How to Perform a Broker Background Check in 7 Steps

Always Investigate a Brokers or Advisory Services Background Before Depositing Money

By
Barry D. Moore CFTe
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Prior to investing, it’s crucial to vet a broker’s or financial advisor’s background. Conducting verifications through FINRA, IAPD, and the CFP board can provide peace of mind that your investments are secure and that you’re engaging with a reputable professional.

How to Perform a Broker/Advisor Background Check in 7 Steps
How to Perform a Broker/Advisor Background Check in 7 Steps

Here’s a step-by-step guide to performing a background check on a broker or financial advisor.

Step 1: Gather Information

Start by gathering all the necessary information about the broker or financial advisor. You’ll need their full name, company name, and, if possible, their Central Registration Depository (CRD) number.

Step 2: BrokerCheck by FINRA

Visit the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck website. This tool allows you to search for and check the backgrounds of brokers and brokerage firms. Just enter the broker’s name or CRD number, and you will receive a report detailing their licensing status, employment history, and any regulatory actions, arbitrations, or complaints.

Step 3: Check the SEC’s (IAPD) Database

If your advisor is registered with the Securities and Exchange Commission (SEC), they should be listed in the Investment Adviser Public Disclosure (IAPD) database. This will provide information about the advisor’s qualifications, services, fee structures, disciplinary history, and more.

Step 4: Check with State Regulators

If your broker or advisor is not registered with the SEC, they may be registered at the state level. You can verify this by contacting your state securities regulator. The North American Securities Administrators Association (NASAA) provides a list of state regulators on its website.

Step 5: Check the CFP Board’s Website

If your advisor is a Certified Financial Planner (CFP), you can verify their status and check for any disciplinary action on the CFP Board’s website.

Step 6: Do a Simple Google Search

Finally, a simple Google search of the broker or advisor’s name plus the words “complaint” or “scam” might reveal additional information. Remember to take online reviews with a grain of salt, but they can sometimes offer additional insights.

Step 7: Ask for References

Don’t hesitate to ask your potential broker or advisor for references from other clients. Speaking with others who have used their services can give you a sense of their reliability and professionalism.

Remember, performing a thorough background check on your potential financial advisor or broker is crucial in ensuring your financial security. It’s important to take the time to do your due diligence before entrusting someone with your financial future.

4 Useful Websites for Financial Background Checks

  1. FINRA BrokerCheck
  2. SEC’s IAPD Database
  3. NASAA
  4. CFP Board

7 Steps To Perform a Forex or CFD Broker Background Check

  1. Understand which broker you are interested in using.
  2. Decide where you want to open an account. Some brokers allow customers to open accounts in other regions, such as Australia, even if they reside in the UK.
  3. If you want an Australian account, you can check that the broker is regulated in Australia using the table below.
  4. Perform a search on the company name.
  5. If you cannot find the name, that is usually a red flag.
  6. Check the warning list; each authority provides a list of scam brokers or unregulated entities.
  7. If you are being approached by a company claiming to be regulated and find that it isn’t, please flag it to the relevant authority using the links below.

The List of Main Financial Regulators Globally

Regulator Country
NFA – National Futures Association USA
CFTC – Commodities Futures Trading Commission USA
CySEC – Cyprus Security & Exchange Commission Cyprus – Europe
FCA – Financial Conduct Authority UK
IFSC – International Financial Services Commission Belize
DFSA – Dubai Financial Services Authority UAE
ASIC – Australian Securities & Investments Commission Australia
FSCA – Financial Sector Conduct Authority South Africa
ESMA and MiFID – European Securities & Markets Authority EU

 

5 Tips For Testing A Broker You Want To Use.

  1. After opening an account, you must verify your identification. It is a red flag if they do not request a copy of your ID or passport and a recent utility bill.
  2. Do not transfer your life savings to the broker; start with a small cash transfer, a few hundred or a thousand dollars or euros, to fund your account.
  3. Make a few test trades to understand how the commissions/spread leverage works.
  4. Try withdrawing your money to test the process. You must use the same account or card you used to deposit the money. They cannot refund to another location, which is against anti-money laundering legislation.
  5. Call customer support or your account representative and ask them questions to see if they are responsive.

If you are very happy with the service, leave them a positive rating.

Following any recommendation from any website or person is at your own risk; do your research before signing up with a broker.

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