Brokers and securities compliance experts support Finra's effort to rank registered representatives and target those it believes pose the biggest threat to investors — as long as the broker-dealer regulator keeps the list to itself.
Susan Axelrod, Finra executive vice president for regulatory operations,
said Monday that the Financial Industry Regulatory Authority Inc. has ranked all 634,403 brokers that it oversees. The list is compiled based on a broker's prior regulatory disclosures, disciplinary actions and employment history.
Those potential rogue brokers could become the subject of examinations conducted by a special Finra exam unit established earlier this year.
Dean Harman, owner of Harman Wealth Management, a branch office of independent broker-dealer Sagepoint Financial Inc., supports the idea of weeding out malfeasant brokers but also wants Finra to secure the list.
"Anything Finra does that protects investors is theoretically good," Mr. Harman said. "It's probably a good use of their resources to identify high-risk places to look. My only concern would be if there was a data breach and the list was made public."
A lawyer who represents brokers in enforcement cases also worries about the roster slipping out of Finra's control.
"I would be deeply concerned by the existence of some kind of list of troubled brokers which could harm the reputation and careers of any advisers listed on it, without the benefit of an opportunity to defend themselves or seek counsel," Barry Temkin, a partner at Mound Cotton Wollan & Greengrass, wrote in an email. "The inclusion of an individual broker on such a list could have severe and far-reaching career implications should it be leaked to a broker's customers, compliance department or claimants' bar."
In her appearance at the
National Society of Compliance Professionals in Washington, Ms. Axelrod said that the ranking of registered representatives would be used for internal guidance.
"Publishing a list with people's names, where we haven't proven any violations — there would be challenges to that," she said.
That assertion reassured Susan Harper, a managing director of Bates Group, a compliance consultant.
"I think it's a good idea that they're not making the results public," Ms. Harper said. "You have to always be careful with people's careers."
A Finra spokeswoman said that the regulator has been drawing from its regulatory databases for a number of years to target rogue brokers.
"[W]e are using real-time data to help us identify individual brokers who pose a significant risk to investors or the industry — and confront them as quickly as possible," Finra states in its
2015 annual report.
The added pressure today is Finra's special exam unit.
"If we are showing up at a firm asking for information on a particular registered person and coming on site to interview that person, that's a clue they're on our high-risk broker list," Ms. Axelrod said at the NSCP conference.
Finra should be just as vigilant in tracking products that cause investor harm, said Frank Congemi, president and chief executive of Benefactor Financial, an independent firm affilated with Securities America.
"That would be a better metric for Finra to pursue," Mr. Congemi said. "There are certain products that don't lend themselves to liquidity or low-cost. The same products draw the same criticisms all the time."
