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FINRA’s Tips for Researching Your Financial Advisor

May 14, 2013
Personal Finance
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The Financial Industry Regulatory Authority, or FINRA, is more than just a financial watchdog. The regulator also provides plenty of accessible, easy-to-use resources for individuals. I spoke to Gerri Walsh, president of the FINRA Investor Education Foundation and Senior Vice President of Investor Education of FINRA Investor Education, about the tools FINRA gives individual investors, as well as new initiatives on the horizon.

Q: How should people seeking a financial advisor use FINRA’s online resources and tools?

Gerri Walsh: We tell individuals that, before they start the process of hiring an investment professional, they should take a step back and ask themselves tough questions about who they are as an investor and what they’re looking for. A financial professional who worked for someone in your family or one of your friends might have been the right person for them, but not for you. There are a wide variety of investment professionals out there, so the first step towards hiring the right professional is knowing yourself as an investor, and knowing what you are looking for.

FINRA has a section of our site devoted to how you should go about hiring a financial advisor. One of our resources is Broker-Check, a free online service to look up investment professionals. You can see if the professional is registered, and if so, with whom—FINRA or the SEC—and if they have a history of fraud.

Q: What new resources and tools are on the horizon from FINRA and other groups that will help people find a financial advisor?

GW: Recently we added the ability to use Broker-Check to find a professional in your area, by adding a zip code search. There are also user-interface changes coming up in the next year or so.

Big changes are coming to our Designation resource. We have heard that consumers are confused by the alphabet soup on advisors’ business card and don’t know what the various professional designations really mean. Our designation database aims to demystify that alphabet soup.

Soon you will be able to can look up a credential and see to what extent it’s a demanding designation, meaning how rigorous the course of study is to obtain it, whether there are continuing education requirements to maintain it, etc. In coming weeks you will be able to compare designations side-by-side. You’ll also be able to see if the issuing organization has been accredited.

We are working to make these resources more user-friendly and more robust, so that consumers can make more informed decisions.

Q: What are some examples of red flags an individual might come across in researching a financial advisor which mean that they should avoid working that advisor?

GW: A major red flag is a lack of registration. If the investment professional is not registered with FINRA, with the SEC as an Investment Advisor Representative, or with state regulators, that is a huge red flag, and it means you should walk away. Most fraud happens when unlicensed professionals tout unlicensed securities. Scams often involve promissory notes and other investments that can be legitimate but often aren’t sold to retail investors.

Our main message to consumers on avoiding fraud is to always ‘ask and check.’ That means investors should both check the registration status of the investment professional, and should check and research the investments. Con men will take something legitimate and use it as a ruse to defraud investors. For instance, a penny stock: it’s not listed in a national exchange like the NASDAQ, so a person touting the investment can make fraudulent statements. A trend we’re seeing is that con men often take stories in the news and use them to make fraudulent investment schemes sound legitimate—for instance, with fracking in the news, we’re hearing about investment schemes centering around exploration of oil and natural gas.

A second red flag is if you find the investment professional is licensed but has a history of customer complaints, especially if they were charged with fraud. While unresolved claims that have not been mediated may well be “his word against her word”, when it’s a regulator filing complaints, that is very serious.

Interested in learning more? Visit NerdWallet’s Ask an Advisor to research financial advisors and learn more about how to locate the right professional for you.


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