The SEC's Investor Advisory Committee and the Recommendation on Background Searches of Financial Professionals

The SEC's Investor Advisory Committee met on Thursday, July 16 and, among other things, adopted a resolution titled "Empowering Elders and Other Investors:  Background Checks in the Financial Markets."  The recommendation is here. 

The Recommendation seeks to encourage the SEC to improve the ability of elders and other investors to obtain the necessary background information on anyone selling a financial product.  Already, the SEC is involved in the oversight of IAPD (the data base for investment advisers) and BrokerCheck (the database for brokers).  These data bases, however, do not include other types of financial professional (insurance agents, CFTC brokers, mortgage brokers, etc) and do not include persons who were sanctioned by the SEC or the states for securities violations but were not members of FINRA or registered as investment advisers.

The recommendation contains three components:

  • develop a disciplinary database for violations of the securities laws that will allow elders and other investors to easily conduct searches of any person or firm sanctioned for these violations;
  • take steps to reduce the complexity of background searches by taking steps to simplify the search process, including steps to ensure comparable quality between BrokerCheck and IAPD and the development of an appropriately named site that will permit elders and other investors, through a single search, to access information in all databases supervised in whole or in part by the SEC;
  • seek to obtain the agreement from other federal regulators, self-regulatory organizations, and state regulators for the development of a single site that will permit a search of all relevant databases that provide background information on financial market professionals.

As one member of the IAC noted, we have the technology to take pictures of Pluto; we should have the technology to create a one stop shop for obtaining the necessary background information on persons selling financial products. 

J Robert Brown Jr.