FINRA’s Broker Database Invaluable to Investors
Many retail investors have no idea that an incredibly powerful tool for discerning whether a potential broker or financial advisor is good or bad lies just a few clicks away. The best kept secret in in the securities industry is the Financial Industry Regulatory Authority’s (FINRA’s) BrokerCheck website, which provides a comprehensive look at the employment history of every registered broker in the industry, including those who have recently left. Investors can also find out through BrokerCheck if a broker has been involved in any customer disputes or disciplinary actions.
We can’t tell you how many times we’ve received a call from a potential client about funds lost through broker misconduct, only to discover through a quick search of the BrokerCheck database that the financial advisor involved had a long history of customer complaints, disputes, terminations, or disciplinary actions. If only the investor had known where to look in the first place they might have saved themselves the economic and emotional impact of being taken in by a so-called “rogue broker,” who makes a living preying on the naivete and trust of unsophisticated investors.
Brokerage Firms May Defame Departing Brokers Out of Self-Interest
While we continue to wholeheartedly endorse FINRA’s database as an invaluable resource for retail investors looking to do an informal background check on their broker, anyone using the database should be warned that things are not always as they appear. According to a new report by Bloomberg News, an unfortunately large proportion of accusations made against brokers are false or exaggerated. A securities litigation firm called Dynamic Securities Analytics reviewed 82 arbitrated disputes between brokerage firms and former brokers from 2016 until early this year, and they found that brokerage firms often color their brokers bad for various reasons.
One big reason brokerage firms severing ties with a particular broker is that investors tend to be loyal to brokers over brokerage firms. In defaming departing brokers, brokerage firms may be trying to pry departing customers away from their financial advisors in order to keep them for themselves.
The Real Villains in the Securities Industry May Be the Multi-Billion Brokerage Firms
What are investors to make of this back-stabbing between firms and brokerages? It’s a tough business, for one thing. For another, we have always felt that, except in the cases of truly malignant financial advisors, brokerage firms are often more to blame for instances of misconduct than brokers. A culture of pressure to sell the latest, very expensive, very complex products to unwitting investors prevails in brokerage firms, and brokers often succumb to that pressure. Plus, brokerage firms have an obligation to supervise and monitor their brokers to ensure they are in compliance with securities laws. In other words, brokerage firms may be the ultimate bad guys in this story.
About Green & Schafle
For the past more than ten years, Green & Schafle has loyally served its clients in the Greater Philadelphia, Pennsylvania, and New Jersey area. A boutique firm, we specialize in a more personalized approach to complex personal injury and securities litigation.