You place a tremendous amount of trust in your broker, but how do you know if she or he is worthy of that trust? Turns out there's a fairly easy way to check up on them.
Not too long ago an individual called me out of the blue. He was concerned because his broker was changing brokerage firms yet again. He wondered if something was wrong. His question was “How can I find out about his record; is he a broker down on his luck or is there something really amiss?”
As it turns out, there was something really amiss. This broker had one regulatory event, one criminal charge, 34 customer disputes and two terminations, as well as two judgments against him.
This wasn’t all. The broker had traded his client’s account 21 times in the previous month making $1,488 in commissions. For the entire year, if this trading was sustained, he would be taking about two percent of his client’s account assets in commissions for himself. He was a bad boy broker.
Though the majority of brokers are clearly not like this, most people receive a level of comfort knowing that the record of his or her broker is clean. This, as it turns out, is easy. Simply go to Broker Check that is located on the upper right side of the Financial Industry Regulatory Authority (FINRA) website. Then, type in the name of your broker and his or her record will come up. Since brokers are often also known as financial advisors, this generally applies to these individuals as well. If there are more than one or two infractions for your broker/financial advisor, you may want to consider a change.
The FINRA website has other useful information such as educational tools and instructions on how to file a complaint plus how to navigate life’s events that impact finances. For this reason, also, it is worthwhile for individual investors to check it out.
It is of interest that in October, the SEC approved a rule requiring brokerages to include a link to Broker Check on their home page and broker profiles. However, I have not noticed this change on the websites I observed. Let’s hope it is there and I missed it or it is coming soon.