Critics find BrokerCheck background checks incomplete

Amid some skepticism, regulators are promoting an online tool that lets consumers check out investment advisers.

The Financial Industry Regulatory Authority, known as FINRA, is running a series of funny print, TV and online ads in June that chide consumers for not checking out potential advisers as thoroughly as they research a restaurant or a contractor.

One ad features a bride who doesn't check out her organist and her reaction when her organist plays the baseball "Charge!" theme at the wedding.

The ads urge consumers to use FINRA's online BrokerCheck system (brokercheck.finra.org) to investigate the background of a broker or investment adviser before hiring one.

"People immediately go online to check out a new restaurant where they might spend $25 for a meal, but don't think to use BrokerCheck when they're handing over $2,500 — or $25,000 of their life's savings or even more — to an investment professional," Richard Ketchum, FINRA's CEO, said in a statement.

FINRA also has recently requested permission from the Securities and Exchange Commission to require brokers to include a link to BrokerCheck on their websites. The regulator also established a hotline specifically for seniors at 1-844-57-HELPS.

Critics, however, wonder just who's checking the checkers.

Attorneys who represent investors in securities disputes and at least two adviser industry publications, Financial Planning and ThinkAdvisor.com, quickly pointed out previously reported gaps in BrokerCheck's coverage. The gaps include missing information on brokers' previous bankruptcy filings and certain records that brokers petition to have expunged.

Ketchum said FINRA is performing a records review of its entire broker database and that only a small fraction of records are turning up with missing information.

Investor advocates and others say there's more work to be done.

"They've tried to correct some of the flaws, but it's still not perfect by any stretch of the imagination," said Andrew Stoltmann, an attorney who represents investors in securities fraud cases. "Just Googling a broker's name is almost a better source of information."

William Jacobson, director of the securities law clinic at Cornell University, said BrokerCheck is a limited resource, but it can still be a good consumer tool.

"It doesn't always contain a broker's total [record], but I do think it's useful for finding employment history, if someone has moved frequently from firm to firm, which is a warning sign," he said.

Individual state securities departments also help consumers check out brokers, but it's not an instant process. The North American Securities Administrators Association (NASAA) maintains a list of these departments' phone numbers at nasaa.org.

Joseph Borg, longtime director of the Alabama Securities Commission, said his department employs enough staff to be able to mail out requested reports to consumers generally within a day of receiving a request.

"We're the first state that comes up on the list, so we get a lot of these calls," he said, referring to the online NASAA directory.

Janet Kidd Stewart writes for the Chicago Tribune.