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I read a story this morning about a financial advisor, Anthony Diaz, who had been with 11 different investment firms in 15 years. The story states that he was fired from 5 firms and resigned from another firm due to customer complaints and rules infractions. The author states that Mr. Diaz is now under federal criminal indictment for fraud. How could his clients have avoided working with a person with such a background? It’s quite easy, use BrokerCheck.
The Financial Industry Regulatory Authority (FINRA) has a great tool for checking the background of registered financial professionals. It’s called BrokerCheck and can be found at http://brokercheck.finra.org/. This resource is so important that FINRA is actively advertising this tool on TV. They have also made recent rules that require reference to BrokerCheck on the websites of investment advisory firms and on the biography pages of financial advisors.
To use BrokerCheck, simply enter the name of the financial advisor. There are two main things to look for once you have identified the correct person. First, look for the number of disclosures listed for that person. Disclosures are customer disputes, disciplinary events, and financial matters on record. A financial advisor with a large number of disclosures is a red flag that they may be engaging in inappropriate behavior or have other ethical concerns. FINRA provides the details of each disclosure, including allegations, financial damages requested, and resolution. It’s important to review these details as there may be some complaints by customers that are unjustified.
The other important area to assess is to see how they are registered. They can be registered as a Broker, Investment Adviser, or both a Broker and Investment Adviser. A Broker is someone who can accept commissions for investment advice and who does not have a fiduciary duty to their clients, meaning they do not have to provide advice that is in the best interests of their clients. This can often lead to conflicts of interest that harm their clients. The Department of Labor has proposed that financial advisors providing retirement advice adhere to a the higher standard of a fiduciary duty. Naturally, there is resistance by brokers to follow a more ethical standard as it would likely reduce their compensation.
An Investment Adviser, on the other hand, does not accept commissions and always has a fiduciary duty to their clients, meaning they must legally put their clients’ interest before their own. Financial advisors registered as both a Broker and Investment Adviser, may even be scarier than a pure Broker since you don’t know in which role they are operating in a given situation. Our opinion is that you should never work with a Broker, period! This includes the dual registered advisors that are both brokers and investment advisers. Why? We believe the only reason why someone would register as a Broker is to avoid having to do the right thing for their clients and to make more money. This is the inherit conflict of interest and it’s completely avoidable when clients work only with with Investment Advisers.
Any unfortunate client of Anthony Diaz, now permanently barred by FINRA, could have possibly avoided this this situation by using BrokerCheck as outlined above. We are proud that our firm and our principal, Jason W. Self, have never had a single disclosure. We are also registered only as investment adviser, putting our clients’ interests ahead of our own.
The facts surrounding Mr. Diaz are sourced from the Associated Press. Resonance Financial, LLC has not investigated the details of his disclosures and makes no claim to their validity. His situation is merely used as an example how BrokerCheck can be used to flag potential concerns with registered investment advisors.
While it is our opinion that people seeking financial advice and investment management should only work with Investment Advisers, some people may be adequately served with brokers or dual registered persons. It is up to each prospective client to assess their financial planner, asset manager, wealth manager, financial advisor, financial adviser, broker, or other similarly named financial service provider to determine if they are the best choice to meet their needs.