Vetting a Broker Is Harder Than It Looks

A lot of negative information is expunged from popular search tool BrokerCheck.

We spoke with Colleen Honigsberg, an assistant professor at Stanford Law School, where she studies corporate and securities law. Here are excerpts from our interview.

Many investors use, a search tool managed by the Financial Industry Regulatory Authority, or Finra, to investigate complaints and disciplinary actions against brokers. Is it true that a lot of these actions have been erased or expunged? If you’re a broker, clearing your infraction record is surprisingly easy. We found that 70% of expungement requests were granted by Finra arbitrators between 2007 and 2016. Finra’s website says expunging records is an “extraordinary remedy,” so I was shocked that the success rate was so high. Sometimes, a recorded infraction is truly an error, but we found that errors accounted for only 5% of granted expungements. In our review, certain arbitrators granted expungements for 100% of infractions, while others never granted one. And there’s no way for investors to find out through BrokerCheck if a broker had a record expunged or had tried and failed to expunge an infraction. That’s important because brokers who were denied expungement had high rates of repeat infractions—almost five times higher than average.

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Brendan Pedersen
Staff Writer, Kiplinger's Personal Finance
Brendan joined Kiplinger in 2018 and writes about technology, security and money. A Chicagoland native, he graduated from DePaul University with degrees in journalism and political science. Before moving to Washington, D.C., Brendan covered local politics for NBC Chicago and daily news for BusinessDen in Colorado.