Should background information on all advisors, brokers and unregistered financial professionals be commingled in one database?
According to an SEC committee, investors -- particularly elderly ones who are too often the victims of financial abuse -- could benefit from a consolidated database that would allow them to run background checks on all financial professionals.
The commission's Investor Advisory Committee on Thursday recommended that the agency work with other government and self-regulatory groups to establish a database that would bring together the professional and disciplinary records of financial advisors across a number of sectors subject to varying regulations and disclosure requirements.
In outlining its recommendation, the committee is calling on the SEC to "seek to obtain the agreement from other federal regulators, self-regulatory organizations and state regulators for the development of a single site that will permit a search of all relevant databases that provide background information on financial market professionals."
ELDER FINANCIAL ABUSE
The panel acknowledges that the multi-industry database it envisions would of course benefit all investors, but it says that it "developed these recommendations in the context of concerns that arise with respect to the financial abuse of elders."
Elder financial abuse has been attracting increasing attention among policymakers at the federal, state and local levels, though the scope of the problem remains difficult to quantify. A MetLife study pegged the annual losses from elder abuse at at least $2.9 billion in 2010, though experts generally believe that the real figure is far higher due to a significant number of incidents that go unreported.
"I think that it's an iceberg phenomenon," Eleanor Blayney, the CFP Board's consumer advocate, said in a recent interview. "What we're seeing is only a small piece of what may exist."
The SEC's Investor Advisory Committee acknowledges that the proposed database is only one of several potential policy options to address elder financial abuse, and by itself is no panacea for the problem. However, the committee argues that the uniform background check would provide a needed tool for investors to vet financial professionals.
SINGLE SEARCH BACKGROUND CHECK
"At the most basic level, such a search would determine whether the market professional is registered or licensed," the committee says in its recommendation. "In other circumstances, such a search would provide information about the background, honesty, integrity and competency of the market professional."
Existing databases, such as FINRA's BrokerCheck and the SEC's Investor Advisor Public Disclosure system, provide some of that information, but the committee notes that they are not linked, and many financial professionals operate outside the scope of those systems, including mortgage brokers, insurance agents and municipal advisors. Missing also from those databases, the committee points out, are those individuals who have been sanctioned by the SEC, FINRA or another regulator, but are "otherwise unregistered."
"Elders wishing to conduct a background check on a market professional therefore confront a diffuse, confusing, and complex environment," the committee says. "Ultimately, the goal should be to allow elders and other investors to rely on a single search function to obtain background information on any person offering financial or financial related products."
The Public Investors Arbitration Bar Association, which has been staging a campaign to make more information available through BrokerCheck, heralded the committee's recommendation, and urged the SEC to move ahead to require greater disclosures across the financial services industry.
In a statement, PIABA President Joseph Pfeiffer praises the committee for "highlighting the need to break down the barriers between the inconsistent and confusing reporting systems that now exist for financial professionals in the United States."
Kenneth Corbin is a Financial Planning contributing writer in Washington.
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