FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Potential Red Flags for Financial Professionals
The SEC oversees key participants in the securities industry, including broker-dealers and investment advisers. The SEC and other regulators may bring enforcement actions against financial professionals for misconduct in connection with their securities related activities. Some financial professionals may also have a history of customer complaints or other indications of possible bad behavior.
Investors should be cautious of financial professionals with a history of misconduct. Red flags may include:
Disciplinary actions by a government regulator, such as the SEC or a state securities regulator, or by a self-regulatory organization, such as FINRA;
A history of customer complaints;
Lawsuits or arbitration claims brought by customers;
Employment with one or more firms that have been expelled from the securities industry.
Check the Financial Professional’s Background
Even if a close friend or family member recommends a financial professional, you should still check out that person for signs of potential problems. Before becoming a customer, take the time to look at the registration status and background of any firm or financial professional you are considering.
Anyone registered to sell securities or provide investment advice generally must disclose certain customer complaints, lawsuits and arbitrations, regulatory actions, employment terminations, bankruptcy filings, and certain other criminal or civil legal proceedings. You should also be able to find out whether the individual is currently registered or licensed, or has been suspended, as well as the individual’s qualifications and employment history. These records are available through the SEC, FINRA, and/or state securities regulators.
FINRA’s BrokerCheck Program
For an individual broker or a brokerage firm, background information is available through FINRA’s BrokerCheck report. BrokerCheck reports are free and investment professionals or firms are not made aware of any search conducted.
A FINRA BrokerCheck report for an individual includes a listing of the broker’s registrations or licenses, industry exams that the broker has passed, and information on a broker’s previous employment, customer disputes, and regulatory or disciplinary events. A FINRA BrokerCheck report for a firm includes, among other things, the firm’s history (including any mergers, acquisitions or name changes), a listing of the firm’s active licenses and registrations, arbitration awards against the firm, and regulatory or disciplinary events.
As noted above, a potential red flag for financial professional misconduct is previous employment at one or more firms that have been expelled from the securities industry. To determine whether this red flag applies to an individual broker, review the BrokerCheck report for the individual broker and review the firms listed under the “Registration History” section. Then, run a separate BrokerCheck report for each of those firms listed.
A BrokerCheck report may be obtained from FINRA in any of the following ways:
Submitting a request to FINRA via U.S. mail or fax. The BrokerCheck mailing address and fax number are:
FINRA BrokerCheck
P.O. Box 9495
Gaithersburg, MD 20898-9495
Fax: (240) 386-4750
Investment Adviser Public Disclosure (IAPD) Website
Certain firms or financial professionals, such as money managers, investment consultants, and financial planners may be required to register with the SEC or your state’s securities regulator as investment advisers.
For state-registered investment advisers or their representatives, background information such as a description of the adviser’s business practices, fees, conflicts of interest, and disciplinary history, is generally available from your state securities regulator. You may find information on how to contact your state securities regulator in the “State Securities Regulators” section of this investor alert.
State Securities Regulators
State securities regulators also have background information on brokers and state-registered investment advisers. Notably, state securities regulators may, in certain instances, provide information in addition to what may be found in a FINRA BrokerCheck report or on the SEC’s IAPD website.
Professional Titles
Some financial professionals also may have professional titles, such as Certified Financial Planner (CFP®) or Chartered Financial Analyst (CFA®). The requirements for obtaining and using professional titles vary widely. To use certain titles, a financial professional may need to pass exams, meet ethical standards, have relevant work experience, and undertake continuing education. Other titles, however, may be obtained with little time, effort, and experience. Keep in mind that a professional title is not the same as a license or registration granted by federal or state regulatory authorities.
The SEC does not endorse any financial professional titles, and you are strongly encouraged to look beyond a financial professional’s title when determining whether he or she can provide the type of financial services or products you need.
