GUEST BLOG: Flawed Attempt for a Good Idea

April 7, 2017

Flawed Attempt For A Good Idea

by Stephen Kohn, Stephen A. Kohn & Associates, Ltd.

When first conceived and drafted, FINRA Rule 8312: FINRA BrokerCheck Disclosure provided the public with an effective way to investigate their investment professional's background. As Bill Singer so well presented in FINRA Rule 8312: The Indecipherable Swamp of BrokerCheck ( Blog, March 21, 2017)his analysis of Rule 8312 underscored how a well-intentioned tool for investors has been revised and amended into a mess.

Perhaps I have become somewhat jaded by the fact that I came into this business in 1984, after taking my Series 7 exam the old-fashioned-way on paper. The thought of running afoul of the "Rules & Regs" never entered my mind. On top of that, my wife told me that if I ever went to jail, she would never visit.  Hell, thirty-three-years ago, you could open a new account with almost no information other than name, address, telephone number, social security number, income and net worth. Now they want ten forms of photo ID, your passport, your driver's license, proof of this, proof of that, and a letter of recommendation from your High School gym teacher.

Not only are public customers confronted with more paperwork to open and maintain their accounts but those of us in the industry are faced with a four-inch thick rulebook, written single spaced, on tissue paper in legal mumbo-jumbo and a BrokerCheck system that is not living up to its promise.

As the owner of a small FINRA member firm, I have come to view BrokerCheck as a threat to my existence. Why? Because FINRA has allowed what should be an important tool for investor education to be utilized as a destructive tool by which large firms can launch the digital equivalent of a raid on their smaller competitors. How does this modern piracy work?

First, a recruiter, who is usually on assignment for a large FINRA member firm, goes to the Home Page of BrokerCheck and enters into the right-side box asking for "City, State, or Zip (optional)," the Zip Code for the area where a firm is looking to expand into or looking to recruit veteran registered representatives from.   And, lo and behold, once you enter a Zip Code, the BrokerCheck search results will list the name of every Rep and firm with which he's registered within that area.  Now all the recruiter has to do is look up the firm's telephone number and voila, your Reps become recruiting targets.  

I know from personal experience how effective a recruiting tool BrokerCheck has become. I don't know about you, but I have recently been the target of recruiters trying to fill slots for their large-firm clients more times than I can remember.  Registered Reps are the FINRA small firms' greatest commodity and I don't have to tell YOU how hard it is for us to find them and keep them happy.  I have never considered recruiting for my firm to be an easy task.  Thankfully, I have been blessed with referrals more times than not.

My point is that BrokerCheck is supposed to function as a tool for investors. It is not supposed to be a short-cut by which the too-big-to-fail are able to continue to destroy their small rivals. FINRA should not be in the business of facilitating the destruction of its small members. FINRA needs to step up and recognize that BrokerCheck is being misused in ways that are harming the investing public by killing off the smaller, more local brokerage firms and increasing the influence of the large, national firms, who often have little interest in servicing the investment and retirement needs of the moms and pops. When I broach this issue with FINRA management, I get the same glib answer: "This was mandated by the SEC. It is a tool for the investor to use when looking for a Financial Professional in his area."  

The flaw in FINRA's response is obvious; investors do not first look for a Financial Advisor by name, they look for a firm, convenient to where they live. It seems to me that the "fix" is simple.  Just remove the zip code search from the "individual" tab, leaving it on the "firm" tab only.

Let me be clear and call it like it is. BrokerCheck has become yet another tool, albeit subtle, by which the Securities and Exchange Commission and FINRA pursue what looks more and more like an orchestrated strategy to rid the financial services community of the Small Broker/Dealer. When someone is actually following you, it's no longer paranoia. With increasing numbers of small FINRA broker/dealers closing shop, FINRA has to stop pretending that it's simply the active imagination of the little guys out in the boonies. We little guys are not nuts. We are not the ones who caused the Great Recession. We are not the ones who have millions of dollars in slush funds to pay off the politicians. We can't afford to hire the large law firms that hire the former regulators, who then work for Wall Street's powerful banks and brokerage firms.  We need help from FINRA. And if FINRA won't acknowledge that the small firms are in trouble, then it's time for us to form a coalition to protest the regulator's benign neglect. It is time for reform and positive change.


Stephen A. Kohn
Stephen A. Kohn & Associates, Ltd.

3232 South Vance Street, Suite 210
Lakewood, Colorado 80227

Stephen A. Kohn has been employed in the financial services industry since 1984.  In 1996, he founded FINRA member firm, Stephen A, Kohn & Associates, Ltd. ("SAKL"), which he owns and operates in Lakewood, Colorado.  SAKL is a small, Independent broker/dealer, catering to the needs of 28 independent representatives and their clients, with office locations in seven states, registered in thirty-seven.
Mr. Kohn holds Series 7, 24, 53, 63, 72, 73, 79 and 99 registrations. He has the distinction of having been elected twice to the National Adjudicatory Council ("NAC") in 2009 and 2014. Mr. Kohn also serves as an Industry Arbitrator and has been elected to the District 3 Committee.
Mr. Kohn graduated from C.W. Post College in 1964 with a BA degree. He has the distinction of having served in the U.S. Coast Guard Reserve.
Well known to those in the NASD and now FINRA small-firm community as a passionate and persistent advocate for small broker/dealers, who comprise 92% of FINRA membership, Mr. Kohn continues to speak out on behalf of his industry constituents and colleagues. He intends to remain active in the FINRA reform movement and urges all like-minded industry participants to reach out to him in full confidence concerning any and all matters.
NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of Blog.