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BrokerCheck: Brokers Required to Link to Free Background Check Site

Have you used BrokerCheck to perform a background check on your financial advisor? Don't worry. If not, you're not alone. In a casual survey, I found that only a small percentage of investors were familiar with BrokerCheck, a free tool from FINRA (the Financial Industry Regulatory Authority) that can help you research the professional backgrounds of brokers and brokerage firms, as well as investment advisor firms and advisors. Among those who knew about it, a smaller percentage had used it. In an effort to change that, the SEC (Securities and Exchange Commission) recently approved FINRA Rule 2210 requiring broker-dealers to include a "readily apparent reference and hyperlink" to BrokerCheck on their websites.

Background

Approval of this rule took more than two and half years. It was originally proposed in January 2013, withdrawn, and modified twice before finally being approved. Previous versions would have required brokers to link from social media pages like Twitter and LinkedIn directly to their respective BrokerCheck profile (rather than the BrokerCheck homepage.) Opponents of the rule argued that such requirements would be too costly and technologically unwieldy to meet.

What It Means to Investors

The most significanct result of this rule change is an increase in public awareness for BrokerCheck. Likely to be implemented in the Spring, all brokerage firms and individual brokers will be required to include a link from their websites to BrokerCheck. While not quite like Yelp, TripAdvisor, or Angie's List where actual users/customers can share their reviews, BrokerCheck uses regulatory filings and rulings so investors can easily perform a search for red flags about individual brokers/advisors, including complaints, regulatory actions, terminations for cause, and personal bankruptcies. The rule won't apply to firms that don’t serve retail investors.

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About the Author: Andrew Wang

Andrew Wang

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