Check Out Your Broker / Advisor
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’ educational backgrounds and where they’ve worked before their current jobs.
You can ask either your state securities regulator or Financial Industry Regulatory Authority (FINRA) to provide you with information from the CRD. Your state securities regulator may provide more information from the CRD than FINRA, especially when it comes to investor complaints, so you may want to check the FINRA broker check page first. You can find out how to get in touch with your state securities regulator through the website. You can go to FINRA’s website to get CRD information or call them toll-free at (800) 289-9999.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 $25 million or more in client assets generally must register with the SEC. If they manage less than $25 million, they generally must register with the state securities agency in the state where they have their principal place of business.
Some investment advisers employ investment adviser representatives, the people who actually work with clients. In most cases, these people must be licensed or registered with your state securities regulator to do business with you. So be sure to check them out with your state securities regulator.
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. At present, the IAPD database contains Forms ADV only for investment adviser firms that register electronically using the Investment Adviser Registration Depository. In the future, the database will expand to encompass all registered investment advisers-individuals as well as firms-in every state.
You can also get copies of Form ADV for individual advisers and firms from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.’s website. If the SEC registers the investment adviser, you can get the Form ADV at a cost of 24 cents per page (plus postage) from the SEC.
Office of Public Reference
450 5th Street, NW, Room 1300
Washington, D.C. 20549-0102
Phone: (202) 942-8090
Fax: (202) 628-9001
Because some investment advisers and their representatives are also brokers, you may want to check both the CRD and Form ADV.Conclusion
Once you’ve checked out the registration and record of your broker, adviser, or firm, there’s more to do. For example, you should find out whether the brokerage firm and its clearing firm are members of the Securities Investor Protection Corporation (SIPC). SIPC provides limited customer protection if a brokerage firm becomes insolvent – although it does not insure against losses attributable to a decline in the market value of your securities. If you’ve placed your cash or securities in the hands of a non-SIPC member, you may not be eligible for SIPC coverage if the firm goes out of business.
Here are a few 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, will you send me a copy of both parts of your Form ADV?
As provided by the SEC’s website.