Even though U.S. brokers are overseen by an industry self-regulator, the Financial Industry Regulatory Authority (FINRA) there is a current trend in the securities industry for brokers who have been permanently or temporarily barred to transition to a new career as an investment advisor.
This is a legal transition, but the unsophisticated investor may not understand the difference. Even though investment advisors are supposed to be vetted by state and federal regulators, many slip through the cracks.
According to a Wall Street Journal review of about 900 SEC filings of investment-advisory firms disclosed a regulator had taken action against one of its employees uncovered more than 100 former brokers who were barred or suspended by FINRA yet continued to provide investment advice.
The Journal affirmed that figure by cross-checking the former brokers named in those disciplinary disclosures with FINRA’s public database on brokers, BrokerCheck.
Because of the uneven oversight of investment-advisory firms, securities experts say, the 100-broker figure likely undercounts the actual population of FINRA-barred or suspended brokers who continue to give out financial advice. There are more than 641,000 brokers in the U.S., and FINRA stated last year it barred nearly 500 and suspended more than 700.
Besides that, the Journal has reported that the SEC has also failed to examine thousands of financial-services companies, including investment advisers. Recently the SEC released a National Exam Program Risk Alert that it will closely examine investment-advisory firms that employ brokers disciplined or barred from the brokerage industry.
Brokerage firms are required to adequately supervise their agents to ensure they are complying with FINRA rules and they can held responsible for any losses in a FINRA arbitration claim if it is determined that they failed to properly supervise their agent.
If you have suffered investment losses, the attorneys at The White Law Group may be able to help. For a free consultation, please call (888) 637-5510. For more see, Bad Brokers Flock Together?
The foregoing information, which is all publicly available on FINRA’s website, is being provided by The White Law Group. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.
For more information please visit www.whitesecuritieslaw.com.
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