A recent study by the Wall Street Journal shows a correlation between the number of times a broker fails the examination to become licensed by a state (Series 63 exam) and the number of red flags. For example, those who failed the test more than twice, 77% were more likely to report a felony or financial-related misdemeanor and 55% more likely to have been terminated. Further, the Journal’s analysis shows that of those who failed this exam at least three times were about two-thirds more likely to have three or more red flags on their record. Red flags include unauthorized trading, churning (excessive trading in customer accounts to generate commissions), sales of unsuitable products, high-pressure sales tactics, impersonating another broker, misrepresentations and fraud.
Attorneys, Certified Public Accountants, and other professionals do not have to disclose the number of times it takes to pass their admission examinations, so should stockbrokers be any different?
Stockbrokers are regulated in part by the Financial Industry Regulatory Authority (FINRA). FINRA has an easy to use system know as BrokerCheck to find out information about brokers including some of the red flags. BrokerCheck can be found at brokercheck.finra.org.
Investment Advisors are regulated in part by the Securities and Exchange Commission (SEC). The SEC also has an easy to use system to find out information about an Investment Advisor including From ADV that provides very useful information. The SEC’s Investment Adviser Public Disclosure webpage can be found at adviserinfo.sec.gov.