Brokers and Advisers
Federal or state securities laws require brokers, advisers, and their firms to be licensed or registered, and to make important information public. But it’s up to you to find that information and use it to protect your investment dollars. The good news is that this information is easy to get, and one phone call or web search may save you from sending your money to a con artist, a bad broker, or disreputable firm.
Before you invest, make sure your brokers, investment advisers, and investment adviser representatives are licensed to sell securities. Always check and see if they or their firms have had run-ins with regulators or other investors.
This is very important, because if you do business with an unlicensed securities broker or a firm that later goes out of business, there may be no way for you to recover your money – even if an arbitrator or court rules in your favor.Brokers and Brokerage Firms
The Central Registration Depository (or “CRD”) is a computerized database that contains information about most brokers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You’ll also find information about the brokers’ financial background, like if he has filed for bankruptcy or has tax liens levied against him. Employment and registration history is also available, along with any disclosed “outside” business activities. This information is available FINRA BrokerCheck which can be found at www.finra.org.
You can also request this information from your state securities regulator. Your state securities regulator may provide more information from the CRD than FINRA, especially when it comes to “expunged” complaints or bankruptcy and lien information, so you may want to check with them first. In most states, the securities department is part of the secretary of state’s office. Information on how to contact your state securities regulator is only a google search or phone call away.Investment Advisers
People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. Investment advisers who manage $110 million or more in client assets generally must register with the SEC. If they manage between than $25 million and $110 million, they generally must register with the state securities agency in the state where they have their principal place of business.
To find out about advisers and whether they are properly registered, read their registration forms, called the “Form ADV.” The Form ADV has two parts. Part 1 has information about the adviser’s business and whether they’ve had problems with regulators or clients. Part 2 outlines the adviser’s services, fees, and strategies. Before you hire an investment adviser, always ask for and carefully read both parts of the ADV. You can view an adviser’s most recent Form ADV online by visiting the Investment Adviser Public Disclosure (IAPD) website, https://adviserinfo.sec.gov/
Because some investment advisers and their representatives are also brokers, you may want to check both the CRD and Form ADV.What Should I be Concerned About on my Advisor’s CRD or ADV?
The vast majority of registered brokers and advisors have clean CRDs, meaning they have no disclosable events, customer complaints, terminations, regulatory investigations, or financial disclosures like bankruptcies or liens. If your financial advisor has customer complaint disclosures, you should ask your advisor for information about those complaints. Additionally, if there are any disclosures regarding regulatory investigations, sanctions, or complaints, you should certainly ask your advisor about those disclosures. Here are a few more questions to get your started:
- What experience do you have, especially with people in my circumstances?
- Where did you go to school? What is your recent employment history?
- What licenses do you hold? Are you registered with the SEC, a state, or FINRA?
- Are the firm, the clearing firm, and any other related companies that will do business with me members of SIPC?
- What products and services do you offer?
- Can you only recommend a limited number of products or services to me? If so, why?
- How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
- Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
- For registered investment advisers, can I have a copy of both parts of your Form ADV?
For more information, please visit the SEC’s website.