Many of our clients ask about FINRA’s BrokerCheck.  Located on FINRA’s website, finra.org, BrokerCheck is defined by FINRA as “a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives. It should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.” 

When using BokerCheck you can: research information about the broker and brokerages,  research information regarding investment adviser firms and the representatives, if they are available you can also get background reports online, and from BrokerCheck, you can link to other resources such as educational tools for the investor.

FINRA says that the information about brokers and brokerage firms made available through BrokerCheck is from the Central Registration Depository (CRD^®), the securities industry online registration and licensing database. The information about investment adviser firms and representatives made available through BrokerCheck is from the Securities and Exchange Commission’s Investment Adviser Public Disclosure (IAPD) database.  

We encourage all investors to use this very valuable tool provided to them by the Financial Industry Regulatory Authority (FINRA). As FINRA says, it should be the first tool you use when choosing a broker, brokerage, financial advisor or an advisor firm.

(Find BrokerCheck by going to finra.org, click on the ‘industry’ link, then click on ‘BrokerCheck.’)

 Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: http://www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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In a March, 2012, article for InvestmentNews.com, Dan Jamieson writes that industry observers are wondering why the Financial Industry Regulatory Authority Inc. (FINRA)has issued a proposal to disclose licensing exam scores on its BrokerCheck system.

Finra has requested comments regarding disclosing more through the disciplinary reporting system, including exam scores, broker termination information and more historical data.

Jamieson writes that the request, Finra Regulatory Notice 12-10, is part of a larger review of BrokerCheck mandated by the Dodd-Frank reform law. Industry commentators are confounded by the idea of publishing exam scores.

“I believe publishing test scores makes no sense for someone who has been in the business for over 25 years,” April Kvalvik, a broker with Bank of America Merrill Lynch, wrote in a comment letter. “As a CFP, I have mastered many complex areas in investing and financial planning. I do not think that scores from a 25-year-old test are relevant.”

“Such scores reflect only the knowledge of regulatory requirements at the time of the test and not investment knowledge or any relevant industry skills,” wrote David Wiley, president of Wiley Bros.-Aintree Capital LLC.

“In fact the very act of publishing such scores would be misleading, as it connotes validity … in selecting a broker,” he said.

“I would like the grades of all Finra and SEC employees, schools they attended, last ten years of employment, criminal history … bankruptcy filings and any financial judgments … made public,” wrote Catherine O’Brien, a representative at Crowell Weedon & Co.

The InvestmentNews.com article points out that Finra also is considering making the massive BrokerCheck database available to private vendors. Currently, it blocks automated download tools from accessing the system.

“It is important that Finra and the SEC make the data underlying these databases available for download in electronic, machine-readable format, so that nonprofit entities, as well as journalists and other investigators, are able to gain access and do sophisticated investigations using the information,” wrote Ellen Miller, executive director of The Sunlight Foundation.

Finra had no comment.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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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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The brokerage, LPL Financial, LLC, was fined $100,000 November 22, 2011,  by the State of Oregon for failing to supervise a broker that sold high-risk oil and gas partnerships to clients, many of whom were elderly.

According to the Oregon Department of Consumer and Business Services, a former LPL representative, Jack Kleck, sold the oil and gas investments to many Oregon residents. Given their age and investment objectives, the investments were not suitable.

On the BrokerCheck website of the Financial Industry Regulatory Authority Inc., or FINRA, Jack Kleck was a broker with LPL in La Grande, Ore., from 2000 to 2006, when he resigned, according to his profile. He was then with Pacific West Securities Inc., four months and has not been registered with another firm since 2007. The State of Oregon revoked his license in 2007 and fined Kleck $100,000 but suspended $70,000.

Having around 12,800 registered representatives and investment advisers, LPL Financial is the largest independent broker-dealer in the country.

According to the statement from the department, LPL failed to supervise the actions of Jack Kleck and failing to ensure that company policies and procedures were enforced.  Many of Kleck’s clients were elderly– 70s and 80s, and may not have been capable of making sound investment decisions, the Department said.

“LPL Financial has taken numerous steps to improve its compliance and supervisory practices,” the department said. “The company has increased the number of employees devoted to compliance- and supervision-related functions, increased its pre-sale review of transactions and enhanced branch office examinations.”

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have experienced losses through LPL Financial, LLC, or Jack Kleck, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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