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 BrokerCheck.finra.org (opens in new tab), 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.
Given what you found, should investors still use BrokerCheck? Yes. There are some types of misconduct, such as criminal or regulatory infractions, that cannot be expunged using the arbitration process. BrokerCheck can also help you determine whether a broker has a pattern of misconduct.
What else can investors do to vet the brokers they might hire? It doesn’t hurt to search Google for your broker’s name to see if they’ve made the news. Finra has another search tool (www.finra.org/arbitration-and-mediation/arbitration-awards (opens in new tab)) that investors can use to look up arbitration awards and theoretically see expungement results. The search function isn’t great, but it’s better than nothing.
Finra has proposed changes that would make it harder for brokers to scrub their records. Would those address the problems you found? Not fully. They might make a dent, but Finra doesn’t have a lot of regulatory power over the expungement process right now. That could change if Congress were to give Finra more authority. Some lawmakers have shown an interest in doing that, but they haven’t introduced legislation to change the status quo.
This Week in Cannabis Investing: Safe Banking Act in Focus During Lame-Duck Session
Marijuana advocates are hoping the outgoing Congress will take action on the Safe Banking Act, legislation that will improve cannabis companies' access to finance.
By Morgan Paxhia • Published
Kiplinger's Weekly Earnings Calendar
stocks Check out our earnings calendar for the upcoming week.
By Karee Venema • Published
The Best Cash Back Credit Cards
Smart Buying Not interested in miles, points or other perks from your credit card? If you want money back, with a minimum of games, these cashback cards are the way to go.
By Lisa Gerstner • Published
I-Bond Rate Is 6.89% for Next Six Months
Investing for Income If you missed out on the opportunity to buy I-bonds at their recent high, don’t despair. The new rate is still good, and even has a little sweetener built in.
By David Muhlbaum • Last updated
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner • Last updated
Your Guide to Open Enrollment 2023
Employee Benefits Health care costs continue to climb, but subsidies will make some plans more affordable.
By Rivan V. Stinson • Published
Watch Out for Flood-Damaged Cars from Hurricane Ian
Buying & Leasing a Car In the wake of Hurricane Ian, more flood-damaged cars may hit the market. Car prices may rise further because of increased demand as well.
By Bob Niedt • Last updated
This New Sustainable ETF’s Pitch? Give Back Profits.
investing Newday’s ETF partners with UNICEF and other groups.
By Ellen Kennedy • Published
What You Need to Know About Life Insurance Settlements
life insurance If your life insurance payments don’t seem worth it anymore, consider these options for keeping the value.
By David Rodeck • Published
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck • Published