Brokercheck

What Is BrokerCheck?

BrokerCheck is a free, online tool provided by the Financial Industry Regulatory Authority (FINRA) that allows investors to research the professional backgrounds of brokers, brokerage firms, and certain investment advisor firms and their representatives⁶⁰, ⁶¹. It falls under the broader category of Financial Regulation and Investor Protection, serving as a critical resource for individuals seeking to make informed investment decisions. The tool provides a range of information, including employment history, qualifications, licensing status, and disciplinary events, helping the public vet potential financial professional before engaging their services⁵⁹.

History and Origin

BrokerCheck was developed as part of FINRA's mission to protect investors and ensure the integrity of the financial industry⁵⁸. Prior to the comprehensive online tool, information about brokers and firms was less accessible. FINRA, authorized by Congress to oversee brokers and broker-dealers, created BrokerCheck to promote transparency⁵⁶, ⁵⁷. The information available through BrokerCheck is primarily drawn from the Central Registration Depository (CRD), a central database for the securities industry's registration and licensing⁵⁵. Over the years, the platform has evolved, incorporating new features and improving its user experience to provide easy access to vital information for investors⁵⁴. In 2006, Congress expanded the methods by which BrokerCheck information is available and the amount of information provided, further enhancing its utility for the public.⁵³ For additional details on FINRA's role, visit FINRA: About BrokerCheck.

Key Takeaways

• BrokerCheck is a free online tool provided by FINRA for researching brokers, brokerage firms, and certain investment advisor firms.⁵²
• It offers detailed reports on a financial professional's employment history, qualifications, licenses, and any disciplinary actions or customer disputes.⁵¹
• The information in BrokerCheck primarily comes from the Central Registration Depository (CRD) system, which firms and individuals are generally required to update within 30 days.⁴⁹, ⁵⁰
• BrokerCheck aims to promote transparency and help investors perform due diligence before entrusting their money to a financial professional.⁴⁷, ⁴⁸

Interpreting BrokerCheck

When reviewing a BrokerCheck report, investors should carefully examine each section to gain a comprehensive understanding of a financial professional's background. The "Report Summary" provides an overview of the broker's credentials and current functions⁴⁶. The "Qualifications and Licenses" section details the broker's various registrations and the qualification exams they have passed, such as the Series 7 exam required for trading most securities⁴⁵. The "Employment History" lists past and current employers, including dates of employment, both within and outside the securities industry, for the last 10 years⁴³, ⁴⁴.

Crucially, the "Disclosure Events" section reveals information about disciplinary actions, customer disputes, regulatory actions, and criminal or civil proceedings⁴². While a single customer dispute may not be cause for alarm, especially if resolved without penalty, a pattern of disputes or significant regulatory infractions could indicate a higher risk⁴¹. Investors should consider the number of complaints, the period over which they occurred, and whether they allege specific misconduct⁴⁰. It is also important to note if a broker has frequently moved between firms or has employment gaps³⁹.

Hypothetical Example

Imagine Sarah is considering working with a new financial professional, John Smith, to help manage her portfolio. Before committing, Sarah decides to perform some due diligence.

1. She visits the official BrokerCheck website.
2. She enters "John Smith" into the search bar.
3. Upon finding several "John Smiths," she narrows her search using the name of the brokerage firm he claims to work for and his city.
4. She accesses John Smith's BrokerCheck report. In the report, she notes his employment history, showing he has been consistently employed with reputable firms for over 15 years.
5. She then checks the "Disclosure Events" section. She finds one historical customer dispute from five years ago related to a misunderstanding about fees, which was ultimately resolved in the broker's favor with no finding of misconduct.
6. Sarah also verifies his Series 7 and Series 66 licensing under the "Qualifications" section.
7. Based on this positive and transparent information from BrokerCheck, Sarah feels more confident in her decision to proceed with John Smith.

