Many investors feel the need to perform due diligence when hiring an advisor. However, few actually go beyond a quick “google search” or asking for feedback among friends. Completing a check on your advisor is especially important in the wake of massive ponzi schemes like Bernie Madoff. Even institutional investors, such as the board of trustees of a pension fund, should regularly review the professional backgrounds of the brokerage firm and individuals which serve as its financial advisors.

Free Advisor Background Check

The Financial Industry Regulatory Authority (FINRA) has stepped up the functionality of BrokerCheck, a database that keeps track of the work history and disciplinary records of approximately 1.3 million current and former FINRA-registered brokers and 17,400 current and former FINRA-registered brokerage firms. BrokerCheck also connects to the Investment Adviser Public Disclosure (IAPD) database providing access to registration documents filed by approximately 441,000 current and former investment adviser representatives and 45,700 current and former investment adviser firms.

Unfortunately, few investors are using it. According to FINRA Chairman and CEO Richard G. Ketchum:

But we know from speaking with investors and conducting research that too few investors use it, fewer than 15 percent. It continues to amaze me that so many people immediately go to to check out a new restaurant where they might spend $25 for a meal, but don't think to use BrokerCheck when they're handing over $2,500 or $25,000 of their life's savings or even more to an investment professional to invest. How can we change that?

Double Your Pleasure

Perhaps the problem is that FINRA needs a good jingle to increase awareness. Remember Wrigley's Doublemint twins? They have been part of one of the most successful and long-lasting advertising campaigns ever created.

Do Two Searches

Once you are at the BrokerCheck website, be sure to “double your pleasure” by performing these two searches.

  • Individual – The first query that you should do is by the financial advisor's name. You will be able to find a professional's employment status and history, industry registrations, and any reportable events such as customer disputes or disciplinary actions that may have occurred during his/her career. I discuss things to specifically look for at 70,000 Brokers Don't Have a Clean Record.
  • Firm – The second search that you should perform is by the advisor's employer so select “Firm” and enter the “Firm Name.” Admittedly, this one is more difficult to interpret, yet it's still important. Critics of BrokerCheck point out that large firms have hundreds of pages of pending/final regulatory events, final civil events, and final arbitrations that can be overwhelming for an investor to review and understand. Others warn that investors might want to avoid such companies for fear that some firms seem to foster or encourage the mistreatment of customers.

Be mindful that the information at BrokerCheck is largely self-reported so brokers or brokerage firms are likely to phrase the description of a disclosure event to accentuate the most positive interpretation. Also, there have been reports about an alarmingly high percentage of brokers who have sought “expungements” or the deletion of negative records or other problems from their files. Nevertheless, BrokerCheck is a good place to start in order to find disclosures that you, as a consumer, deserve to see. Doing your homework to avoid the wrong advisor should keep you on the path to, “Double Your Pleasure, Double Your Fun.”

Helpful Links:

Photo by lo lo on Unsplash

Have you checked your advisor at BrokerCheck? Do you find the search results to be helpful or more confusing?