How to Check Your Financial Advisor’s Professional Background
When you’re searching for a financial adviser, or when you’re having issues with your current advisor, it’s important to learn as much as you can about them.
The best way to do this is by checking the financial advisor’s background.
Unfortunately, investigating a financial advisor isn’t always easy. To start, the finance industry has multiple governing bodies, and each one covers a different part of the industry.
On top of that, there is no official regulation about what financial advisors may call themselves; some may use “financial advisor” while others may use “investment advisor.” Finally, what’s the difference between an investment advisor and a broker-dealer?
Luckily, if you know where to look, finding background information on a financial advisor isn’t actually that difficult. Here’s how you can easily check on a financial advisor’s background.
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Know the Difference Between a Broker-Dealer and a Financial Advisor
Broker-dealers and registered investment advisors (RIAs) are governed by different regulators. Knowing which regulator governs which type of advisor is important for searching in the correct place.
A broker-dealer is any person or firm that both buys and sells securities. A financial professional working for a broker-dealer is regulated by the Financial Industry Regulatory Authority (FINRA).
An RIA, on the other hand, is anyone who provides advice, analysis, and recommendations on securities. RIAs are regulated by either the Securities Exchange Commission (SEC) or state securities authorities.
One important note: under the Dodd-Frank Act and SEC Rules, only advisors that manage more than $110 million in assets are required to register with the SEC. Investment advisors that manage less than that must register with state securities regulators instead.
It’s important to know which regulatory authority to search when performing a background check on a financial advisor. If you search in the wrong place, you may not discover crucial information that you need to make an informed decision.
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How to Check a Financial Advisor’s Background
Use FINRA’s BrokerCheck
Search the SEC Database
Contact Your State Securities Regulator
FINRA provides a service called BrokerCheck which you can use to find information about brokers, brokerage firms, and investment advisors. You can search on BrokerCheck using a financial advisor’s name or Central Registration Depository (CRD).
BrokerCheck provides a history of the advisor’s registration history, licenses, and firms. If there are any, BrokerCheck will also show any disciplinary actions taken by FINRA against the advisor.
FINRA also provides a database of disciplinary actions going back to 2005. Use FINRA Disciplinary Actions Online to conduct a search for any disciplinary actions by name or CRD number.
Keep in mind that if you search BrokerCheck and see that an advisor is no longer registered, it doesn’t mean that there’s an issue. In many cases, it just means the advisor started working for a different firm that was not registered as a broker-dealer.
Investment advisors must register with the SEC using what is called Form ADV. This form contains two parts. The first contains information about the investment advisor. The second is a brochure that explains in plain English the services offered by the investment advisor, including a fee schedule and disciplinary information.
You can search for an investment advisor’s most recent Form ADV using the SEC’s Investment Advisor Public Disclosure (IAPD) website. This website also searches BrokerCheck and will let you know if an entity is also a brokerage firm.
Depending on the size of the advisor, you may need to contact your state’s securities regulatory for an advisor’s Form ADV. The contact information for each state’s securities commission can be found at the North American Securities Administrators Association website.
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What If My Advisor Still Isn’t Showing Up?
A search that doesn’t turn up anything can be a red flag because it indicates that the advisor may not be registered at all. Before worrying too much, make sure you searched on the right database. If you’re unsure which regulator controls the advisor you are checking up on, don’t be afraid to ask them where you can find their registration information.
Otherwise, make sure that you entered in the advisor’s CRD and/or name correctly. If you’re searching by name, try using the advisor’s middle name as well. Many advisors may go by their middle name rather than their given name.
If you’ve double-checked that the information you are searching is correct, or you have thoroughly consulted FINRA, the SEC, and your local regulator, you should stay away. This advisor may be using that title with no authority to do so.
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Issues with Your Financial Advisor?
If you’ve suffered losses or believe you were misled by your investment advisor, we can help. Contact us today for a free case review.