Brokers will soon have to present clients with a link to FINRA's database containing information about their background and disciplinary history.
The SEC has approved FINRA's proposal to require registrants to include a "readily apparent reference and hyperlink" to BrokerCheck on their websites, both on the firm's home page and the profile pages of any brokers who work with retail investors.
FINRA scaled back earlier versions of the proposal that had drawn sharp criticism from some industry groups, which lobbied against certain requirements that they said would be costly and burdensome for firms to implement.
On the other side, some commenters had appealed to FINRA for a more expansive rule that would require brokers to include references and links to BrokerCheck in their emails and in clients' account statements.
The SEC explains that FINRA evaluated that proposal, but ultimately rejected it, determining that it "would be overly burdensome and require significant system and operational changes without commensurate benefits."
Similarly, FINRA
"However," the SEC says, FINRA "will continue to monitor investors' awareness and use of BrokerCheck and consider whether to pursue further rulemaking."
NO DIRECT LINK
FINRA also decided against a requirement that brokers post a "deep link" that would take a client directly to their profile page on BrokerCheck, with the SEC explaining that "most investors should be able to find information concerning particular members and registered representatives without difficulty given the ease of operation of the BrokerCheck search feature."
In its explanation of the rule, the SEC did not fully address the criticism that the information available to clients in BrokerCheck is incomplete -- a longstanding complaint among investor advocates -- instead simply saying that "these comments are outside the scope of the current proposal, but that [FINRA] regularly assesses the BrokerCheck program and may consider including additional information in BrokerCheck at a later time."
The changes that FINRA made were enough to placate the Financial Services Institute, which had argued against some of the more burdensome mandates the industry regulator had been considering as it crafted the rule.
TRANSPARENCY AND ENHANCEMENTS
"This rule is an example of regulators and the industry constructively working together to achieve the shared objective of enhanced transparency and investor access to information," David Bellaire, FSI's executive vice president and general counsel, said in an emailed statement. "By working together, the rule now minimizes potential operational problems and unintended consequences while still providing important information to investors."
Some consumer advocates welcome the advance of FINRA's rule as a tool for investors to learn more about their advisor's history, even if its impact will be limited.
"It should be modestly helpful, as far as it goes," says Barbara Roper, director of investor protection at the Consumer Federation of America.
However, she notes that "it would be considerably more helpful" if the SEC were to act under a mandate in the Dodd-Frank Act to develop a mandatory disclosure document that brokers would have to present clients up front, which would contain a summary of the information contained in their BrokerCheck report.
Likewise, she urges FINRA to make technical changes to expand access to the BrokerCheck database on the general Web.
"It would also be more beneficial if BrokerCheck were searchable, so that investors need only Google their broker's name to get a link to the report," she says. "Certainly, this is information investors should consider when selecting a broker or investment adviser."
Read more:
