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Investor Protection

You Can’t Tell the Players with a Scorecard

April 27, 2020

by Howard Haykin



Investors draw comfort from knowing their brokers are financially stable and secure. A broker who’s not financially stable or secure – perhaps due to a history of financial liens, judgments, bankruptcies, and creditor compromises – may be more likely to try and take advantage of his or her customers by, for example, trading excessively in customer accounts, or by converting customer funds for their own purposes.



Fortunately, investors have access to a history of financial events for each and every broker. That information, along with their qualifications and employment history, is available to the public on FINRA's Brokercheck. 


EXCEPT WHEN IT ISN’T, ... which is to say that some broker-dealers fail to post such information about their brokers and registered personnel to Brokercheck - or they do so months too late. For example, First Financial Equity Corporation, which is based in Scottsdale, AZ, allegedly failed to post to Brokercheck “71 outstanding liens, outstanding judgments, bankruptcies and creditor comprises in a timely fashion or, in some cases, at all” for 20 of its 165 brokers. Sixty-eight of those disclosures consisted of outstanding judgments and outstanding liens totaling $1.4 million.


Turned out the Chief Compliance Officer was at fault for not updating Brokercheck, while the firm was faulted for not adequately supervising the CCO; they didn't monitor whether she fulfilled her responsibilities.



INVESTOR PROTECTION.    Yet, this case study is not an indictment against First Financial Equity Corporation which … (i) prior to these incidents, had not been cited for any similar violations; and, (ii) since entering the securities business in 1985, had maintained a relatively clean disciplinary history.



Instead, the key take-away for investors is to understand that FINRA’s Brokercheck database – also referred to as Central Registration Depository or CRD – is not always complete and up-to-date. Nevertheless, Brokercheck / CRD serves as a critical starting point for any due diligence that an investor plans to take when selecting a financial adviser.


Financialish can assist investors in conducting due diligence, and in monitoring their financial investment accounts.



[For further details, click on … FINRA Case #2017055723502.]