Federal or state securities laws require brokers, investment advisers, and their firms to be licensed or registered, and to make important information public. But it’s up to you to find that information and use it to protect your investment dollars. The good news is that this information is easy to get, and one phone call or web search may save you from sending your money to a con artist, a bad financial professional, or disreputable firm.
Before you invest or pay for any investment advice, make sure your brokers, investment advisers and investment adviser representatives have not had run-ins with regulators or other investors. You also should check to see whether they are registered or licensed.
This is very important, because if you do business with an unregistered securities broker or a firm that later goes out of business, there may be no way for you to recover your money ? even if an arbitrator or court rules in your favor.
Brokers and Brokerage Firms
The Central Registration Depository (or CRD) is a computerized database that contains information about most brokers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You’ll also find information about the brokers’ educational backgrounds and where they’ve worked before their current jobs.
You can ask either your state securities regulator or the Financial Industry Regulatory Authority (FINRA) to provide you with information from the CRD. Your state securities regulator may provide more information from the CRD than FINRA, especially when it comes to investor complaints, so you may want to check with them first. You’ll find contact information for your state securities regulator on the website of the North American Securities Administrators Association. To contact FINRA, either visit FINRA’s BrokerCheck website or call FINRA’s toll-free BrokerCheck hotline at (800) 289-9999.
People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. Investment advisers who manage $25 million or more in client assets generally must register with the SEC. If they manage less than $25 million, they generally must register with the state securities agency in the state where they have their principal place of business.
Some investment advisers employ investment adviser representatives, the people who actually work with clients. In most cases, these people must be licensed or registered with your state securities regulator to do business with you. So be sure to check them out with your state securities regulator.
To find out about investment advisers and whether they are properly registered, read their registration forms, called the “Form ADV.” The Form ADV has two parts. Part 1 has information about the adviser’s business and whether they’ve had problems with regulators or clients. Part 2 outlines the adviser’s services, fees and investment strategies. Before you hire an investment adviser, always ask for and carefully read both parts of the ADV.
You can view an adviser’s most recent Form ADV online by visiting the Investment Adviser Public Disclosure (IAPD) website. You can also get copies of Form ADV for individual advisers and firms from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser. You’ll find contact information for your state securities regulator on the website of the North American Securities Administrators Association.
If the investment adviser is registered with the SEC, you can get a copy of Form ADV (Part 1 only) by accessing information on “How to Request Public Documents” athttp://www.sec.gov/answers/publicdocs.htm. In addition, at the SEC’s headquarters, you can visit our Public Reference Room from 10:00 a.m. to 3:00 p.m. to obtain copies of SEC records and documents.