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Column: “Both Costly and Ineffective?” – As seen on WealthManagement.com

Column: “Both Costly and Ineffective?” – As seen on WealthManagement.com

On February 14, 2014, WealthManagement.com ran Patrick Mahoney’s editorial, Both Costly and Ineffective?, as part of his periodic column, The Legal Rep.  A link to the article is available HERE.  

This week FINRA’s Board of Directors authorized FINRA to seek comment on a proposed rule that would require firms to “include a readily apparent reference and link to BrokerCheck” on their websites.  BrokerCheck is a database that Main Street investors can use to vet a potential broker. It makes publicly available essentially all the non-private information about a broker maintained in FINRA’s Central Registration Depository, including customer complaints.

This is the second time FINRA has proposed a rule requiring firms to include links to BrokerCheck on their websites. FINRA’s first version of the rule was withdrawn last year due in large part to strong objection from industry leaders who thought FINRA’s original proposal was vague and overbroad.

Seemingly adamant on pushing through an “add the link” rule, FINRA’s revised proposal does little to cure the defects the industry pointed out the first time FINRA tried to draft the rule.

Setting aside my objections to what FINRA deems worthy of inclusion on a broker’s publicly available record (for example, any written customer complaint, regardless of when it was made, its credibility, or level of formality, must appear), a limited version of the rule would be appropriate, provided it does not put an onerous burden on broker-dealers and the agency can actually enforce it fairly and evenly. But as it stands now, this current proposal is trouble.
It is social media that throws a massive wrench into FINRA’s ambitions – technology simply outruns the agency’s attempts to regulate how both brokers and clients use it. FINRA’s proposal endeavors to require firms to ensure that a link to BrokerCheck is included in any online communication that contains a broker’s contact information or professional profile. The proposal, however, does not require inclusion of a link to BrokerCheck in email and text messages or “online interactive electronic for[a].” FINRA cites Twitter, message boards, and chat rooms as examples of “online interactive for[a].”

Interestingly, the proposal is silent on whether LinkedIn profiles, professional Facebook pages, and other comparable social media platforms are subject to this proposed “add the link” rule.  FINRA’s silence is deafening.  Facebook pages, LinkedIn profiles, Google+ pages, etc… routinely contain brokers’ professional profiles and contact information.

FINRA’s website states that BrokerCheck maintains the background information of approximately 1.3 million current and former registered brokers. Accordingly, to the extent the proposal makes social media platforms subject to the “add the link” requirement, does FINRA honestly believe that it is capable of policing the LinkedIn profiles, Facebook pages, Google+ pages, YouTube accounts, etc…, of its more than 1 million brokers? Similarly, is it fair to make the firms and their compliance departments, who have no direct control over what their brokers include in social media, responsible for monitoring whether their brokers comply with the rule? A firm like Wells Fargo Advisors, for example, would be responsible for the social media of more than 15,000 brokers. Of course, that assumes social media platforms provide a way to include a link to BrokerCheck in the first place; where would the link go on a Facebook page?
Accordingly, if FINRA’s proposal requires inclusion of a BrokerCheck link on social media platforms, both enforcement and compliance of the rule would be virtually impossible. FINRA should take steps to avoid such a requirement at all costs.
Another concern surrounding the rule involves the cost of implementation. Would the proposed “add the link” rule require firms to format their websites to provide links to the individual BrokerCheck records for each individual broker? Consider Wells Fargo Advisors would have to include 15,000 custom links woven into their branded website platforms.
In finalizing its latest proposal, FINRA should require broker-dealers to simply link to BrokerCheck’s homepage in a handful of highly visible areas on their official websites (for example, the broker-dealer’s homepage and website’s footer). By linking an investor to BrokerCheck’s homepage rather than directly to a broker’s record, investors would have to take the inconsequential added step of typing the broker’s name into a dialog box. Eliminating that minor inconvenience does not justify imposing the cost to embed thousands of new links into complex websites.
FINRA’s latest proposal must also do more to clarify how the link should appear on applicable webpages. Who is to judge what a “readily apparent link to BrokerCheck” means? FINRA should include nuanced details concerning the link’s implementation, including the acceptable font type, size, location, and color. By providing exact details concerning the link, and limiting the scope of where it must be included, FINRA will help firms ensure their own compliance, and will simultaneously help itself with enforcement.
I agree with FINRA that investors should know that BrokerCheck exists and provides a mechanism to vet a potential or existing broker. And I agree that creating a rule requiring firms to include a link to BrokerCheck is a way to raise awareness about the service. But that goal should not give rise to a rule that is impossible to follow. Investors must bear some responsibility for the process they undertake to determine who should manage their money. Ultimately, you can lead an investor to BrokerCheck, but you can’t make him use it.

**This article is intended for informational purposes only and does not constitute legal or investment advice. Any views expressed are those of the author only.**

 

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