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What do you hope to get from a FINRA Broker Check report?  Most likely, you want a comprehensive report on the background of your broker or prospective broker.  You want to know if he has ever been accused of mistreating a customer.  Unfortunately, FINRA won’t tell you that.  

Clean or Whitewashed?

Many successful brokers have been in the business for decades.  They remember the hyper inflation of the 1970s and the stock market crash of 1987.  A broker who has been in the business that long and has survived every bear market without a single customer complaint has earned a solid reputation for good customer care.  You cannot find out from FINRA whether the broker you are using or considering is such a broker. 

FINRA’s report does not include actions that the broker has negotiated to have removed from his ‘official’ record.  His firm knows that a clean record is important.  If he is a big producer, the firm may have paid off every abused customer who ever filed a claim, getting, as a condition of settlement, the customer’s consent to have the complaint removed from the broker’s official record.  How many abused customers have there been?  FINRA won’t tell you.

Recently I ran a background search on a broker in Boca Raton, Florida.  Although her FINRA report is clean, she is not.  We found five separate arbitration actions against her, with damages totaling $4.9 million, with allegations including unauthorized trading and fraud.  She is wearing five coats of whitewash.  FINRA won’t tell you that.

Who was your mentor?

FINRA often won’t give you a complete employment history on a broker.  Why is that important?  A broker trained at Stratton Oakmont and a broker trained at A.G. Edwards are likley two very different animals.  For that matter, FINRA won’t tell you that Stratton Oakmont was one of the most infamous brokerage firms in the history of the securities industry.  Read Jordan Belfort’s memoir The Wolf of Wall Street if you want the details.  Beware, though — it is rated NC-17.  He tells it like he lived it. 

Unless you ask someone who knows that a broker received his early training at a firm notorious for customer abuse, how would you know?  FINRA won’t tell you.

You failed the driving test how many times?

FINRA doesn’t give you details about a broker’s licensing exams.  Why is that important?  Those exams test a broker’s understanding of concepts designed to protect you.  If he can’t pass the test, does he understand his obligation to you? 

I recently ran a background search on a broker who failed the basic Series 7 licensing exam three times before passing it with the lowest passing grade possible.  At one point he gave up for ten years before trying again.  He also failed every other exam he ever took, ultimately just giving up on the supervisory exam.  FINRA won’t tell you that.

FINRA is rolling out a $3 million media campaign to position itself as the friend and protector of American investors.  They will deliver less than they promise.