More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
Brokers’ disciplinary histories are now prominently displayed for the Web-savvy public; they’re no longer filed away at the Financial Industry Regulatory Authority (FINRA), where only the most diligent investors will find them. FINRA has made your disciplinary history freely and easily available to the public by launching a web-accessible discipline database.
Whether the easy accessibility of the information is a positive or negative will depend on a broker’s history. Those with a clean record will undoubtedly benefit from the easy accessibility of the information and the ease with which clients and prospects can canvass their record and compare it to others. Those with a history, whether deserved or not, may now find themselves on the defensive with prospects more often.
The public can search the FINRA Disciplinary Actions Online database (DAO database) by using any of the following criteria, either alone or in combination:
- Case Number
- Document Text
- Date Range
- Document Type
- Individual Name or CRD#
- Firm Name or CRD#.
In the past, the public was forced to contact FINRA to obtain copies of disciplinary actions. Undoubtedly, investors were far less likely to make in-person contact with FINRA through mail or by telephone than to take the easy step of logging onto FINRA’s website and searching its database.
A number of disciplinary documents are available on the site, including Letters of Acceptance, Waivers and Consent,
settlements, National Adjudicatory Council decisions, Office of Hearing Officers decisions and complaints. These documents can be printed or downloaded from the site in PDF form.
Perhaps the biggest improvement over the old system is the DAO database’s direct link with BrokerCheck reports. This interconnectivity is in addition to the links between BrokerCheck and the Arbitration Awards Online database. Investors logging onto FINRA BrokerCheckwill have direct access to disciplinary records through links. Undoubtedly, many investors will find their way to the DAO database through BrokerCheck—which was accessed some 17.2 million times in 2010.
A record of discipline will undoubtedly affect brokers’ bottom lines now more than ever. Whereas in the past only the most diligent clients and prospects were aware of a brokers’ disciplinary history, far more potential clients will come to initial meetings, if at all, with the records in hand. Be ready to answer the hard questions.
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See also The Law Professor's blog at AdvisorFYI.