What Is FINRA BrokerCheck?
FINRA BrokerCheck is a free, online tool provided by the Financial Industry Regulatory Authority (FINRA) that allows investors to research the professional backgrounds of brokerage firms, investment professionals, and investment adviser firms. It falls under the broader category of financial regulation and investor protection, offering transparency into the securities industry. This tool helps the public make informed decisions when choosing a financial professional by providing access to their employment history, licenses, qualifications, and any reported disciplinary events or customer disputes.
History and Origin
The development of FINRA BrokerCheck is rooted in the broader mission of investor protection and ensuring the integrity of the securities industry. FINRA, as a self-regulatory organization (SRO) authorized by Congress, oversees all securities firms doing business with the public in the United States33. BrokerCheck was created as part of FINRA's efforts to provide easy access to vital information about brokers and firms, evolving over the years to incorporate new features and improve its user experience. The information accessible through BrokerCheck is derived primarily from the Central Registration Depository (CRD®) system, which is a database containing the qualification, employment, and disciplinary history of registered securities professionals and firms.32 BrokerCheck consolidates this data, making it readily available to the public.
Key Takeaways
- FINRA BrokerCheck is a free online tool for researching the professional backgrounds of brokers and brokerage firms.
- It provides details on employment history, licenses, qualifications, and significant disclosures such as regulatory actions or customer complaints.
- The tool is maintained by FINRA, the largest independent regulator for securities firms in the U.S.
- Utilizing BrokerCheck is a critical step in due diligence for investors before engaging with a financial professional.
- Information remains available for investment professionals for at least 10 years after their registration terminates, with some disclosures remaining longer.31
Interpreting the FINRA BrokerCheck Report
When reviewing a FINRA BrokerCheck report, investors should pay close attention to several key sections to properly interpret the information. The report typically includes a summary providing an overview of the individual or firm. For individuals, this includes current and past employers, which is important for understanding employment stability and transitions between brokerage firms.30 It also details their qualifications, such as passed exams and held licenses, indicating the types of investment products they are qualified to sell.29
A critical section is the "Disclosure Events" area, which lists significant events such as customer complaints, regulatory actions, criminal convictions, or arbitration awards.28 The nature and resolution of these disclosures can provide insights into a professional's history. For firms, the report includes details on their establishment, ownership, business operations, and any disciplinary history.27 Understanding these details helps investors assess the professional's or firm's track record and adherence to regulatory compliance.
Hypothetical Example
Consider an investor, Sarah, who is looking for a financial advisor to help with her financial planning and investment management. A friend recommends "John Doe" from "Alpha Investments." Before meeting John, Sarah decides to perform some due diligence.
Sarah visits the FINRA BrokerCheck website at brokercheck.finra.org. She enters "John Doe" in the individual search bar. The search results show a John Doe with several years of experience and a clean record, registered with "Alpha Investments." Sarah reviews his employment history, noting consistent registration with reputable firms. She also checks the disclosures section and finds no customer complaints, regulatory actions, or other disciplinary events. Satisfied with this initial background check, Sarah feels more confident proceeding with her meeting with John Doe. Had there been any red flags, such as unresolved customer disputes or past suspensions, Sarah would have had the information to ask follow-up questions or consider other professionals.
Practical Applications
FINRA BrokerCheck serves as an essential resource for investors in various practical scenarios. Its primary application is to assist individuals in performing background checks on potential investment professionals or brokerage firms before entrusting them with assets. By providing information on registrations, employment history, and disciplinary records, BrokerCheck empowers investors to make informed decisions and protect themselves from potential fraud or misconduct.26 The U.S. Securities and Exchange Commission (SEC) actively encourages investors to use tools like BrokerCheck to verify the credentials and backgrounds of those offering investment advice.25 This is particularly crucial when dealing with complex investment products or strategies. You can check your investment professional through the SEC's Investor.gov website, which links directly to BrokerCheck for brokers and IAPD for investment advisors.
