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Dirt for investors to dig, if they can find it


Ongoing efforts by regulators to give the public more details about financial advisers’ backgrounds still haven’t solved a key problem — getting more investors to use that information.

The Financial Industry Regulatory Authority recently took a step toward resolving that issue. In a notice on Tuesday, FINRA invited suggestions from the public on possible improvements to its free online disclosure system, known as BrokerCheck.

Information available through BrokerCheck has been expanded several times in recent years. Individual reports about brokers, for example, now include links to disciplinary action taken against them, which is available in a separate database that FINRA launched in May. Records about brokers who leave the brokerage industry, and who may take on other financial advisory roles, are now available going back 10 years instead of two.

But many investors seek that information too late.

“Very few people read it until after there’s a problem,” said William Jacobson, a professor at Cornell Law School’s Securities Law Clinic in Ithaca, New York.

Even then, the public reports don’t include some information that only securities industry members and regulators can see, such as details about a broker’s firing, he said.

According to a 2009 study FINRA cited in its notice, only 15 percent of respondents said they checked out their adviser’s background with a state or federal regulator. The actual number may be even lower, industry sources said.

FINRA has been wrestling with those concerns. It hired a market consultant to conduct focus groups and surveys about BrokerCheck, according to the notice, in addition to the suggestions it is now soliciting.

“It’s a huge opportunity for FINRA to say ‘here’s the system in place and here’s how we can tweak it going forward,'” said Ryan Bakhtiari, president of the Public Investors Arbitration Bar Association, an organization of lawyers who represent investors in securities arbitration cases.


While FINRA prepares to consider those proposals for investor outreach, it is finishing several improvements to BrokerCheck required by a U.S. Securities and Exchange Commission staff study.

For example, FINRA is in the process of providing streamlined search results for BrokerCheck and a separate database, the Investment Adviser Public Disclosure, or IAPD, which the public can use to find annual disclosure forms for SEC-registered advisers.

Investors must now conduct separate searches on the two databases for advisers who are registered with both FINRA and the SEC. But they will soon be able to get that information by running one search.

The regulator is also adding educational content, such as definitions to help investors understand certain industry terms, and a feature that will let them search for advisers by entering a ZIP Code. The database is presently set up to search for advisers and brokerages by their individual names. FINRA must complete the changes by July, according to the Dodd-Frank financial reform law, though it expects to put the changes into effect before then.

Some of those efforts, however, could end up buried in FINRA’s presentation of the information it includes on BrokerCheck, said Gerri Leder, president of LederMark Communications, LLC a financial marketing company in Baltimore, Maryland.

Issues that may worry investors the most, such as customer complaints and enforcement proceedings by regulators, are listed near the end of a BrokerCheck report.

“You’ll see a couple of pages about licenses before you get into anything about complaints,” she said.

The point is not lost on FINRA, whose public plea for help asks for suggestions about possible design and content changes for BrokerCheck. Among the items being considered are concise summaries about complaints and regulatory actions against brokers and brokerages.


FINRA will need to make a nationwide effort to get the word out about BrokerCheck, said Leder, but that could be as simple as requiring its member firms to include the BrokerCheck logo on their Websites and statements, she said.

Allowing for-profit companies to use BrokerCheck information for their own Websites and investor services is another possibility. FINRA is also seeking input on possible benefits and disadvantages of those arrangements.

BrightScope, Inc., a San Diego-based consulting firm that rates 401(k) plans, is already making some headway on that front. In April, it launched “BrightScope Advisor Pages,” a free service through which investors can search advisers by assets under management, geographic area and other criteria. BrightScope gathers information from FINRA’s BrokerCheck and the SEC database, according to Mike Alfred, its co-founder and chief executive.

“In order to make data truly open and public, you have to help (investors) see the light,” Alfred said. “There’s no reason the data should be formatted in an antiquated way,” he said.

Comments to FINRA are due by April 6.