The Securities and Exchange Commission recently approved a rule change to amend FINRA Rule 2210 to require broker-dealers to include a “readily apparent reference and hyperlink” to BrokerCheck on their websites. The hyperlinks and references to BrokerCheck would be required for all webpages where a registered person’s profile information appears, including webpages on the member’s website and webpages on a branch office’s website. This is an important development because BrokerCheck is a site for investors to conduct due diligence on broker and broker-dealers.
Two FINRA economists also recently submitted a Working Paper entitled “Do Investors Have Valuable Information About Brokers?” in which they explained that “BrokerCheck information, including disciplinary records, financial disclosures, and employment history of brokers has significant power to predict investor harm.” They further explained that “[t]he 20% of brokers with the highest ex-ante predicted probability of investor harm are associated with more than 55% of the investor harm cases and the total dollar investor harm in our sample. Our findings suggest that investors have access to valuable information that allows them to discriminate between brokers with a high propensity for investor harm from other brokers.”
Many investors may not be familiar with BrokerCheck, or the information that it provides. The requirement that a hyperlink to BrokerCheck be included on the broker and broker-dealers websites will likely increase the awareness.