Finra proposes one-stop shopping for background checks on advisers

Investors doing background checks on financial professionals could find the information they need in fewer clicks under a Finra proposal.

On Wednesday, the Financial Industry Regulatory Authority Inc. filed a rule with the Securities and Exchange Commission that would allow BrokerCheck, a database about registered representatives maintained by Finra, to share information with the Investment Adviser Public Disclosure website, which is maintained by the SEC.  

Under the proposal, BrokerCheck would display information publicly disseminated through the IAPD about brokers who are also registered as investment adviser representatives. In February, the SEC made a similar change to the IAPD so that it can display BrokerCheck information about investment advisers who also are registered as brokers.

The tweaks enable one-stop shopping for potential clients probing the disciplinary history and other information about dually registered financial advisers.

“This change would allow users of BrokerCheck to obtain the available information about these individuals in a single search of BrokerCheck or IAPD and thereby minimize the need to access multiple databases,” the Finra rule proposal states.

If an investor is searching for someone who is no longer registered as a broker but is now an investment adviser, BrokerCheck would continue to direct the investor to IAPD. The same rerouting would occur on the IAPD for someone no longer registered as an adviser who is now registered as a broker.

The new BrokerCheck function is slated to go into effect June 20.

The proposal is a response to a 2015 recommendation from the SEC Investor Advisory Committee, which called for the SEC, Finra and other financial regulators to develop a single database housing disciplinary information about investment advisers, brokers and other financial professionals.

“It’s a step in the right direction,” said Barbara Roper, director of investor protection at the Consumer Federation of America and an IAC member. “[Finra and the SEC] really have been working in good faith to implement those recommendations within their jurisdiction.”

Making BrokerCheck and the IAPD easier to use could help increase traffic to each, said Andrew Stoltmann, a Chicago securities attorney.

“When you have information spread across multiple databases, it makes it less likely that investors will access that information,” Stoltmann said. “Even today, not many people check BrokerCheck and far fewer check the SEC’s database.”

Even as the Finra and SEC databases are streamlined, more needs to be done to help investors spot sketchy financial professionals, Roper said. For instance, one problem is rogue brokers dropping their Finra registration and going into insurance sales.

“The real advance is when we can start getting insurance and other disclosure information in a centralized place,” Roper said.