The self-regulatory body of the securities industry, FINRA (the Financial Industry Regulatory Authority) recently floated a series of reforms targeted at preventing brokers with a history of infractions from finding new victims among investors.
FINRA Takes over Employment History Verification of Brokers
“FINRA has not only made it costlier for member-firms who hire bad brokers with a checkered past, but it also took over the duty of verifying that brokers provide accurate and truthful information on their employment history forms.”
FINRA has not only made it costlier for member-firms who hire bad brokers with a checkered past, but it also took over the duty of verifying that brokers provide accurate and truthful information on their employment history forms. Instead of, as previously, holding member firms responsible for corroborating the information provided on U4 employment history forms by financial advisors, FINRA will not complete this process itself, within no more than 15 business. The self-regulatory body says that this will improve the accuracy of information about brokers which firms can rely upon in the hiring process while also allowing FINRA internally to raise the quality of its own database.
FINRA BrokerCheck Database Invaluable for Investors
FINRA maintains an online, publicly-available database called BrokerCheck, which is an invaluable resource for retail investors. While far too few investors know of its existence, it should be the first thing investors do when considering hiring a new broker (or if they have doubts about their current broker), since it provides a record of employment history, examinations, customer complaints, disputes, and disciplinary actions.
Investor Advocacy Groups Split over Value of FINRA Reforms
Investor advocacy groups have been divided about FINRA's reforms. A financial industry reform group called Better Markets issued a statement that FINRA's proposals do not go nearly far enough in reigning in illegal conduct among financial advisors. Instead of putting the fear of God into bad brokers and their firms, FINRA has merely added an extra layer of administrative oversight, an extra layer of penalties, and has assumed control of information seemingly for its own purposes. PIABA, an investor advocacy group, and SIFMA, an industry group that acts like a think tank, were both more salutary about FINRA's reforms.
Investors Must Defend Themselves Above All
While FINRA is charged with regulating the industry, it is also made from members of the industry and funded by the industry. This "self-regulatory" body, then, will never truly be on the side of investors. Rather, the best one can expect based on its structural position within the industry is that it will regulate itself only as much as it absolutely needs to in order to ensure that investors continue to participate in the market, and no further. Thus it is no surprise that its reforms, while welcome, are not particularly far-reaching or even encouraging. Ultimately, investors remain in charge of their own destiny and must defend themselves, as best as they can, against the predations of unscrupulous brokers and a rapacious financial industry.
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If you or someone you know has been the victim of broker misconduct or investment fraud, please contact our securities attorneys immediately for a free consultation toll-free at 215 462 3330 or by using our online contact form.
