Brokers, investment adviser representatives and other registered securities professionals may start wishing that they had studied more for their licensing exams. That’s because the SEC is suggesting that FINRA include qualification exam scores in BrokerCheck and Investment Adviser Public Disclosure (IAPD). If you’re a securities professional who passed a securities qualification exam but didn’t aim for a high score, before you blame the SEC or FINRA, understand that that the Dodd- Frank Act mandated that the SEC come up with ways to improve investor access to investment advisor and broker-dealer registration information.
In January 2011 the SEC released a study which recommended that FINRA add educational content and the ability to search by zip code to BrokerCheck and also to the IAPD registry which is owned by the SEC and operated by FINRA. The study noted that only a small minority of investors say that they use BrokerCheck or IAPD to research a broker or an adviser. The SEC also recommended that FINRA study ways to improve and expand BrokerCheck by, for example, including outside links within BrokerCheck, and by providing more information about individual brokers. The SEC study also suggested that FINRA consider permitting private firms use BrokerCheck information for commercial use. What drew the most commentary, however, was the SEC’s suggestion that FINRA include qualification exam scores in BrokerCheck and IAPD reports.
There were several supportive responses from investor advocacy groups and legal clinics, for example this one from the Pace University Investor Rights Clinic (PIRC), a pro bono law clinic for lower income investors:
“PIRC fully supports the disclosure of additional information, such as brokers’ educational backgrounds, professional designations, examination scores and comments related to a broker’s termination in the BrokerCheck reports. Additionally, granting for-profit companies access to BrokerCheck information for commercial use could be a meaningful way to increase investor exposure to such information. PIRC believes that these additional disclosures, the commercial use of BrokerCheck information, and meaningful alterations to the report design, format and content, could all enhance investor access to and understanding of the information disclosed.”
But the majority of comments on FINRA Regulatory Notice 12-10 were highly negative. The primary criticism was that exam scores do not offer any protection to an investor – that there is no correlation between securities exam scores and job performance, competence or integrity. Several comments pointed out that lawyers, physicians and other professionals are not subjected to this type of exam score disclosure.
A representative comment came from David Sobel at Abel/Noser:
“This continuous expansion of BrokerCheck is a kneejerk reaction to the 2008 financial debacle; a debacle that was not caused by the average stock broker. It was caused by the highest executives of the largest firms. And yet, those executives have received no additional scrutiny, they continue to get their multi-million dollar bonuses, they continue to skirt the regulator’s wrath, while the average street broker is being bombarded with ridiculous regulations, requirements and fees that will eventually destroy his or her business. We are already seeing this with the number of BD’s that we lose each year. From 2002 to 2010 we lost 18% of our brokerage firms (approximately 950).
Let’s start looking to where the problems lie, and not at the easy, low hanging fruit. If Dodd-Frank is meant to inform the investor, then figure out some way to inform them, to teach them about the markets, stock, debt, and derivatives. The pandering to the lowest common denominator by exposing its own members to an absurd level of exposure, scrutiny and embarrassment is the easy way out and the most public relations oriented way of making the public feel “protected.” I’ve never known another organization that is so ready to throw its own membership under the bus. We have to deal with Reg S-P and make sure that our clients’ information is sacrosanct, but our own information is fodder for the internet. We have no rights of privacy about anything.
And the outrageous over-exposure would be exacerbated even further if FINRA were to SELL our information to vendors. Are we going to get a cut of the sale price? After all it’s our information. Once that information is sold, our privacy no longer exists. All of our dirty laundry will be all over the internet forever. Additionally, it wasn’t brokers that caused the crash in 2008, it was partly caused by greedy investors who wanted mortgages with no income check; wanted CD’s producing interest that was so high it was obviously bad; or investments that paid 12% when the market was paying 2%. The average broker did nothing to make the market crash, but is now taking the brunt of over-regulation, over exposure and bad press – the sad part is that the negatives are being generated by their own organization. FINRA and the SEC should take a moment to justify these expansions with facts instead of blindly grabbing at straws.”