SEC panel calls for a single database to run background checks on all financial professionals

Recommends making it easier for investors to track securities violations by advisers and brokers

Apr 9, 2015 @ 1:17 pm

By Mark Schoeff Jr.

The Securities and Exchange Commission should develop a database that compiles information about securities law violations and is easy to use for investors, especially the elderly, an advisory group said Thursday.

In its quarterly meeting at SEC headquarters, the SEC Investor Advisory Committee floated a proposal to have the SEC work with other federal and state financial regulators to develop a single website to house disciplinary information about investment advisers, brokers and other financial professionals. As a step toward that goal, an IAC subcommittee suggested the agency provide a single portal for investors to access information in SEC and Finra databases.

The proposal likely will be voted on by the full IAC at the group's July meeting.

The goal is to increase the amount of information available online about financial advisers and make it more accessible, said Anne Sheehan, director of corporate governance at the California State Teachers' Retirement System and chairwoman of the IAC subcommittee.

“This is something from an investor protection perspective, which certainly is the mission of this committee, [that] can play a very important role for the public,” Ms. Sheehan said.

Established by the Dodd-Frank financial reform law, the IAC is comprised of 21 market participants, academics, consumer advocates and other experts, and is designed to represent the voice of retail investors.

The panel's effort was endorsed by SEC member Kara Stein, who said all infractions by financial advisers should be made more easily accessible and located in one place.

“I don't think an investor should have the burden of ferreting out all possible disciplinary actions from a variety of databases — some that are available easily and some that are not,” Ms. Stein said. “I'm concerned right now that investors are left Googling financial representatives to find out if they've been disciplined.”

But she noted that a Google search would not take an investor to BrokerCheck, the database of registered brokers maintained by the Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator. Google also would fail to turn up the SEC's Investment Adviser Public Disclosure database, which contains background on registered investment advisers.

The databases are not open-source and do not pop up in Internet search engines. They do work together. For instance, investors who input a broker name on the SEC site will be taken to BrokerCheck for the results.

The IAC said the system is confusing and the SEC should consider creating a single site, perhaps named “AdviserCheck,” where investors could access IAPD, BrokerCheck and other websites overseen by the SEC.

One of the weaknesses of the SEC and Finra sites is that they contain information only on people who are registered with the agencies, the IAC said.

“A significant gap is that the two databases do not include unregistered firms or persons sanctioned by the SEC or state securities commissions, even those sanctioned for operating as an unregistered broker or adviser,” the IAC said in its draft recommendations.

The IAC said the SEC should bring together all regulators to give investors one-stop shopping for information about financial professionals.

“The SEC should act as the catalyst for the construction of a single site that would provide for searches of databases maintained by itself and other financial regulators,” the IAC said.

Last November, the Commodity Futures Trading Commission launched SmartCheck, an investor education website that provides links to the SEC and Finra databases, among others.

The decision on an investment professional is the most important one that investors will make, and they need to be able to conduct more robust background checks, said Barbara Roper, director of investor protection at the Consumer Federation of America and an IAC member.

“You really need to make it easy for them to weed out bad actors,” Ms. Roper said.

That's especially true for the elderly.

“Although the benefits of these proposals are broad and will benefit investors in general, the committee developed these recommendations in the context of concerns that arise with respect to the financial abuse of elders,” the IAC subcommittee said in its proposal.


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