investigating stockbrokers and financial advisers by rob wells

Title Slide Inves&ga&ng  Stockbrokers  &  Financial  Advisers  

Poll  Ques&on  #1  Have  you  researched  a  stock  broker’s  records?  

• Yes  • No  

•  Unsuitable  Investments  

 •  Churning    •  10b5    •  Breach  of  Fiduciary  Duty  

Photo  by  Flickr  user  Victoria  Reay  

Red  Flags  

Research  Brokers,  Advisers FINRA  BrokerCheck    -­‐-­‐Records  on  637,000  current  and  former  professionals,  4,700  firms.      

SEC’s  Investment  Adviser  Public  Disclosure  (IAPD)  -­‐-­‐25,000  professionals  

 Cer&fied  Financial  Planner  Board  of  Standards  Inc.  (CFP)  -­‐-­‐69,000  professionals    

FINRA  BrokerCheck FINRA  (Financial  Industry  Regulatory  Authority):    Industry  group  that  licenses  and  polices  stock  brokers.    FINRA:  An  SRO.  Works  with  and  is  overseen  by  SecuriVes  and  Exchange  Commission  

FINRA  BrokerCheck Quick  Ques&on:    Ever  heard  of  CRD?    Type  Y/N  or  the  defini&on    Data  derived  from  CRD:    Central  RegistraVon  Depository  Launched  1981    

First  Screen

Star&ng  Your  Search

Having  a  CRD  number  speeds  your  search.  CRDs  available  on  complaints,  arbitraVon  records  

Click  for  person  

Get  Full  Name,  Middle  Ini&al,  Etc.  

Get  Full  Name  of  Your  Broker.  Thousands  of  people  in  database,  may  take  Vme  to  find  right  person.  Filter  with  Zip  Code  

Quick  Chat:  IdenVfy  the  RED  FLAG  in  this  filing.      Answer:  NOT  REGISTERED.  WHY?  

Your  Turn  

Time  for  some  repor&ng…  

Search:  “Bernard  Madoff”  

Go  to  a  separate  tab  on  web  browser  and  pull  up  this  link:h_p://www.finra.org/Investors/ToolsCalculators/BrokerCheck/  

Photo  by  Flickr  user  P

etezin  

The  document  

Which  secVon  has  the  juiciest  details?  •  Report  Summary  •  Broker  QualificaVons  •  RegistraVon  and  Employment  

History  •  Disclosure  Events  

Poll  Ques&on  #2  

For  Firms:  • Overview  of  the  firm,  and  ownership  • History,  including  any  mergers  or  name  changes  • Summary  of  firm’s  operaVons,  list  of  fines,  regulatory  acVons,  arbitraVon  awards    For  Individuals:  • Broker  credenVals,  current  registraVons,  licenses  and  exams  • Employment  history  for  the  past  10  years  • Any  customer  disputes  or  regulatory  events  on  the  broker’s  record.  

Key  Items  on  CRD  Reports  

Employment  History  

Details  of  Ac&on  

Get  source  material  

Details  of  Case  

Quick  Chat  Ques&on  Type  a  word  or  phrase  into  the  chat  box:  Describe  other  ways  to  use  

Broker  Check  as  a  repor&ng  tool.  

Backgrounding   Source:  The  Washington  Post  

Contact  Former  Co-­‐Workers:  Work  History  

Double  Check  BrokerCheck:  Full-­‐Text  of  Arbitra&on  Filings:  

hep://finraawardsonline.finra.org/search.aspx?  -­‐-­‐Material  linked  in  BrokerCheck  but  worth  searching.  

Finra  Disciplinary  Ac&ons  Database  (FDA):  hep://disciplinaryacVons.finra.org/  

 -­‐-­‐Material  summarized  in  BrokerCheck,  access  to  raw  complaints  

BrokerCheck  to  Cover  Poli&cs    

Chat  Box  Ques&on:  Poli&cians  Who  Were  Brokers?  

Your  Turn:  Search  “Jon  Corzine”  

FINRA:  Not  Perfect!  

Red  Flags  •  ArbitraVon  cases.  What  

happened?      •  Employment  history.  

RegistraVon  gaps;  where  were  they?  

 •  Brokers  can  peVVon  to  remove  

arbitraVon  cases.

Photo  by  Flickr  user  Victoria  Reay  

Investment  Adviser  Public  Disclosure  

hep://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx    

What  Is  An  Investment  Adviser?  •  An  arbitrary  term  for  a  money  manager  •  Same  as  a  financial  adviser  •  A  unlicensed  Wall  Street  person  •  All  of  the  above  •  None  of  the  above  

Poll  Ques&on  #3  

Regulated  by  SEC  or  states    Dodd-­‐Frank  Act:  Boosts  states'  role  in  regulaVng  advisers    •  States  regulate  advisers  handling  between  $25  million  and  $100  

million  of  assets  under  management.    •  SEC  oversees  handling  assets  of  $110  million    •  Both  can  be  found  in  Investment  Adviser  Public  Disclosure  

database.  

Investment  Advisers  

Form  ADV  Main  Disclosure  Form  for  Investment  Advisers    • Part  1:  Summary  of  adviser's  business,  complaints  from  customers.      • Part  2:  Brochure  to  clients  ,  details  adviser’s  business  pracVces,  fees,  conflicts  of  interest,  and  disciplinary  informaVon

 State  securi&es  regulators  North  American  Securi&es  Administrators  

Associa&on    •  Always  worth  checking  with  state  regulators    •  Great  way  to  monitor  local  and  naVonal  trends  

State  Enforcement  

hep://www.nasaa.org/regulatory-­‐acVvity/enforcement-­‐legal-­‐acVvity/enforcement-­‐directory/    

NYT  story  on  LPL  Financial  -­‐-­‐  Uses  state  regulators  as  sources  

hep://nyV.ms/14PiIdR  

Cer&fied  Financial  Planners  •  CFP  ®  designaVon  •  Must  pass  series  of  exams  •  Subject  to  oversight  of  CerVfied  Financial  

Planners  Board  •  Investor  complaints  can  lead  to  CerVfied  

Financial  Planner  revocaVon  

CFP  Board  website  lists  revoked  planners  by  state  

Search  for  a  Cer&fied  Financial  Planner  

hep://www.cfp.net/uVlity/verify-­‐an-­‐individual-­‐s-­‐cfp-­‐cerVficaVon-­‐and-­‐background  

Example  of  Disciplinary  Record  

Chat  Box:  Number  of  CFP  RevocaVons  in  Maryland?  

 hep://www.cfp.net/about-­‐cfp-­‐board/ethics-­‐enforcement/disciplined-­‐individuals-­‐by-­‐state  

Your  Turn  

Alphabet  Soup:    Financial  Professional  Titles  

“The  requirements  for  obtaining  and  using  these  &tles  vary  widely,  from  

rigorous  to  nothing  at  all.”    -­‐-­‐  SEC  

 hep://www.finra.org/Investors/ToolsCalculators/ProfessionalDesignaVons/AccreditedDesignaVons/  

Rob  Wells    University  of  Maryland,    Philip  Merrill  College  of  Journalism  robwells@umd.edu  

Ques&ons?  

Photo  by  Flickr  user  Xurble