Checking out Broker Candidates

Stockbrokers typically file a Form U-4 to register with the Financial Industry Regulatory Agency (FINRA), which covers the details on the advisor's past. As this book was going to press, FINRA had proposed stepped-up disclosure requirements that would make it easier to discern when a broker had committed violations of securities law or had disciplinary hearings or customer complaints. Further, the new form would more easily enable "statutory disqualification," which happens when an advisor is barred from the investment industry; under current rules and existing paperwork, a registered investment advisor could be tossed from the business for violating securities laws, but resurface as a registered representative, working as a broker.

When approved, the new U-4 form will make that kind of disingenuous act hard to pass off. Because brokers, account executives, and whatever else you want to call a "registered representative" are regulated by FINRA, start your background check by using the agency's BrokerCheck service. It will provide information on an advisor's previous employers, disciplinary actions, and customer disputes filed against him or her, states he or she is licensed to do business in, industry exams he or she has passed, outside business affiliations (which may show conflicts of interest), and more. The service is free and takes just minutes. If you can get the broker's Central Registration Depository (CRD) number, you can go directly to his or her record, which is helpful if the broker has a common name. To use BrokerCheck, go to Your second background check stop should be your state securities commissioner's office, for which contact details are available at If your broker candidate also functions as an investment advisor, she will be a registered investment advisor, meaning she files a Form ADV with either the state regulator or the Securities and Exchange Commission. To check out the Investment Advisor Registration Depository (IARD), which you can access through the SEC's Investment Advisor Public Disclosure program, go to to find an easy link. Some brokers also sell insurance products. If your candidate does, be sure to check the insurance licenseâ

By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2020. Content published with author's permission.

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