With a few clicks and drags, investors can use a free online tool to peer into the pasts of investment advisors and, hopefully, avoid becoming a victim of a Ponzi scheme swindler.
What is BrokerCheck?
The online tool, BrokerCheck, is run by the Financial Industry Regulatory Authority, or FINRA, an independent overseer for the nation’s 630,000 registered securities sellers.
BrokerCheck allows investors to search by firm or individual broker name to find out whether disciplinary actions have been taken, and after a major upgrade that went live in May, consumers can now check for advisors by ZIP code. There’s also educational content, including definitions of common investment terms.
BrokerCheck, according to FINRA, has information on about 1.3 million current and former registered brokers and 17,400 brokerage firms, most of which have not been subjected to disciplinary actions. But the information also includes details about which states brokers are registered to do business in, whether they have professional credentials such as Certified Financial Planner, and a history of their past employers.
How to use it.
To use BrokerCheck, all you have to do is go to the website and click on the “Start Search” button. Then you’ll be asked to agree to the site’s terms and conditions. You can click on a link to read the details and after agreeing, you’ll go to the search page.
BrokerCheck lets you search in a couple of different ways. You can do a basic search for an individual’s name or a firm’s name, or you can search by ZIP code, selecting a geographic radius around the selected ZIP for your search to be performed in. After selecting the type of search you want to perform, you’ll be able to type in the name or other search criteria.
Next, you’ll go to a page where you’ll have to enter letters and numbers in a box. This is to make sure you’re a human. After you get through that, you’ll be taken to a page or pages displaying results of your search.
For instance, if you search for “Madoff” in the individual name database, you’ll get a page of several people with that last name, including “Bernard L. Madoff.” You’ll learn that Madoff has not been registered as a broker since 2009 and you’ll see a summary of “disclosure events,” which include criminal and regulatory matters concerning him.
If you click on a link for the detailed report you’ll see that his registration was revoked and he was barred for life from the securities industry in 2009 for various violations of the law, including operating a Ponzi scheme.
Other brokers, most of whom haven’t been convicted of crimes or subjected to disciplinary action, also appear in BrokerCheck. You can use their information to find out where they have worked, what qualifications they have and other pertinent information.
Other reference tools.
Broker Check does have its limitations and it’s recommended to use this tool in conjunction with other background-checking tools. For example, it would be wise to cross reference both the name of the individual broker and the name of the brokerage firm.
Prudent investors should also check the Securities and Exchange Commission’s Investment Adviser Public Disclosure (IAPD) search tool, which shows similar information for investment advisers. Both investment advisers and brokers can sell securities and many people don’t know there is a difference and that they are regulated differently.
In addition to checking IAPD and BrokerCheck, you should look at the individual security you are being offered. This is done through EDGAR, the SEC’s free online database of securities. Doing this could have alerted investors to the Madoff and Stanford scams, which peddled unregistered investments.
This may sound like a lot of steps, but it’s worth protecting your investments. And while there may be no way to be completely safe from investment rip-offs, you can probably avoid most of them by using the free resources that keep the public safe from scams.
“Protects Your Investments from Scams with BrokerCheck” was written by Mark Henricks.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.