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Brokers increasingly getting investor complaints removed from records

Updated: 01/01/2014 10:29 PM | Created: 01/01/2014 8:38 PM
By: Ryan Luby, KOB Eyewitness News 4

Your financial professional could have a secret: A history of complaints that have been wiped clean.

A study is shaking up the financial industry, revealing that in an alarmingly high percentage of cases, brokers are getting investor complaints removed from records that can be viewed by the public.

When the bell opens a new trading day, you want your investments in the right hands.

That's why Damon Petraglia thoroughly checked out his financial advisor.

But, Damon Petraglia is not just an investor. He's also a private investigator. People check out their stock brokers.

All financial pros with a federal license can be found on the Financial Industry Regulatory Authority, or FINRA's, website.

You can find out if a broker is licensed, and where he or she has worked.

But, we've learned there's a loophole.

The secret is revealed in a new study which shows how stock brokers can erase problems.

Brokers can request that a complaint be expunged from their record if it's false.

Federal guidelines say expungement is supposed to be an "extraordinary relief".

But this study found between mid-May 2009 to 2011, when cases were resolved by settlements, arbitrators approved brokers' requests to remove complaints from the record nearly 97 percent of the time.

If a broker's record is wiped clean there's no way investors, regulators or future employers can find out.

The study found one broker asked for expungement 40 times. His request was granted 35 times.

The group behind the study says secrecy deals are often part of the settlement.

"There will be a provision that says in exchange for that money the customer has to agree not to oppose the expungement request, and it just basically just wipes it under the carpet," attorney Jason Doss said.

FINRA is now taking action, saying the study "underlines and emphasizes serious concerns."

The agency is also sending notinces to arbitrators, reminding them about "the extraordinary nature" od expungement relief.

But what if a broker was wrongly accused?

"We closely guard our reputations so if there's something where we have complaints against us that are unwarranted or unfounded we want to protect our reputation," Ed Gjertsen of the Financial Planning Association said.

Gjertsen says just because an advisor went through an arbitration, it doesn't mean they're a bad broker.

If you're concerned about your financial professional, ask about their record.

"I think what the study showed us is that there's probably a lot more due diligence that the average investor has to do.  Whether it's engaging with an advisor and asking them the direct question of saying 'Hey have you ever been involved in an arbitration?'," Gjertsen said.

Investigators say this records shakeup should be a financial wake-up call for everyone.

"If you're pick a bad broker, you could lose the entire investment," Petraglia said.

A court must also appove a broker's expungement before it becomes final.

Several U.S. senators are also taking a closer look at the records system, including one who wrote to the SEC demanding big changes.


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