January 2, 2025 Newswires

Is it worth your time to research your adviser?

JULIE JASONThe Daily Legal News

If you want to find out about the disciplinary history of the investment firm or the individual who handles your money, how do you go about it? How difficult is it to find the information?

One way to do this is to look for the CRS (Client or Customer Relationship Summary) on the firm's website. The CRS is a U.S. Securities and Exchange Commission-mandated disclosure document of either two or four pages, depending on the firm's business model.

Let's use a large, well-known firm as an example. Go to the Merrill Lynch website (tinyurl.com/y27pzpke). Look for this line: "For more information about our brokerage services and investment advisory programs, see ml.com/CRS."

Once you open the CRS, look for the "disciplinary history" section. In the case of Merrill's four-page CRS (dated March 22, 2024), on the fourth page, highlighted in dark blue, you'll see this question: "Do you or your financial professionals have legal or disciplinary history?" If the answer is "yes," the CRS states: "Please visit Investor.gov for a free and simple tool to search for us and our financial professionals." Investor.gov is a website maintained by the SEC.

You would think that the link would open up the firm's disciplinary history (the SEC should make this easier). Look for a large picture box titled "Check Out Your Investment Professional." In the box's search bar, you'll enter the name of the firm or an individual.

To find Merrill's disciplinary information, simply entering the search term "Merrill" won't get you what you want. Nineteen results populate the dropdown menu. Choose "Merrill Lynch, Pierce, Fenner & Smith Incorporated."

Click on the profile in the dropdown menu, where you will find two "Get Details" links. Since Merrill is a dual registrant, you'll see "Investment Adviser Firm," which opens Merrill's Investment Adviser Public Disclosure (IAPD) profile (tinyurl.com/ms58cvm3), as well as "Brokerage Firm," which directs you to Merrill's BrokerCheck profile (tinyurl.com/mbkm8uwe).

Dual registrants are regulated under two different statutes -- one for broker-dealers, the other for investment advisers. A single financial professional working for a dual registrant can also be a registered representative (broker) and an investment advisory representative.

Customers need to be aware of the distinction, a subject I covered in my latest book, "The Discerning Investor." Write to me ([email protected]) if you would like me to discuss this topic in a future column.

To find the disciplinary history for a company's investment adviser services, on the IAPD profile you can:

1. Select "View Form ADV By Section" in the menu on the left-hand side of the webpage. Then select "Item 11: Disclosure Information" for a general review of disciplinary history. For more detailed disclosures, select "DRPs" (Disclosure Report Pages).

2. Click "Part 2 Brochures," which takes you to a page with links to download firm brochures (ADV Part 2A).

For the disciplinary history of a firm's brokerage services, you can download a "detailed report" from its BrokerCheck profile that will inform you of disciplinary actions under "Disclosure Events."

The Disclosure Events section states that "All firms registered to sell securities or provide investment advice are required to disclose regulatory actions, criminal or civil judicial proceedings, and certain financial matters in which the firm or one of its control affiliates has been involved."

Each disclosure is listed separately, including the status of the disclosure (pending, on appeal or final), the allegations related to it, the resolution and any possible sanctions.

You will want to take your time reading through the listings, as they can provide some insights into a firm's culture. The same goes for an individual. You're looking for patterns.

Going back to Merrill's CRS, you'll see an "Additional Information" section after the disciplinary history. It offers a copy of their Best Interest Disclosure Statement, which "provides information about the scope and terms of the brokerage services" Merrill offers, describing "approach, services, fees, compensation and conflicts of interest" (tinyurl.com/3nerd8j3).

Again, researching this information does take time. The tools provided may not seem intuitive or user-friendly, and the process to access this information may often seem unclear, especially if you are unfamiliar with this industry. Disclosures can be lengthy, with some over a thousand pages. However, it is your money that is involved, so the time is worth it.

Seasoned investment counsel (tinyurl.com/52nus8hz) and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, "The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients)" (tinyurl.com/4u7h9pjs), published by the American Bar Association. Write to Julie at [email protected]. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.