Financial Advisor Background Checks: BrokerCheck and Form ADV

As part of your due diligence, conduct a thorough background check before choosing a financial advisor to manage your investments, retirement or estate planning. After all, you don't want to hand over something as important as your financial future to any but the most qualified and trustworthy professional. Fortunately, financial advising is a highly regulated field and you can get lots of information about members of the profession from public sources, notably BrokerCheck and SEC Form ADV. These resources will supply details about an advisor’s credentials and work history as well as any disciplinary actions taken against them. If you're ready to match with a financial advisor , get started today.

What Is a Form ADV?

Form ADV is a document that registered investment advisors (RIAs) are required to file with the U.S. Securities and Exchange Commission (SEC) or state regulators. This form, officially the Uniform Application for Investment Adviser Registration and Report by Exempt Reporting Adviser, provides comprehensive details about the advisor’s business practices, fees, potential conflicts of interest and disciplinary history.

It's divided into two parts:

• Part 1 contains information about the advisor’s business operations, including details about the firm’s ownership, clientele and regulatory actions.
• Part 2, also known as the brochure, provides additional details on the advisor's services, fees, conflicts of interest and background.

Investors can access this form on the SEC's Investment Adviser Public Disclosure (IAPD) website or by requesting it directly from the advisor. Reviewing Form ADV allows potential clients to better understand the advisor's approach to financial planning, identify potential conflicts and learn about potential risks such as exposure to volatile securities.

Pay particular attention to past disciplinary actions and legal problems, including bankruptcy filings. Such red flags are common. A 2019 study found 7% percent of all advisors, and more than 15% percent at some largest firms, have actions and issues that could raise concern.

What Is BrokerCheck?

BrokerCheck is a free tool provided by the Financial Industry Regulatory Authority (FINRA) that allows investors to verify the credentials and history of financial advisors who are registered with FINRA. BrokerCheck provides a detailed report on an advisor's professional background, including their:

• Employment history
• Licensing status
• Regulatory actions
• Customer disputes
• Criminal convictions

BrokerCheck is especially useful for individuals considering working with financial advisors who are also registered brokers. Advisors who sell securities, such as stocks, bonds and mutual funds, are typically required to register with FINRA. BrokerCheck also offers information on an advisor's qualifications, including their licenses and exams passed, giving you a clear picture of their expertise.

To use BrokerCheck, visit the FINRA website and enter the advisor's name or firm. The search results will provide access to the advisor's record, allowing you to verify that they meet the financial advisor background check requirements necessary to handle your investments.

Note that if a search turns up no results, it may not mean the broker has no registration record. Misspellings or other errors may invalidate results, for instance. Double check names, ZIP codes and other information. You can also try searching on part of the advisor or firm name.

Financial Advisor Background Check Requirements

It's a good idea to have some requirements in mind that your ideal advisor will meet. Consider:

• Licenses and credentials : Ensure that the advisor holds the necessary licenses and credentials to practice in their field. This includes verifying their registration with FINRA or the SEC, depending on the services they provide. Advisors may also have designations like CFP® (Certified Financial Planner ) or CFA (Chartered Financial Analyst) .
• Fees and compensation : Understanding how an advisor is compensated is important. Check whether they are fee-only, meaning they earn money solely from the fees you pay, or fee-based, meaning they may also earn commissions. Fee-only advisors are generally seen as more objective, but it's important to evaluate the structure that fits your needs.
• Experience and specialization : Look into the advisor's experience and areas of specialization. Some advisors may focus on retirement planning, estate management or wealth building, while others may have broader expertise. Make sure the advisor's experience aligns with your financial goals.

Importance of Conducting a Financial Advisor Background Check

Just as important as ensuring a financial advisor meets your background check requirements, is knowing what red flags to look out for and avoid:

• Conflicts of interest : Advisors with conflicts of interest , such as earning commissions from recommending certain financial products, may not always act in your best interests. Carefully review Form ADV to identify these potential conflicts.
• Disciplinary actions : If an advisor has been disciplined by regulatory authorities for violations of industry rules or laws, this is a serious red flag. Investigate the nature of the disciplinary actions and determine whether they affect your trust in the advisor's ability to manage your finances.
• Multiple customer complaints : A long and plentiful history of customer disputes or complaints is a major warning sign. While a single complaint may not be alarming, multiple complaints may indicate a pattern of poor service or unethical practices.
• Complicated fee structures : Advisors with overly complex or unclear fee structures may be trying to hide additional costs. Be sure that you understand exactly how much you will be paying and what services you are receiving in return.

Bottom Line

Conducting a background check on a financial advisor is an important part of safeguarding your investments and ensuring that you're working with a qualified, trustworthy professional. Tools like BrokerCheck and Form ADV make it easier to verify an advisor's credentials, review their disciplinary history and assess any potential conflicts of interest.

Tips for Financial Planning

• A financial advisor can work with you to build a real estate portfolio based on your investment goals and level of risk. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• SmartAsset's guide to the top financial advisors in the U.S. can give you a roundup of the top-ranked firms in the country.

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