchange Commission (SEC), mandated by the Dodd-Frank financial reform law, that examined ways to increase investor access to BrokerCheck.
This proposal follows a recent FINRA proposal to make brokers disclose their compensation incentives when they move from one firm to another. This comes at a time when there is much confusion about how investment advisors and brokers can use websites, blogs and social media.
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, who represents clients nationwide before FINRA. For a free consultation with an attorney on how to potentially recover your losses, call 888-760-6552, or visit our website at: http://www.securitieslawyer.com.
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Glenn Loren Halpryn (CRD #1633028, Registered Principal, Aventura, Florida)
submitted a Letter of Acceptance, Waiver and Consent in which he was censured and fined $10,000.
Without admitting or denying the findings, Halpryn consented to the described sanctions and to the entry of findings that he caused funds raised from a private placement offering to be used for due diligence on an unrelated prospective business venture.
Although Halpryn later repaid the funds to the company, he caused them to be used in a manner inconsistent with the terms of the offering.
(FINRA Case #2010025076001 )
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Comments off · Posted by Securities Lawyer in FINRA
In a March 1st, 2012, article from InvestmentNews.com, Dan Jamieson writes that Finra is considering giving up its proprietary lock on BrokerCheck data, opening the way for a higher level of scrutiny of brokers’ disciplinary information, observers said.
Finra, the Financial Industry Regulatory Authority Inc., earlier this month requested comments on the idea of giving private vendors access to an expanded database of licensing and disciplinary information. With the wider access to raw BrokerCheck data, commercial users could make the famously dense BrokerCheck reports, which disclose customer complaints, arbitrations and regulatory actions, much more user-friendly. Vendors also could create industrywide comparison data, which does not exist now. Also, some firm-level complaint data could be revealed for the first time.
“We’re talking about exponentially increasing the value of this data,” said Edward Siedle, founder of Benchmark Financial Services Inc., who investigates advisers for institutional investors.
Jamieson wites that the request for comments, Finra Regulatory Notice 12-10, is part of a larger review of BrokerCheck mandated by the Dodd-Frank financial reform law. Among other things, Finra wants to add ZIP code searches and disclose items such as broker termination information, exam scores and more historical data. All comments are due by April 6.
The InvestmentNews.com article goes on to say that up until now, Finra has guarded its disciplinary data carefully, limiting use to one-off data requests by individuals. It blocks the BrokerCheck database from automated downloading technology like screen-scraping. Critics believe this restriction has helped the industry avoid embarrassing revelations about troublesome brokers and firms. Release of the data is “clearly sensitive for member firms,” said Mike Alfred, founder of Brightscope Inc., which last year launched a broker-rating service that includes disciplinary information.
“If you’re an adviser with 12 complaints, you don’t want that information to be easy to find,” Mr. Alfred said.
“Do brokers at [The Goldman Sachs Group Inc.] have more or less bad behavior than [brokers] at [Bank of America] Merrill Lynch?” Mr. Siedle asked.
This particular type of data sort isn’t possible with the current system of access.
“That’s the number one complaint we hear — the [database] doesn’t allow for any grouping or aggregation of the data,” said Mr. Alfred, who along with Mr. Siedle charges that Finra has stymied efforts to allow access to the entire database.
Finra is not trying to protect the industry, Finra spokeswoman Nancy Condon said in an e-mail.
“We have steadily expanded the information released through BrokerCheck over the years and made it easier for investors to access,” she wrote, adding that Finra recently enhanced BrokerCheck reports by adding links to disciplinary actions and arbitration awards.
“If you’ve been in business 30 years and been sued three times, where do you fall on the risk curve?” he asked, noting that such a figure may be quite normal for an industry veteran.
Having better comparison data might help the industry’s image, Mr. Siedle said. “Now, the system doesn’t establish behavorial norms,” adds Mr. Siedle.
Jamieson writes that Brightscope’s listing of advisers incorporates a conduct rating, using a horizontal bar to graph an adviser’s disciplinary record in one glance. A full-length bar shows no past problems, but shortens with each dispute or termination.
The Paladin Registry, which lists a limited number of advisers it certifies, checks all of its advisers’ compliance records before admitting them into the service, said Jack Waymire, Paladin founder. Both services charge advisers monthly fees.
Also, Mr. Siedle said it is a challenge for private providers to use the massive amount of disciplinary information found in BrokerCheck.
“They have to use a scalable business model” that limits how much investigation they can do on any one broker, he said.
Brightscope takes BrokerCheck information as Finra provides it, Mr. Alfred said.
There is a general consensus that the system needs to be more user-friendly. BrokerCheck data is “convoluted” with jargon and difficult for investors to interpret, Mr. Waymire said. He said his surveys show that less than 5% of investors check the compliance records of advisers before they hire them.
A 2009 survey by the Finra Investor Education Foundation found that just 15% of surveyed investors checked up on their broker’s background. In the end, Mr. Alfred doubts Finra will open up its database to commercial vendors.
“They would have done [that] years ago, if they were genuinely interested in protecting the best interests of investors,” Mr. Alfred said.
Finra is under the gun to unify BrokerCheck search results with the Investment Adviser Public Disclosure (IAPD) database, which is based on Form ADV information filed with the Securities and Exchange Commission. Since it is public information, the IAPD data is not blocked from automated downloads, as is BrokerCheck data. IAPD data on individuals has only been available since 2010, however. Finra may have to resolve the differences in access policies.
The InvestmentNews.com article says that in a January 2011 report, the SEC floated the idea of merging the two systems into a single public database, but for practical reasons, recommended that for now the two databases be maintained separately and search results unified. Ms. Condon said Finra welcomes comments on how to handle the access issue.
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