With just a few clicks of the mouse, you can dig up all sorts of details on brokers and brokerages thanks to the revamping the NASD gave its Web site (brokercheck.nasd.com) last week.
For brokers the information includes job history, customer complaints, criminal charges and convictions, disciplinary actions, bankruptcies, unsatisfied judgments and liens and arbitration awards. Brokerage firm reports include much of the same information plus details about ownership and corporate affiliations. The information was available before, but getting to it was far more difficult.
"NASD BrokerCheck should be investors' first stop in choosing a firm or broker," said NASD chairman Mary Schapiro. "It provides convenient access to far more information than is publicly available about virtually any other professional they deal with."
In fact, a foray into NASD land may generate so much information that it can be overwhelming. The report on Raymond James & Associates of St. Petersburg is 194 pages long and includes 44 regulatory "events" and 109 arbitrations. But that's small stuff next to Merrill Lynch's 1,779-page report, with 239 events and 1,720 arbitrations.
Thankfully, for individual brokers and smaller firms, the information is more easily digestible. Only 10 percent of brokers have anything on their records beyond routine employment information.
Here's what to look for:
LICENSES: Brokers and firms should be licensed in their home state and in your state, if those aren't the same.
JOB HISTORY: There are many reasons brokers change jobs, but if yours switches firms every year or two, that's something to ask about.
FINANCIAL AND CRIMINAL BLACK MARKS: Bankruptcies, unsatisfied liens and judgments are a sign of difficulty with financial management.
PROBLEMS: Check the quantity and quality of customer complaints, regulatory events (industryspeak for disciplinary actions) and arbitrations, the formal process for resolving complaints outside the court system. Even one or two of these is a red flag for a broker, but a brokerage of any size is sure to have multiple incidents.
How serious is it? Problems range from technical reporting errors to theft. The size of the penalty imposed or the amount of an arbitration award is a clue as to the seriousness of an issue. If there was no award, arbitrators did not agree with the complaining customer. You can delve deeper by noting the case number and searching online arbitration awards on another section of the NASD Web site.
How long ago were the infractions? Recent and continuing problems are of more concern.
Could this happen again? Steps may have been taken to correct the problem.
Unfortunately, not everything you might like to know will show up on a broker's record.
"A clean record does not indicate a clean broker," said Joel Goodman, a Clearwater lawyer who frequently represents investors. He says regulators sometimes send out a "letter of caution" warning a broker about wrongdoing but don't put it in the NASD file. Many arbitration cases don't name the broker as one of the parties even though they are all about the broker's misdeeds.
"That's a significant hole in the system,' Goodman said. He said lawyers often name only the brokerage because they don't want to take a chance that arbitrators will divide responsibility for payment of the award. It's a lot easier to collect from brokerage firms than it is from individual brokers.
Goodman recommends asking brokers directly whether they've gotten a letter of caution or been the subject of an arbitration.
NASD officials agree that you should raise any concerns with your broker.
"A disclosure record doesn't necessarily mean that they're not good people," said Jay Cummings, the regulatory group's top disclosure official. "Take the step of asking questions about it. Give him a chance to put into context what you see out there."
Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, write firstname.lastname@example.org or Helen Huntley, Times, P.O. Box 1121, St.Petersburg, FL 33731. Read more questions and answers at blogs.tampabay.com/money.