SEC Panel Looks At Advisor Background Database

By Arthur D. Postal
InsuranceNewsNet

WASHINGTON – A Securities and Exchange Commission (SEC) advisory group is considering the creation of a tool to make it easier for investors to obtain background information on financial professionals.

The SEC’s Investment Advisory Committee has decided to continue its efforts to establish a unified database detailing the background information on financial professionals.

The advisory panel’s plans to create the database were disclosed by the Public Investors Arbitration Bar Association (PIABA). The PIABA said it “applauded” the advisory group’s decision to follow through on a report the trade group released in which it alleged that the Financial Institution Regulatory Agency (FINRA) “systematically withholds” filing of complete information about problem brokers.

The PIABA report alleged that FINRA’s BrokerCheck system of “red flag” information about problem brokers withholds detailed data available through many state securities agencies.

According to PIABA, the BrokerCheck system “routinely deletes information about bankruptcies, tax liens, firings, flunked tests, sales practice abuse investigations, and other red flags for investors.”

The report warned that the extent of the omitted “red flag” background information “is so serious that unwitting investors relying on BrokerCheck may very well select brokers with whom they would not do business if they had access to the more complete picture available to FINRA but now being hidden.”

Joseph C. Peiffer, PIABA president, said the organization “strongly recommends” that the advisory panel “insist on the full disclosure of all background information about financial brokers rather than a sanitized version of the records.”

“Just as financial professionals need and expect the public to disclose every aspect of their financial picture, the public needs and expects their financial professionals to disclose every aspect of their backgrounds,” he added.

He argued that the data is already in the public domain, spread across a variety of sources. “There is no good reason to prevent the public from accessing that information from a single source,” Peiffer said.

The Investment Advisory Committee took action on the database at a meeting this week in which SEC Chairman Mary Jo White reiterated that the agency “will be discussing advancing rulemakings” aimed at imposing a uniform fiduciary standard on broker/dealers and investment advisors.

She also confirmed that the SEC is considering whether to require third-party examinations of investment advisors to increase the agency’s exam coverage.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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