Securities industry regulatory body, FINRA (the Financial Industry Regulatory Authority), released its proposal for a rule that would crack down on firms with a high concentration of “bad” brokers. With its latest regulatory notice, FINRA stated that it would increase oversight of brokerages with a “significant history of misconduct,” requiring them to set aside additional funds that cannot be withdrawn without FINRA’s consent.
The financial industry self-regulator, FINRA, issued a new regulatory notice today aimed at broker-dealers with departing brokers. The notice was intended to urge broker-dealers to be more clear and forthright with customers about departing brokers and what will happen to the customers’ accounts. If you’ve ever been in the situation where your broker has either left for another firm, left the industry, or passed away, you understand just how confusing things can get when it comes to who will be handling your investments and why.
FINRA is far from a shadowy regulatory agency. They do their best to find themselves in the public eye, if only to keep investors informed on current regulations and scams. They also keep an exhaustive database of the professional records of all registered broker-dealers and financial advisors; the database is online and searchable. FINRA’s BrokerCheck is a mighty tool for investors seeking to learn more about their advisors; it’s one of many tools and rules that investors can use to protect themselves against fraud and malfeasance.
The last few months have been a difficult time for many investors. The stock market has taken a major dive, closing out 2018 with the worst performing December since The Great Depression. With so much volatility, it’s crucial that investors have a carefully planned portfolio with an adequate amount of diversification. Above all, that portfolio should match the individual investors risk tolerance and investment objectives. That match must be valid from the day it was made until today. A portfolio that worked for an individual investor in a bull market may be a terrible match for that same person in a bear market.
In the many dozens of securities litigation cases we have worked on for investors, we have noticed that, when it comes to protecting yourself against broker misconduct and financial fraud, there several "golden rules" which, if regularly observed, would prevent the vast majority of abuses in the securities industry.
In order to reform the system, investor advocacy groups have suggested the SEC enhance the standard to which brokerages and brokers are held with regard to investor best interests. Currently the standard is based on the necessity of matching investor and investment through a concept known as "suitability." Investor advocates like PIABA, however, want to raise the bar to the "best interest” standard.
Thanks to a recent decision by the Fifth Circuit, it appears that brokers will, once again, get off the hook when it comes putting their clients' interests in front of their own. Into the breach has stepped an idea that has been kicking around for a years now, but which may be the best of several uninspiring options to compel brokers to act more responsibly toward investors: The Oath.
According to FINRA, while there is no airtight definition of a high-risk (yet), the regulatory body deploys a set of criteria to help identify these individuals and ratchet up the oversight on them. However you can use these criteria yourself to evaluate your own or a potential FA for excessively risky behavior.
There’s a universe of advice and information out there for investors looking to educate and protect themselves. Tune in to MSNBC or visit TheStreet.com and you’ll find a million answers to million different questions related to investing intelligently. But for all this “noise” about investing, there is some basic, critical information you probably will not hear about that could make all the difference to your financial well-being.
Each month and again on a quarterly basis, the agency that regulates the financial industry, FINRA (Financial Industry Regulatory Authority), produces a detailed report that runs down all disciplinary actions recently taken against brokerage firms and brokers. This long list of alleged wrongdoing and misconduct reads a lot like a police blotter. We strongly encourage any investor who suspects their broker and/or broker-dealer of having lost them money on dubious terms to at least skim this report to see if you recognize any names, schemes, products, or securities.