ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, September 2, 1996 TAG: 9609040026
SECTION: MONEY PAGE: 6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITER GROUP
A battle pitting stockbrokers against their customers has been resolved on the customers' side. The issue is disclosure: How much should you be able to learn about your broker's professional past?
The brokers said ``less,'' the state securities regulators said ``more,'' and the regulators won. You have full disclosure. You simply need to know where to find it.
The most pertinent facts are recorded on each broker's file in the Central Registration Depository (CRD), maintained by the National Association of Securities Dealers (NASD) in Washington, D.C.
At present, the NASD discloses an edited version of the file. For example, it leaves out broker bankruptcies, which could be a sign of financial irresponsibility. It also keeps quiet about any pending and settled customer complaints.
Fortunately, you can generally get the full, unexpurgated file - usually at no cost - by contacting your state's securities commission. In Virginia that is the Financial Institutions Division of the State Corporation Commission in Richmond at (804) 371-9705.
The brokers have always objected to state-level disclosure. A couple of years ago, they launched an effort to limit what the states could tell.
The North American Securities Administrators Association (NASAA) spoke for the states, and its position has won the day. The CRD reporting system is currently being updated. When the new version is up and running, both the NASD and NASAA will tell you virtually everything that's on it.
If you need information about a stockbroker right now, you should still call your state.
While you're at it, check the CRD for your brokerage firm. Firms with many complaints may be peddling crummy penny stocks at inflated prices.
By the end of the year or early next year, the CRD records should all be switched to the new system and all the brokerage firms should be on line. At that point, the NASD will provide the same full disclosure you get from the states.
It astonishes me how few customers use this valuable service - unique in the financial industry. I'm also astonished at how many brokerage firms hire salespeople who have bad CRD records.
Here's what you can learn, under the new system, about any broker you're considering (or any insurance agent who sells variable life policies, variable annuities, or mutual funds):
Employment history for the past 10 years. It's not a good sign if the broker moves around a lot, especially among smaller firms. You should also stay away from a broker who told you lies - for example, about how long he or she has been in the business.
Any negatives in the broker's personal finances, such as any bankruptcies in the past 10 years or any unpaid judgments or liens.
Whether the broker was fired or voluntarily resigned following complaints of misconduct.
Felonies involving the broker or a firm that the broker controlled; misdemeanors or court decisions involving investments; adverse regulatory actions or investigations; allegations of forgery or theft.
Pending consumer lawsuits or arbitrations alleging sales-practice violations; arbitration awards or court judgments; consumer complaints alleging losses of $5,000 or more; arbitrations, civil proceedings or customer complaints settled for $10,000 or more.
The old CRD reporting system is being changed in two major ways. First, the file will be easier to read (if you've ever seen a CRD file, you know what a blessing that will be). Second, consumer complaints will be dropped after two years if the complaint wasn't followed up. That change is fair and overdue. (The states will have access to old complaints, however, and can disclose them if they want.)
Discussion continues on whether, or when, to delete other regulatory or legal actions. They should be erased if the actions are withdrawn or found in favor of the employee, Merrill Lynch's Ray Vass, who is chairman of a disclosure committee for the Securities Industry Association, told my associate, Kate O'Brien Ahlers.
LENGTH: Medium: 83 linesby CNB