Keeping an Eye on Stock Broker Misconduct

By on 9-26-2017 in Misconduct

Understanding all of the ins and outs of proper investing is a task that many people need not bother themselves with since they will never need to handle that much money or make decisions about where it should go. Even those that do have to use all of their time keeping their business running, so the task of moving money around is delegated to a specialized force of financial advisors called brokers. However, these advisors are subject to the same vices like everyone else, and there is a surprising lack of oversight to make sure they are not doing anything illegal.

According to this Reuters special report, the Financial Industry Regulatory Authority, or FIRNA, could be doing a lot more to prevent broker misconduct from occurring. FIRNA keeps data on brokerage firms and individual brokers that have had a history of misconduct, and individuals can look up firms on their website before they invest with them too if the firms have any dings on their record. If you suspect misconduct was occurring – like “churning,” where the firm makes many more trades than necessary (often against what the market would advise) and charges you exorbitant fees for doing so – then you can file a report with FIRNA, and they will investigate. If the firm is found to engaging in illegal activity, then the brokers responsible will be blacklisted and fired, but this does not guarantee that they will not be picked up by a smaller firm and put to work again. FIRNA claims that this detrimental hiring practice is not technically illegal, so there is not much they can do. However, because they do not have a proper database of brokers and firms, and only one search can be done at a time, it would take an investor an exorbitant amount of time to track what firms engage in hiring brokers they know to have bad records. Since FIRNA is not a government agency, they are under no obligation to provide such a database, and since they are funded by member firms, it is possible it would be against their best interest.

Considering how much damage can be done by brokers and firms that engage in misconduct, there should be a non-biased government agency that oversees them and ensures that all misconduct is severely punished and that other firms cannot hire brokers with bad records. FIRNA can refer criminal cases to the SEC, but the lawyers will be needed to make sure justice is upheld.

A famous quote from the Great Gatsby claims that “the rich are different from you and me,” but in reality, they are humans like the rest of us and should have to follow the same rules. While a self-regulatory NGO is not inherently a bad thing since privately funded organizations free up government money for other pursuits, laws should be made that ensure these agencies are as transparent as possible.

Submit a Comment

Your email address will not be published. Required fields are marked *