Chicago-based Stoltmann Law Offices has been representing investors nationwide against unscrupulous brokerage firms and their financial advisors for more than fifteen years. Sometimes one of the best ways to avoid bad brokers is to do a little homework. Doing a simple background check can reveal a number of red flags that will help you steer clear of bad actors. All broker records are publicly accessible through the regulator FINRA’s website on a service called BrokerCheck.
What does BrokerCheck tell you? While it may not give you a complete background profile, it will show you if they have been disciplined or fined by FINRA, the US Securities and Exchange Commission (SEC) and other agencies. A pattern of multiple violations is a sure signal that you should avoid them. BrokerCheck will also give you an employment history and information on the firms that employed them. Although it’s not unusual for brokers to jump from one firm to another, repeated employment disruptions may be a warning sign as well.
As the prime securities brokerage regulator, FINRA can fine, sanction and bar brokers from the industry. Complaints about brokers must be investigated – and recorded – by FINRA. If brokers refuse to cooperate with the regulator, they can lose their securities licensing and be expelled from the business.
For example, FINRA barred ex-Hilliard Lyons broker Christopher Duke Bennett after investigating several customer complaints earlier this year. Bennett was accused of trading customers’ accounts without their permission and selling unsuitable investments. Bennett signed a legal document called a “letter of acceptance and waiver of intent” without admitting or denying FINRA’s findings. Bennett, according to FINRA’s investigation, had a history of unauthorized trading dating back to 2014: “Between January 2014 and December 2015, Bennett exercised discretionary trading authority in several customers’ accounts without obtaining their written authorization.”
This is where FINRA’s BrokerCheck system may have helped his clients. Customer complaints are required to be available to anyone searching this broker’s name or registration number. Other broker search tools are available through the SEC, which allows you to check investment adviser backgrounds and state securities regulators, which often have even more detailed records. Keep in mind that in addition to FINRA registration, brokers also need to have state securities licenses. So your first bit of homework should be to contact your state regulator.
In doing your broker background check, you can also check the history of a particular firm. Many have extensive histories of selling dubious investments and broker abuses. You can also check to see if a broker is registered to sell a particular type of investment. For example, you need one kind of license to sell mutual funds and another to sell variable annuities. Brokers or agents who sell insurance products must be registered through their state’s insurance regulator.
Have you invested with brokers who have sold you unsuitable investments or conducted unauthorized trading? FINRA and the SEC have strict rules on disclosing essential details on all investments sold by brokers and investment advisers. Firms are also legally compelled by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!