Recommendations from SEC for Investors to Shun ‘Shocking Games’ Of Investment Advisers

Jack Humphrey, Regulatory journalist
January 27, 2011 /

A staff study published by the Securities and Exchange Commission (SEC) has proposed sweeping recommendations to widen investors’ access to publicly available disclosure statements of broker-dealers and investment advisers.

The SEC recommended two separate databases for investors to gain access to information about the activities of broker-dealers and investment advisers. BrokerCheck, which is run by the Financial Industry Regulatory Authority, stores data about broker-dealers and individual brokers. The Investment Adviser Public Disclosure, or IAPD, contains annual disclosure statements filed by investment advisers with the SEC, including details of their businesses and possible conflict of interest.

Investors can receive unified search results from the two databases, the SEC said.

The SEC further recommended to expand the search functionality of the two databases to cover registered representatives, and representatives of investment advisers, based on ZIP code or any other location indicator. At present, investors search only by investment advisers’ names or their license numbers. The study noted that this is “not as useful for more general research” about the disclosure statements of advisers.

“Investors can’t use the systems to locate and compare other firms and advisers in a geographic area,” the study said.

The SEC also proposed adding links and definitional material to BrokerCheck and IAPD.

The study, which is to be implemented once complete in 18 months, states the possibility of “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.”

In addition, the BrokerCheck is likely “to include information currently available in the Central Registration Depository as well as the method and format of publishing that information,” the study noted. On the other hand, the SEC continues to look for ways to expand the contents of IAPD, including the format used to publish them.

“Investor testing” is one possible way, according to the study.

The SEC said investors should first examine thoroughly related information about any broker-dealers and investment advisers, including their “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,” before deciding whose services to tap. In this manner, investors can protect themselves from shocking games that may transpire out of carelessness in choosing broker-dealers and investment advisers.


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