By Andrew S. Zito, AIF® | Executive Vice President, Retirement Plan Services | 08.16.2018
A good advisor is vital whenever investments are involved. Knowing that an advisor hasn’t run afoul of securities regulators, or had significant complaints from clients, can provide peace of mind. As a private investor, this information is important – but as a fiduciary to a 401(k) plan, it is vital.
One easy way to look up this information is to use the free service called BrokerCheck,
I was giving a continuing ed presentation at an HR conference a few years back and one of my slides had a tip about using BrokerCheck, a free service offered by the Financial Industry Regulatory Authority (FINRA). A few slides later a woman raised her hand and said “Is 7 regulatory disclosures a lot for our plan advisor to have?” I looked at what they were for and at least half of them were breach of fiduciary duty type complaints. I simply asked her how she would explain to her employees what research the 401(k) committee had done to get comfortable with these disclosures. She didn’t have an answer, and I suspect that many 401(k) committees would be in a similar situation.
Using BrokerCheck is an easy way for Committees to do some basic due diligence on their advisor, yet very few do it.
What is FINRA’s BrokerCheck?
FINRA’s BrokerCheck is designed to serve as a database of investment firms and professionals. Company plan administration firms, investment advisors, and other professionals registered as securities representatives are all searchable through this database.
Some of the information available through BrokerCheck includes:
- States where the broker or firm is registered.
- Sanctions by securities regulators.
- The employment history of individual representatives (including how many firms they’ve worked at).
- Years of experience.
- Any public disclosures that have been filed.
In addition to providing information on the BrokerCheck site, FINRA also connects to the Securities and Exchange Commission (SEC) website. It’s possible to get “more details” and access to public filings by following BrokerCheck’s direct link to any individual or firm from the SEC.
BrokerCheck is free. It’s possible to request unlimited reports, although an authentication page is required for the first report, and after every 10 reports.
Why is Using BrokerCheck Important?
Unfortunately, there are firms and individuals that don’t always follow the law or engage in ethical practices. Maybe a broker has been sanctioned by the SEC or had numerous complaints from other clients. In those cases, it’s important for Committees to understand these disclosures and be sure they can be comfortable that the broker will conduct themselves in an appropriate manner going forward.
BrokerCheck can also be a way to verify years of experience and see public filings that can help individuals and companies make better decisions. When choosing a firm to manage a company plan, it’s important to know that the firm has experience in the area of investment and benefits management.
Other Steps to Take After Using BrokerCheck
While BrokerCheck is a great tool, it’s not the only one that can be used to research potential plan advisers. Indeed, BrokerCheck is more of a starting point. It offers a great overview, but it can also help to look at other information sources.
Another place to check is a state regulator where the professional or firm is registered. Some states require the renewal of a broker’s security license every so often. A state’s regulator has that information, along with other information about complaints and actions taken against a broker or firm.
Additionally, it can be useful to find out which professional organizations individual brokers and firms belong to. Many of these organizations require ongoing education and other criteria to maintain certification. Up-to-date certification can be an indication that a firm or broker is diligent in keeping up with best practices and committed to providing a high level of service.
Regardless of how your committee conducts its background research, it is important that it does so regularly. As a fiduciary to your plan, it is important that you understand the professional and regulatory background of your plan’s advisor.
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