ELITE ADVISOR BEST PRACTICES

FINRA Revives Plan for Broker Disclosure Link on Firm Websites

Make sure you and your clients understand the context in which BrokerCheck data is compiled, used and updated.

By Steven J. Insel

Key Takeaways:

  • New FINRA regulations may require brokerages to place prominent links to the BrokerCheck database on their websites and social media platforms.
  • Experts say firms will comply if the rules are passed, but the information contained in the free BrokerCheck database can be easily misinterpreted or misused by rival firms and unsophisticated investors.
  • BrokerCheck is sometimes used “after the fact” by lawyers who bring arbitrations.


As many advisors are aware, Wall Street’s industry-funded watchdog organization recently presented a revised plan to its board designed to make it easier for investors to research the backgrounds of brokerage firms and brokers.

The plan by the Financial Industry Regulatory Authority (FINRA) would require that brokerages feature a prominent link on their websites that goes to FINRA’s free online disclosure database known as “BrokerCheck.” FINRA sought approval from the SEC last year for an initial version of the plan that would have required the link to be placed not only on firms’ websites, but also on firm-related social media pages, such as Facebook and Twitter.

FINRA, however, withdrew the proposal last April after some brokerage industry groups sent letters to the SEC arguing that it would be difficult or impossible to feature the link on social media sites, which often limit space or require a certain format for posting information.

FINRA’s board will also consider a proposed new rule that would ban settlements in arbitration disputes between brokerages and investors that require investors to not oppose erasing details about complaints from brokers’ public records. FINRA must seek permission from its board of governors for sending rule proposals to the SEC for review and final approval.

To help deconstruct the proposed rule changes, we turned to Steve Insel, Of Counsel to Elkins Kalt Weintraub Reuben Gartside LLP in Los Angeles. A longtime advisor to financial advisors, broker-dealers and accounting firms, Insel told us, “Firms will comply if the rule is passed since they have no choice. But this spotlights the need to examine how BrokerCheck is handled, and if there are changes in the rules that could make it more meaningful to the public and fair to the advisors as a comparative database.”

Does the general public really understand how BrokerCheck is compiled and what it’s intended to do?

It is raw data, according to Insel. In some instances, he said, “It can create a very misleading impression to a member of the public who is not sophisticated in the industry when comparing multiple advisors.”

How else can BrokerCheck create confusion?

“It seems to be used more as a competitive tool between advisers fighting for clients than independently by the public, except for the more sophisticated investor who already has greater capability to protect themselves.”

Is there anything else that advisers, clients and the general investing public should keep in mind if the new BrokerCheck rules are passed?

According to Insel, BrokerCheck is sometimes used “after the fact when it is too late and something bad has already happened, often by the lawyers that bring arbitrations.” As with so many well-intended rules to protect the investing public, the burden of complying with the rules has to be weighed against the benefits of those rules—and that’s rarely fast, easy, or cut and dried.

Note to Reader

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Circular 230 Disclosure: To ensure compliance with Treasury Department rules governing tax practice, we hereby inform you that any advice contained herein (including in any attachment) (1) was not written or intended to be used, and cannot be used, by you or any taxpayer for the purpose of avoiding any penalties that may be imposed on you or any taxpayer and (2) may not be used or referred to by you or any other person in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.


About the Author

Steven J. Insel is a partner in the corporate and securities law practice at Elkins Kalt Weintraub Reuben Gartside LLP in Los Angeles where he specializes in investment adviser and broker‑dealer matters, in addition to other areas of financial and professional services regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Circular 230 Disclosure: To ensure compliance with Treasury Department rules governing tax practice, we hereby inform you that any advice contained herein (including in any attachment) (1) was not written or intended to be used, and cannot be used, by you or any taxpayer for the purpose of avoiding any penalties that may be imposed on you or any taxpayer and (2) may not be used or referred to by you or any other person in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.