Practical Applications

BrokerCheck is a fundamental tool used in various aspects of personal finance and regulatory oversight. Investors primarily use it to research potential financial professional and brokerage firm before entrusting them with their assets³⁸. By reviewing employment history, licensing, and disciplinary records, individuals can assess a professional's credibility and experience³⁷. This helps in safeguarding investments and making informed decisions to avoid potential fraud or unethical practices³⁶.

Beyond individual investors, regulatory bodies and compliance officers within the financial industry also benefit from BrokerCheck. It supports their efforts in monitoring industry professionals and enforcing compliance with financial laws and ethical standards³⁵. For instance, FINRA recently gained the ability to publicly disclose on BrokerCheck if a brokerage firm has been designated as a "restricted firm," indicating a high level of risk due to a history of misconduct or employing many registered representative with disciplinary records.³⁴ This feature enhances transparency and provides crucial information to the public regarding firms that FINRA determines pose significant risks to investors.

Limitations and Criticisms

While BrokerCheck is an invaluable tool for investor protection, it does have certain limitations and has faced criticisms. One significant concern revolves around the expungement process, where disciplinary actions and customer disputes can be removed from a broker's record³³. Critics argue that this process can make BrokerCheck an unreliable and incomplete record of a broker's past misconduct, potentially shielding brokers from legitimate allegations and misleading investors³¹, ³². Even if a brokerage firm settles a customer dispute, the record of that dispute might be expunged from the broker's public record on BrokerCheck.³⁰

Another limitation is that BrokerCheck may not capture all complaints or disputes, particularly those that do not meet certain reporting thresholds²⁹. Information on unregistered individuals may not appear, and older complaints may be removed after a certain number of years²⁷, ²⁸. Furthermore, some argue that while BrokerCheck provides factual data, it lacks sufficient context or comparative analysis to easily identify firms or brokers with a higher propensity for misconduct²⁶. For example, a firm might offer products to many experienced brokers, which could lead to more complaints that are not necessarily indicative of firm-wide misconduct²⁵. Despite these criticisms, FINRA continually reviews and enhances BrokerCheck to improve its utility and investor protection capabilities²⁴.

BrokerCheck vs. Investment Adviser Public Disclosure (IAPD)

BrokerCheck and the Investment Adviser Public Disclosure (IAPD) system are both public databases designed to provide transparency into the financial services industry, but they serve distinct purposes based on the type of financial professional they cover.

Many individuals are dually registered as both brokers and investment advisors. In such cases, their information may appear in both systems, and BrokerCheck often provides a direct link to the corresponding IAPD record for a comprehensive view of their background⁹, ¹⁰.

FAQs

Q: Is BrokerCheck truly free to use?
A: Yes, BrokerCheck is a free online tool provided by FINRA, accessible to the public without any cost.⁸

Q: What kind of information can I find about a broker on BrokerCheck?
A: You can find a summary of their credentials, qualifications and licensing, employment history over the past 10 years, and detailed disclosures regarding any criminal, regulatory actions, civil judicial, or customer disputes.⁶, ⁷

Q: How often is the information on BrokerCheck updated?
A: Registered representative and brokerage firm are generally required to update their professional and disciplinary information in the Central Registration Depository (CRD) within 30 days, and this information typically becomes available on BrokerCheck the next business day.⁵

Q: Does BrokerCheck include information about all financial professionals?
A: BrokerCheck primarily focuses on brokers and brokerage firms registered with FINRA or a national securities exchange. While it provides some information on investment advisor firms and representatives by linking to the IAPD database, it does not include detailed information on all investment advisors, especially those not registered with FINRA.³, ⁴

Q: Why should I use BrokerCheck before making an investment decision?
A: Using BrokerCheck allows you to perform essential due diligence on a financial professional or firm, helping you verify their credentials, assess their disciplinary history, and make more informed and confident investment decisions, thereby reducing the risk of engaging with unsuitable or fraudulent individuals.¹, ²