After two-and-a-half years of wrangling, the
Financial Industry Regulatory Authority Inc. finally got a rule approved that requires brokerages to include a link from their websites to BrokerCheck, its database where investors can find a broker's work history, complaints and disciplinary records.
The rule, which was approved by the Securities and Exchange Commission earlier this month and should take effect by next summer, is part of Finra's effort to raise the public's awareness of BrokerCheck. The Dodd-Frank Act required regulators to make the database more accessible and user-friendly.
Like many of Finra's rules, this one had a long journey. It was originally proposed in January 2013, forwarded to the SEC, withdrawn and twice modified — all at the behest of the brokerage industry Finra is supposed to regulate. Critics say the ultimate rule is a watered-down version of the original, which, among other things, had mandated links to BrokerCheck from social media pages such as Twitter and LinkedIn.
Of course, if Finra is truly serious about raising the public's awareness and use of BrokerCheck, and is not just paying lip service to Dodd-Frank, there's plenty more it can do.
A PALTRY SUM
For one thing, it can start advertising BrokerCheck's existence to the investing public in an effective and consistent manner. Back in June, Finra announced a five-week advertising campaign with a budget of $3.5 million. But five weeks is not long enough and $3.5 million is a paltry sum for a national campaign. When the Certified Financial Planner Board of Standards Inc., a much smaller organization, wanted to raise the profile of CFPs, it committed $40 million for a four-year advertising campaign and has consistently extended the initiative.
If Finra wants to do something more concrete, it could require brokers to present new clients with a simple, one-page description of BrokerCheck and have them sign it, acknowledging that they have been made aware of the service.
Finra also can make BrokerCheck data available to commercial establishments, which, if they could make money off it, would come up with creative ways to market and promote it to the public. Of course, giving for-profit vendors access to BrokerCheck records has some potential pitfalls, but they could be overcome.
In addition to giving investors background information about their brokers, BrokerCheck also could help deter future broker violations if it were to become a well-known and respected resource among investors. The stakes would suddenly become much higher for brokers if they were at risk of having their misdeeds publicized in such a high-profile forum.
The real question for Finra — and the industry — is how deep is their resolve to make BrokerCheck as popular as other consumer services such as Yelp, TripAdvisor or Angie's List? One has to question that resolve, at least on the industry's part, given how strongly it fought to alter Finra's original proposal to link broker websites to BrokerCheck.
Finra has invested a great deal of time and money in BrokerCheck. It has the ability and the resources to make the service a household name. As Richard G. Ketchum, Finra's chief executive, noted in a press release announcing the ad campaign in June, “People immediately go online 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 saving to an investment professional to invest. That has to change.”
We agree.
