In a recent report to Congress, mandated by the Dodd-Frank financial overhaul law, the SEC maintained that “because selecting a broker-dealer or investment adviser is one of the most important decisions that investors face, information to help them make this choice should be easy to find, easy to use, and easy to understand.”
But if you do a simple google search for the name of your broker or investment adviser and “disciplinary action” or “fine” you are unlikely to come up with much. While the information on broker-dealers and investment advisers is all a matter of public record, you need a degree in government webology to find it.
The U.S. Securities and Exchange Commission (SEC) website includes a search page where anybody can look up an investment adviser firm or an an investment adviser representative, here. At present, any firm with assets of more than $25 million must register here. But as of July 21, the anniversary of the passage of the Dodd-Frank financial overhaul law, only advisers managing $100 million or more will register with the Commission. If they are smaller, they register with the state.
To find the disciplinary actions against a firm you need to know where to look—the terminology is “Part 1A Item 11 Disclosure Information DRPs.” But even when you click here you may not get all the available information about a particular firm or individual. That’s because if the information is reported elsewhere, the firm need only indicate that fact.
You have to go over to the Financial Industry Regulatory Authority (FINRA), a self regulating organization (SRO), which maintains BrokerCheck. Here it’s possible to look up a broker-dealer firm or an individual broker-dealer. The search mechanism returns a PDF which you can read through to find the disciplinary information. FINRA also maintains several other public databases on its website where you can get additional information.
Investor advisers are also required to deliver printed brochures directly to clients that contains basic information about their businesses, including disciplinary actions. But of course it is difficult to know whether this requirement is followed in all instances–and the descriptions in these brochures do not go into as much detail as what is available through the websites.
It is nearly impossible to do a comprehensive analysis of invester adviser and broker-dealer data because of the way that the SEC and FINRA make them available. Much of the information is locked behind proprietary interfaces and generated on PDFs that make it difficult to manipulate.
Because FINRA is not a government agency, it is not subject to the Freedom of Information Act (FOIA). While both the SEC and FINRA publish regular summaries of their enforcement actions here and here, it is not simple to take these to determine, for example, which major firm has racked up the most violations over the past several years.
Furthermore, FINRA is the contractor that maintains all of the data—including the investment adviser data—for the SEC. While the SEC makes a portion of its invester adviser data available here in a spreadsheet format, according to SEC staff additional details must be purchased from FINRA—the full data file available costs $1,680. And even that doesn’t include all the information.
Congress recognized that there was a problem when it passed the Dodd-Frank financial overhaul. The law mandated that the SEC study how to make investor data more easily accessible and that it implement changes within 18 months after the study was delivered, in January.
Among the options considered by the agency in its study was consolidating invester-adviser and broker-dealer into one database. But that would be impossible to implement within the 18-month deadline, said the agency, so instead it proposed some stopgap measures-creating a search mechanism that would return results from both databases, for example, and creating a means where a user could search by zip code.
The report also recommends that more research be done to determine what changes should be made in the long term. But no where does it discuss the idea of making the underlying data available to the public in electronic format, so that journalists, developers, businesses, and members of the public can obtain it to do their own analyses.
Into this void a for-profit company has entered. Brightscope, a website that got its start rating company 401(k) plans, in April started to provide a one-stop search based on SEC and FINRA data where you can look up both invester advisers and broker-dealers. The firm has developed a rating system that reflects disciplinary records.
However, according to a company spokesman, the firm had to use “technological means,” to wrest the data from the two sites. He said that the company is in “discussions” with FINRA about a rule change that “would make the data more widely available to all.”
Meanwhile, the Sunlight Foundation filed a FOIA today asking the SEC for the complete data set—in electronic form–underlying investment adviser filings.
About the data
What: Invester adviser and broker-dealer disciplinary actions
Where: SEC oversees invester adviser data and the Financial Industry Regulatory Authority (FINRA), a self regulating organization (SRO), oversees broker-dealer data. However, FINRA is contractor for the SEC maintaining all of these data.
Availability: Available via public websites
Usability: Most data locked behind proprietary interfaces, not downloadable in machine readable format