Consumer website that offers background checks irks advisers

Recent change in procedures unrelated to complaints, AdvisorCheck says

Aug 16, 2009 @ 12:01 am

By Davis D. Janowski

A new website for consumers is drawing complaints from financial advisers who say it forces advisers to consent to, and even pay for, background checks on themselves — or risk losing credibility with potential clients. The site, advisorbackground, was launched in May by AdvisorCheck Inc. of St. Louis. The service helps consumers gather information about advisers by combing through civil and criminal background data, credit re¬ports, financial liens, bankruptcy proceedings and the records of the Better Business Bureau as well as various financial regulators. AdvisorCheck's approach, however, has some advisers up in arms. Until recently, once a consumer inquired about a particular adviser, AdvisorCheck reached out to that adviser and asked him or her to consent to a background check. What's more, it asked the adviser to pay $50 for the background check and another $139 to subscribe to the site. If the adviser did not consent to, and pay for, the background check, AdvisorCheck made it clear to the adviser that it would go back to the consumer and inform him or her that the adviser declined to make that information available. In a copy of one e-mail intended for a consumer, which was provided to InvestmentNews by an adviser, AdvisorCheck wrote: “After contacting the adviser about the inquiry, he has unfortunately chosen not to allow us to disclose any of his background information to you. As you may be aware, to comply with the Fair Credit Reporting Act, we must obtain a release from the adviser to disclose any data. We also encourage the adviser to become a member of AdvisorCheck to show his/her ‘Full Disclosure and Transparency' to consumers. The adviser has chosen not to do either. Hence we suggest you exercise caution in any dealings with this adviser.” The e-mail was dated July 16.

In a formal complaint filed with the Office of the Missouri Attorney General on July 22, Dylan Ross, an adviser at East Windsor, N.J-based Swan Financial Planning LLC, wrote, “People are being misled about this service, and financial advisers are being extorted with strong-arm tactics by this company.”

“No one should be compelled to buy a service out of fear their name will be defamed, and those that request the free background checks ought to get truthful responses and full disclosure as to how their service actually works,” Mr. Ross' complaint stated.

He is a fee-only planner and does not manage client assets.

A spokeswoman for the attorney general's office said the complaint is being investigated.

Michael Dunlap, president and chief executive of AdvisorCheck, was unavailable to comment.

However, in an interview Aug. 5, Bryan Binkholder, an AdvisorCheck spokesman and a member of its senior management team, didn't dispute the contents of the July 16 e-mail.

The company on July 29 modified its approach for dealing with advisers and consumers, he said.

The modifications were not made in response to any complaints from advisers, Mr. Binkholder said.

Now, during its initial contact with advisers, AdvisorCheck asks advisers only to pay $50 to cover the expense of the background check and to consent to it. If the adviser refuses to pay, AdvisorCheck gives the consumer the option of paying for it.

Of course, advisers still have to consent to the background check.

In a copy of AdvisorCheck's newly revised correspondence to consumers, the company states that an adviser's decision not to consent to a background check “should give you, the consumer, a better indication of the adviser and their background.”

Asked whether advisers initially were being strong-armed into paying up, Mr. Binkholder said, “It could happen, but I haven't heard that myself.”

“We do tell the consumer that it will be 48 hours, and we do immediately get in touch with the [adviser], and yes, it probably appears we are a call out of the blue,” he added.

The site, which receives an average of 470 hits a day, has 53 paid adviser subscribers and signs up two to three new ones a week, according to the company.

Another 82 advisers have paid a one-time $50 fee for background checks but have not subscribed. The site's database includes the names of 1.5 million advisers, brokers and insurance agents amassed from regulatory databases and mailing lists.

So far, 542 advisers have signed up as “limited members,” which allows them to update their profile with a brief summary of their services for free.

Laurie Hanin, a registered representative and broker with Century Securities Associates Inc. in St. Louis, paid for the one-time background check as a result of an inquiry by one of her clients.

Ms. Hanin, who was referred by AdvisorCheck, readily admits to being upset by her initial dealings with the company.

“It was a very abrupt call — I didn't know whether to hang up on them or yell at them,” she said.

In the end, however, the client was pleased with the results of the background check and offered Ms. Hanin a referral.

Still, “there has to be a better way of doing things,” she said.

“It's not a bad service to offer; I just felt unable to put up with the threat. They called me out of the blue to say that I needed to give them $69.99 [later lowered to $50]. And if not, they are going to tell the consumer, ‘Hey, you might need to worry about this adviser,'” said Ms. Hanin, who manages $10 million in assets.

Mr. Binkholder said that the company's policies and procedures should worry only those advisers who have something to hide.

“If I have a totally pristine background — I'm just playing devil's advocate here — I wouldn't mind paying $189,” he said.

To be sure, several advisers — all referred to InvestmentNews by AdvisorCheck — said they were quite happy with the service.

“I think if you have a clean background, then it is a good idea,” said Gordon Elder, a certified financial planner who purchased a subscription to the website last month.

Mr. Elder, whose eponymous firm is based in Lancaster, Calif., oversees $32 million in assets.

“This is just an additional item for our arsenal, just like my belonging to the Better Business Bureau, and the National Ethics Bureau. There is fear in the market — and I deal mostly with seniors — and this is just another way for me to point out that I am clean in my business and that I am one of the good guys,” said Douglas Nickson, an adviser with Brooks Clark Ltd. of Bellevue, Wash.

Brooks Clark manages between $1 million and $3 million in assets.

Heidi Modugno, chief operating officer for Macro Consulting Group LLC, a Parsippany, N.J., firm that manages $300 million in assets, also likes the concept behind AdvisorCheck.

Still, it was the hard sell that she said she could do without.

Ms. Modugno had heard of the site and wanted to look into it, so she ordered a background check on one of her firm's advisers.

A couple of days later, she received a call from an AdvisorCheck representative saying that a consumer had requested a check and, “Would the firm's adviser subscribe to and pay for the service?” according to Ms. Modugno.

“Then they said, ‘Otherwise, we have to report to the consumer that you didn't participate and are not open to disclosure and transparency,'” she said.

Ms. Modugno, in turn, requested that AdvisorCheck e-mail her information about what would be in¬cluded in the background check. No one from the company responded to her request, she said.

Within a few days of that request, she said, another solicitation call from an AdvisorCheck representative was left on her voice mail.

“It sounded like a blind call, as though we hadn't spoken to them before,” said Ms. Modugno, who chose not to respond to the call.

“It was not a pleasant experience, and with that, I pursued it no further.”

E-mail Davis D. Janowski at


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