Finra may give up lock on BrokerCheck

Opening data to private vendors would help investors and advisory business, critics of system say

Mar 1, 2012 @ 3:43 pm

By Dan Jamieson

Finra is considering giving up its proprietary lock on BrokerCheck data, paving the way for a higher level of scrutiny of brokers' disciplinary information, observers said.

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 wider access to the 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.

In addition, 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.

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.

Comments are due by April 6.

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.

That 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.

Having better comparison data might help the industry's image, Mr. Siedle said.

“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.

“Now, the system doesn't establish behavorial norms,” Mr. Siedle said.

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.

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.

But 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.

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.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

When can advisers expect an SEC fiduciary rule proposal and other regs this year?

Managing editor Christina Nelson and senior reporter Mark Schoeff Jr. discuss regulations of consequence to financial advisers in 2018, and their likely timing.

Recommended Video

Path to growth

Latest news & opinion

Cutting through the red tape of adviser regulation is tricky

Don't expect a simple rollback of rules under the Trump administration in 2018 — instead, regulators are on pace to bolster financial adviser oversight.

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print