Know Your Broker: A Quick Guide on How to Protect Yourself When Hiring a Financial Advisor

Guest post by April Harris, Fordham University School of Law JD Candidate (2015)

In a recent Investment News article, Mason Braswell explores the hiring practices of the securities brokerage firm IAA Financial. Braswell writes, “[o]f the 37 Finra-registered brokers at the firm, 31 have been with at least one brokerage firm that had been expelled by regulators.” At a time when FINRA is purportedly scrutinizing brokers who move repeatedly among firms, that number is sure to raise eyebrows.

So investors who are customers of IAA Financial may want to think twice about who is managing their money. And more generally, alarming hiring practices like those of IAA Financial should spur investors to think carefully about their advisor’s employment history and regulatory track record before handing over their hard-earned assets. As Braswell points out, some brokerage firms bury their heads in the sand—or at least look the other way—when it comes to making new hires.

So armed with this information about how some brokerage firms hire financial advisors, how can investors make smart decisions when picking a financial advisor, or continuing a relationship with an existing one?

Braswell points to FINRA’s BrokerCheck as one source investors should consult when investigating a broker or firm’s background. And there are others as well. Below is a brief discussion of BrokerCheck and other existing tools investors can employ when conducting a background search on a broker or firm:

BrokerCheck
BrokerCheck is a good starting point for investors who want to examine a broker or firm’s regulatory conduct. FINRA created this tool to allow investors to search by individual or brokerage name. It lists “disclosure events,” namely, criminal, civil, and regulatory actions, customer complaints, arbitrations, and terminations. So by searching BrokerCheck, investors can see whether a broker or brokerage firm has disclosures that should be of concern, like a long list of customer complaints or tangles with regulators. BrokerCheck has gaps, however, so an investors research should not end there.

PACER
PACER is another means investors can check up on brokers and brokerage firms. Provided by the Federal Judiciary, PACER permits free public access to federal district and appellate cases and dockets. An account is required, however once registered, users can search by party name for any legal actions a broker or firm may have been involved in. Data is available the moment the case is electronically filed, so all updates are in real time.

State Securities Regulators
SEC regulation and enforcement is limited to federal securities law, however securities regulators exist at the state level as well. Here, investors can look into any state-led disciplinary actions against brokers and brokerage firms. Investors can find their own state regulator by consulting the North American Securities Administrators Association.

Basic Internet Research
And finally, investors can also conduct their own basic research simply by using Internet search engines like Google, Yahoo or Bing and typing in the name of the financial advisor or brokerage and seeing what results come up. Because so much information is now publicly available online, investors can effectively use the Internet dig into a firm or advisor’s past. Of course, the Internet is a widely accessible forum and not everything that turns up in a search is accurate, so investors would be wise take any revelations with a grain of salt, but there’s little question it’s a good place to start.

At The Galbraith Law Firm, we work to protect investors and assert their legal rights if they have suffered investment losses as a result of their brokerage firms’ misconduct. If you have questions regarding investment losses or the conduct of your brokerage firm, please contact a securities attorney at The Galbraith Law Firm at 212.203.1249 or kevin@galbraithlawfirm.com for a free confidential consultation regarding your legal rights.