- FINRA's Proposed Changes to BrokerCheck: Reinforcing the Notion that Every Firm and Advisor Should Routinely Verify That Publicly Available Information Accurately Reflects their Business
- March 20, 2012 | Authors: Scott E. Rahn; Jennifer Tomsen
- Law Firms: Greenberg Traurig, LLP - Los Angeles Office ; Greenberg Traurig, LLP - Houston Office
FINRA currently is seeking comment regarding some potentially wide-reaching changes to the BrokerCheck system, including making data available to private, for-profit vendors for commercial use. While some of the proposed changes will likely have little impact on financial advisors and firms, requiring additional disclosures and opening the currently proprietary system to private vendors likely will have significant impact on the industry and its advisors.
BrokerCheck is a proprietary FINRA system designed to provide investors with background information on firms and registered persons. For financial advisors, BrokerCheck provides basic employment and registration history, industry examinations the broker has passed, other business activities engaged in, and criminal, regulatory, civil, and customer complaint histories. For firms, the system discloses completed arbitrations and regulatory matters, clearing relationships, and registration information, among other things.
In February 2012, FINRA issued Regulatory Notice 12-10, “FINRA BrokerCheck: FINRA Requests Comment on Ways to Facilitate and Increase Investor Use of BrokerCheck Information.” FINRA’s proposals stem from a Dodd-Frank mandated study released by the SEC in January 2011 regarding improving investor access to investment advisor and broker-dealer registration information. Before July 2012, FINRA will implement several changes to BrokerCheck, including unifying search returns with the SEC’s Investment Advisor Public Disclosure (IAPD) database; adding search by zip code capability; and adding educational content, including links and definitions of unfamiliar terms.
Importantly, FINRA is also seeking comment on longer term recommendations from the SEC study, namely whether FINRA should expand the information available through BrokerCheck. Proposals include adding the reasons for and comments relating to a broker’s termination; posting industry examination scores and current “pass/fail” information; and including “formerly reportable” information.
Another proposal that would almost certainly have significant implications for firms and their representatives: opening up the BrokerCheck system to for-profit companies for commercial use. In its current form, BrokerCheck permits only limited individual inquiries via searches by advisor or firm name. The system does not allow aggregated queries or data compilations. In fact, FINRA’s system specifically blocks the use of automated data collection tools such as “screen scrapers.”
However, FINRA is now considering providing private vendors with access to BrokerCheck data. This change would make the information accessible for large-scale collection and aggregation, which would make industry-wide comparisons of firms and advisors much more feasible than before, assuming, of course, that the information was and is accurate.
For example, one company that has already been compiling data from BrokerCheck for public use, despite the limitations of the current BrokerCheck system, has received mixed reviews. Last year, BrightScope, Inc., created a free, searchable public database of advisor information using information from BrokerCheck, publicly available Forms ADV, and the IAPD database. Users can search for advisors by geographic region, assets under management, and firm, and can also see complaints and legal disputes. The site sparked controversy among advisors who complained that certain important information, such as assets under management and complaint histories, was incorrect or outated.1 BrightScope merely publishes what is publicly available, regardless of whether that information is fully accurate or not, and it charges a fee for any advisor wanting to add information beyond what is publicly available and does not allow advisors to “opt out” their information from the database, leading advisors to complain they were being “held hostage” by the company.2 With easier access to a wider variety of data, more companies like BrightScope are likely to emerge and such problems seem likely only to increase. Despite the controversy over the BrightScope database, however, only a few of the comments posted by FINRA as of the date of this newsletter express any concern about making BrokerCheck data available to for-profit companies, and those comments speak mainly to expanding the nature, amount and usability of information made available. For example, one commentator, The Sunlight Foundation, supports the proposal but wants FINRA to go further by making all data available in electronic, downloadable format to enable queries such as "which firms have hired the most advisers with a history of disciplinary actions?" and "what is the total amount of fines paid by a given entity over a specified time period?"
These contemplated changes underscore the importance of keeping complaint, registration, and other information accurate and up-to-date, because, as one commentator put it, currently there is no review process to ensure the accuracy of any of the information made available to the public, leaving expungement as the only option to address inaccuracies.
Comments on FINRA’s proposals may be made by emailing [email protected] or by mail to the address listed in the Notice. Comments received to date are posted on FINRA’s website under “Regulation” - “Requests for Comments.” The comment period ends on April 6, 2012.
1 See “Advisers take dim view of BrightScope’s controversial website,” Jessica Toonkel, April 28, 2011, Investment News, http://www.investmentnews.com/article/20110428/FREE/110429934.
appropriate disciplinary action.