RESOURCES FOR INVESTOR PROTECTION

by Christopher J. Gray on August 31, 2011

in FINRA Regulation,SEC,Securities Fraud

Though investors who have already been “burned” by stock broker fraud or broker misconduct may have a perfectly understandable fear of getting  back into the securities game, there are ways investors can help protect  themselves in the future. One of the most significant protective  measures an investor can take is to look into the background and  credentials of a potential stock broker or investment adviser before  working with them.

Resources for investor protection

Any time a business hires a new employee, they run a background check — so why wouldn’t an investor do the same when hiring a stock broker or financial adviser? According to a Financial Industry Regulatory Authority (FINRA) survey, only 15 percent of investors perform a background check when hiring an adviser. In addition, just because they’re registered when you hire them doesn’t mean you’re finished. Investors should check broker registration yearly.

To find out if your broker has had any arbitrations, criminal records, investment-related investigation, bankruptcy or disciplinary actions, utilize FINRA’s BrokerCheck. Other information available through BrokerCheck includes employment history, licenses held and where the broker is registered. While not every stock broker or brokerage firm can be found in BrokerCheck, the database is extensive, including around 1.3 million brokers and 17,000 firms.

Investment advisers (who carry a Series 65 license, as opposed to the Series 7 broker license) are required to register with the SEC. This means that you can easily look them up on the SEC’s website by using their “Investment Adviser Public Disclosure” page. In addition to the information found on FINRA’s BrokerCheck, you will find the adviser’s typical number and type of clients, services offered and the amount of money they manage.

Two more checks investors can perform when deciding if they can trust a broker are verifying college degrees and determining if the broker under consideration is a flight risk. Though a college degree is NOT a requirement for working as a stock broker or financial adviser, those with degrees tend to be taken more seriously. Investors can verify graduate and undergraduate degrees by checking with the National Student Clearinghouse. To see if a broker has a pilot’s license and/or owns a private airplane, check with the Federal Aviation Administration.

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