Checking on Errant Brokers

October 6, 2009
Michael Sheehan

Shady brokers suspended by the Financial Industry Regulatory Authority can reappear as insurance agents, mortgage brokers, or financial planners. You can check a broker's record through FINRA's BrokerCheck or your state securities regulatory agency.

In the wake of the stock market’s implosion, the number of complaints lodged against securities brokers hit record levels. Still, most of the brokers toiling in the financial industry are honest, according to market analysts, but that doesn’t mean that there aren’t some shady characters peddling securities to unsuspecting investors. And some who have been barred or suspended from the securities industry by the Financial Industry Regulatory Authority reappear as insurance agents, mortgage brokers, or financial planners.

You can check on your broker’s record through FINRA’s BrokerCheck, which has all the information in a Central Depository Record file. The CDR file discloses any actions such as fines or suspensions that have been taken against the broker, as well as a record of any complaints or arbitrations. Researching the data on your current broker, along with your financial planner or insurance agent, can tell you a lot about whether they are trustworthy.

Some Wall Street observers point out that there’s a problem with FINRA’s records, however. Two years after a broker’s registration has lapsed, the information disappears from BrokerCheck, although it’s kept on file privately. Investors can still check on brokers through their state’s securities regulatory agency, but it’s a step that many don’t bother with, say regulators.

FINRA has proposed a change in the rules that would allow it to permanently display a condensed record of any broker who has been fined, suspended, or barred from the industry by securities regulators. Brokers who have not been disciplined, however, would continue to have their records vanish from BrokerCheck, even if they have been the target of several complaints or arbitrations.