Have you done a background check on your broker?
It is pretty common for people to ask for references from job seekers, physicians, contractors and even hair dressers. Checking the reputation and quality of work is important when making important decisions. People often spend a lot of time and sometimes money performing these checks.
Have you done a background check on your broker or advisor?
I will argue that managing your financial future and getting guidance on your future retirement savings should be very important to everyone. The ramifications of not managing your investments correctly can be devastating to you and your loved ones.
Every licensed broker and investment adviser must complete a Form U4. The form must be accurate. It must include biographical, residential, employment, outside business activity and disciplinary history. The information from this form is on the Investment Adviser search site maintained by the SEC. The form requires employment history for the past 10 years. Brokers must account for full-time and part-time employment, self-employment, military service, homemaking, unemployment, full-time education, extended travel, and other similar statuses. Gaps longer than three months are not permitted.
That’s right. All of this information is available publicly. If you want to check the background of your broker or financial advisor, you can and you should. It is all available at www.brokercheck.finra.org
A lot of great information is available on both the SEC and FINRA websites. They are the governing bodies that make the rules for brokers and advisors. The following information was found on these sites:
Tips for Checking Out Brokers and Investment Advisers
Federal or state securities laws require brokers, investment advisers, and their firms to be licensed or registered, and to make important information public. It is up to you to find that information and use it to protect your investment dollars. The information is easy to get, and one phone call or web search may save you from sending your money to a con artist, an unscrupulous financial professional, or a disreputable firm.
Before you invest or pay for any investment advice, make sure your brokers, investment advisers, and investment adviser representatives have not had disciplinary problems or been in trouble with regulators or other investors. You also should check to see whether they are registered or licensed.
This is very important, because if you do business with an unregistered securities broker or a firm that later goes out of business, there may be no way for you to recover your money – even if an arbitrator or a court rules in your favor.
Brokers and Brokerage Firms
The Central Registration Depository (CRD) is a computerized database that contains information about most brokers, their representatives, and the firms where they work. For instance, you can find out if brokers are properly licensed in your state and if they have had disciplinary problems with regulators or received serious complaints from investors. You can ask your state securities regulator or the Financial Industry Regulatory Authority (FINRA) to provide you with information from the CRD. Your state securities regulator may provide more comprehensive information from the CRD than FINRA, especially when it comes to investor complaints, you may want to check with your state securities regulator first. You’ll find contact information for your state securities regulator on the website of the North American Securities Administrators Association. To contact FINRA, either visit FINRA’s BrokerCheck website or call FINRA’s toll-free BrokerCheck hotline at (800) 289-9999.
People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. The rules governing the registration of certain investment advisers have changed.
This means that state securities authorities will have primary regulatory authority over a substantial number of investment advisers that previously were subject to primary regulation by the SEC. Larger investment advisers, generally, those with over $100 million of Assets Under Management (AUM), will continue to be registered with the SEC and will be subject to federal regulation.
To find out about an investment adviser read its registration form, called “Form ADV.” Form ADV has two parts. Part 1 contains information about the adviser’s business and Part 2 sets out the minimum requirements for a written disclosure statement which advisers must provide to prospective clients initially and to existing clients annually. The ADV describes, in a narrative format, the adviser’s business practices, fees, conflicts of interest, and disciplinary information. You can view an adviser’s most recent Form ADV online by visiting the Investment Adviser Public Disclosure (IAPD) website. You can also obtain copies of Form ADV for individual advisers and firms from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser. You’ll find contact information for your state securities regulator on the website of the North American Securities Administrators Association.
Make sure you know the right questions to ask your advisor or broker. Here are a few questions to get you started:
What experience do you have, especially with people in my circumstances?
Where did you go to school? What is your recent employment history?
What licenses do you hold? Are you registered with the SEC, a state, or FINRA?
Are the firm, the clearing firm, and any other related companies that will do business with me members of SIPC?
What products and services do you offer?
Can you recommend only a limited number of products or services to me? If so, why?
How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
For registered investment advisers, will you send me a copy of both parts of your Form ADV?
Joseph P. Colosimo is Divisional Senior Vice President and Regional Manager of Financial Services for Northwest Investment and Trust Services.