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Rule would make finance advisers reveal complaints


Are many barrier island residents unwittingly putting large sums into securities recommended by financial advisers who do not readily disclose they have been the subject of dozens of complaints over risky investments that have cost other Vero investors millions?

The answer to that question is “yes,” which is why a new rule that would force financial advisers to reveal more about their past is causing waves in in the financial community.

The Board of Directors of the Financial Industry Regulatory Authority (known as FINRA), a non-government watchdog over the financial advisory profession, just proposed a new rule that would require brokerage firms to “include a readily apparent reference and link to BrokerCheck” on their websites.

BrokerCheck is a database maintained by FINRA that investors can use to check to see if any complaints have been filed in the past against a broker, and if any regulatory disciplinary actions have been taken.

It’s the second time FINRA has proposed the rule, but observers say this time regulators seem adamant to push through the “add the link” rule.

The rule – strongly supported by some advisers, who feel it will help improve the reputation of the industry – could effect at least one island broker, and perhaps more. The one broker’s website reveals only a single regulatory action – his license to operate as a securities dealer has been suspended by a mid-Atlantic state – and only one customer complaint.

One complaint doesn’t seem bad in an industry where customers often complain when they lose money.

Further details on the disclosures from this broker’s website are blurred and you have to register to get them – a step few web visitors take since many don’t want to leave tracks.  All the way down on the site in small print is a link to BrokerCheck, but it takes you to FINRA’s home page; to get the record, you have to type in his name and broker number – again, steps few visitors take.

The new FINRA rule would force brokers to create direct BrokerCheck links to their own records on their websites, which in this broker’s case, would have revealed an astounding 38 complaints filed against him while he was working for a previous Vero Beach brokerage.

Apparently the sole complaint listed on the broker’s own site covers his time with the brokerage where he’s been employed since 2009 when he jumped ship from his previous position.

The 38 individual complaints – about lost investments totaling more than $6 million – were all settled by his previous brokerage, which paid  more than $3 million. Attorneys got a sizable share, so it is safe to say a number of local investors lost far more than half their money. Identities of the investors could not be readily determined.

In his defense, the broker cited the failure of a “structured product” that included default credit swaps and the now infamous mortgage-backed securities (MBS).  All complaints were filed and settled in the 2009-2012 time frame.

Amounts lost by individual Vero investors who filed complaints ranged from a low of $18,000 to a high of $1.9 million, and some prominent local businessmen were among the victims.

All complaints allege that the broker misrepresented the “structured product,” on which he is believed to have earned sizable commissions. The complaints say the broker told customers the principal was “guaranteed” or that “there was no risk involved and that the product would provide protection from a market downturn while still allowing some upside potential.”

The new rule would more easily enable investors to determine a broker’s history.  People are urged to vet financial advisers and make sure their philosophies are on the same page.

Since financial advisers often jump from one firm to another, it is also important to obtain the entire record, not just the one with a current employer. Investors must be aware the big investment houses often pressure brokers to sell high-risk products.

The lessons from the 2008 financial collapse could be valuable if, as many experts believe, we are headed for another period of financial instability and uncertainty. Some believe an “adjustment” is inevitable.

At times like these, financial advisors urge investors to gain a solid understanding of what products they’re invested in, how liquid the investments are, what their tolerance for risk is, and what their priorities are between guaranteed income or aggressive growth.