Investor Rights: FINRA’s launch this month of Regulatory Notice 07-55, with its pointed incorporation by reference to Notice to Members 97-19, begs at least two questions: what has been the efficacy of oversight and enforcement in the ensuing 10 years, when investors have seen their fair share of sales practice abuses, and what will be done going forward to ensure oversight of sales practice abuses before investors are harmed? After all, the guidance offered in NTM 97-19 in 1997 was based on supervisory and compliance rules, actually then in effect, governing the supervision by financial services/brokerage firms of registered persons with a negative disciplinary background.

With FINRA’s heavy emphasis on hiring due diligence, investors who don’t have ready access to such information are effectively relegated to the sidelines. We have written before on these pages the reasons why, at the very least, investor access to meaningful information on securities industry firms and brokers should be a priority, and we have requested that the regulators and financial services and brokerage firms make the complete - and not just an abridged - CRD (Central Registration Depository) broker background report readily available to investors. Such a practice would have real value to investors, particularly those senior investors who are not computer or Web literate. This is important when you consider that surveys have shown “an estimated 44 percent of all investor complaints received by state securities regulators,” including investment fraud, are lodged by seniors.

As found over ten years ago by the regulators’ own investigation,

“some firms are willing to employ registered representatives with a history of disciplinary actions involving abusive sales practices or customer complaints . . . . [that] . . . . may contribute to the significant movement within the securities industry of registered representatives with a history of customer complaints, disciplinary actions, or arbitrations.”

Then shouldn’t investors, with their financial security potentially at stake, be made privy to such potentially enlightening information?

The international securities regulators’ association, NASAA (North American Securities Administrators Association, whose membership consists of state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico), states on its Web site that investors have the right to “ask for and receive information from a firm about the work history and background of the person handling your account, as well as information about the firm itself.” But with routine expungement of prior investor complaints on the broker CRD becoming more commonplace, it’s getting harder for investors to perform meaningful due diligence themselves.

The SEC and FINRA should require that the CRD report, as well as other information pertinent to an investor’s decision to sign on, be made available to investors when they open an account with a financial services firm, because in its complete format the CRD lists reportable prior events of regulatory actions and investor complaints against a broker. As we’ve said before, “investors have the right to know, to help them make an informed decision when choosing a broker before a dispute arises.”