SEC Staff Study on Investor Access to Registration Information About Investment Advisers and Broker-Dealers
Section 919B of the Dodd-Frank Act directs the SEC to complete a study, including recommendations, of ways to improve the access of investors to registration information about registered and previously registered investment advisers, associated persons of investment advisers, brokers and dealers and their associated persons, and to identify additional information that should be made publicly available. The Dodd-Frank Act requires the SEC to complete the study within six months after the date of enactment of the Dodd-Frank Act (i.e., by January 21, 2011), and to implement any recommendations within eighteen months after completion of the study. The required study conducted by the SEC staff has been released to the public.
The SEC and its staff have long maintained that investors should examine relevant registration information before choosing a broker-dealer or investment adviser. Information pertaining to a broker-dealer or investment adviser’s federal or state registration, such as information about its associated persons, including licensing and other qualification data, disciplinary and employment history, contact information, and customer complaints, can help investors make better-educated decisions in selecting a broker-dealer or investment adviser, as well as better protect themselves against fraud.
Currently, a significant amount of registration data is publicly available, primarily through BrokerCheck (an online application maintained through FINRA with information about broker-dealers) and Investment Adviser Public Disclosure, or IAPD (for investment advisers and their associated persons). Additionally, both the SEC and state securities regulators require investment advisers to deliver to advisory clients brochures and brochure supplements regarding employees, including investment adviser representatives, who provide advisory services.
While the current process enables investors to obtain registration information about a broker-dealer or investment adviser, the study states improvements could be made within the statutorily-mandated eighteen-month period that would further promote investors’ interests. In that context, the staff made a number of recommendations. First, the staff, pursuant to Section 919B, considered the advantages and disadvantages of further centralizing the two systems. The primary advantage would be to provide investors access to relevant data through one request, regardless of whether they seek data about a broker-dealer or an investment adviser. The staff believes that a unified public disclosure database would be optimal to achieve this goal. However, the practical difficulties involved – including Section 919B’s eighteen-month timeframe for implementation – militate toward a near-term recommendation that would involve less structural change. As a result, the study recommends unifying search returns for BrokerCheck and IAPD while continuing to maintain the separate databases. This would allow investors to find registration information on both broker-dealers and investment advisers, regardless of whether investors are using BrokerCheck or IAPD.
Second, the study includes two additional recommendations pertaining to increasing the usefulness of the systems to investors. The staff recommends that BrokerCheck and IAPD search functions be expanded to permit searches for broker-dealers, investment advisers, registered representatives, and investment adviser representatives, based on ZIP code or other indicator of location. This feature would offer a valuable tool for investors who are beginning a search for a broker-dealer, investment adviser, or registered person, but who have limited online access to registration data organized by location. The staff further recommends that BrokerCheck and IAPD be enhanced by adding educational content, such as links and definitional material, perhaps, embedded in alternate text tags (e.g., “bubbles,” “pop-ups,” or other kinds of “hover” text) that would appear automatically whenever a user’s electronic cursor hovers over certain text or items on the BrokerCheck and IAPD web pages. These functions would provide definitions or other explanatory content to help a user better understand the significance of a particular technical term or reference.
The staff also recommends that, subsequent to the eighteen-month implementation period, SEC staff and FINRA continue to analyze, including through investor testing, the feasibility and advisability of expanding BrokerCheck to include information currently available in the Central Registration Depository, or CRD (a centralized data base that consolidates information about broker-dealers and similar persons), as well as the method and format of publishing that information; and that SEC staff continue to evaluate expanding IAPD content and the method and format of publishing that content, including through investor testing. Potential modifications could include adding summary data for advisory firms on IAPD, hyperlinks between CRD numbers and SEC file numbers containing information related to a particular CRD number, and additional links to content available elsewhere on BrokerCheck or IAPD.
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