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Beyond initial vetting, BrokerCheck can also be used by investors who have concerns about an existing financial relationship. If an investor suspects misconduct or has a dispute, reviewing the professional's BrokerCheck report can provide relevant background information, including past customer disputes or regulatory actions, which may support their case or inform their next steps, such as pursuing arbitration.
Limitations and Criticisms
While FINRA BrokerCheck is a valuable tool for investor protection, it has faced certain limitations and criticisms. One notable concern is the completeness and accessibility of the data. Some critics argue that the database, while helpful, does not always provide a comprehensive view of a broker's entire disciplinary history, especially concerning certain types of criminal matters or civil litigation not directly involving investments.21 There have also been concerns raised about the process of "expungement," where certain customer complaints or disclosures can be removed from a broker's record, potentially making the public record less complete over time.20
An academic study in 2016, as discussed in financial news, critiqued BrokerCheck, stating it was "worthless in its current hobbled form" for investors seeking to identify problematic advisors.19 This critique highlighted that while the underlying data might exist, the tool's interface did not always allow for easy identification of firms with a higher proportion of brokers with misconduct disclosures.18 This makes it challenging for investors to identify patterns of concern that might be apparent if the data were more easily searchable in bulk.17 FINRA has continued to refine BrokerCheck and the associated Central Registration Depository (CRD) system, but investors are still advised to conduct thorough due diligence and not rely solely on one source for a complete background check.16
FINRA BrokerCheck vs. Investment Adviser Public Disclosure (IAPD)
FINRA BrokerCheck and the Investment Adviser Public Disclosure (IAPD) system are both crucial online resources for investors, but they serve slightly different purposes based on the type of financial professional being researched.
| Feature | FINRA BrokerCheck | Investment Adviser Public Disclosure (IAPD) |
|---|---|---|
| Regulated Entity | Brokers and brokerage firms | Investment advisers and investment adviser firms |
| Primary Regulator | FINRA (Financial Industry Regulatory Authority), a self-regulatory organization (SRO) overseen by the SEC | U.S. Securities and Exchange Commission (SEC) and state securities regulators |
| Information Focus | Securities sales, transaction-based activities, employment history, licenses, regulatory actions, customer disputes, criminal/financial matters | Investment advice, fiduciary duty, fee structures, business operations, disciplinary history, Form ADV filings 14, 15 |
| Primary Database | Central Registration Depository (CRD®) | Investment Adviser Registration Depository (IARD) |
The key distinction lies in the role of the professional: brokers primarily facilitate securities transactions, while investment advisers primarily provide investment advice for a fee. 13Many financial professionals are dually registered, meaning they operate as both brokers and investment advisers. In such cases, their information may appear in both FINRA BrokerCheck and IAPD, and it is advisable to check both databases for a comprehensive view. 12The SEC's Investor.gov website allows users to check both FINRA BrokerCheck and the Investment Adviser Public Disclosure (IAPD) system.
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FAQs
Q1: What kind of information can I find on FINRA BrokerCheck?
A1: FINRA BrokerCheck provides details such as an individual broker's employment history, held licenses, qualifications (exams passed), and a disclosure section covering significant events like customer disputes, regulatory actions, and certain criminal or financial matters. For firms, it includes information on their background, operations, and disciplinary history.
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Q2: Is FINRA BrokerCheck free to use?
A2: Yes, FINRA BrokerCheck is a free online tool available to the public. You can access it directly through FINRA's website.
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Q3: How far back does FINRA BrokerCheck information go?
A3: For currently registered investment professionals, BrokerCheck includes employment history for the last 10 years, both within and outside the securities industry. 5, 6Information for individuals whose registration ended more than 10 years ago remains in the system if they were subject to final regulatory action, convicted of certain crimes, or involved in specific investment-related civil actions.
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Q4: Should I only use FINRA BrokerCheck when researching a financial professional?
A4: While FINRA BrokerCheck is an essential first step for due diligence, it is advisable to use it in conjunction with other resources, particularly the Investment Adviser Public Disclosure (IAPD) system for investment advisers. 2, 3Additionally, checking with state securities regulators may provide further details, especially concerning investor complaints.1