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Keeping Score: Investor Advocates Push for More Broker Disclosure, Including Grades on Exams

5/28/2012

Wall Street Journal

When Michael Goldfeder took an exam in 1994 that allows brokers to sell securities, he says his goal was simple: pass the test. The Melville, N.Y.-based adviser succeeded—not by much, he concedes—but never dreamed his clients, or future prospects, might one day see his actual grade. “I’m not ashamed by any means, but it’s preposterous to disclose this information,” he says.

To the dismay of most of the nation’s nearly 630,000 brokers, a growing number of investor advocates are pushing for new ways to force the financial-services industry to be more transparent about fees, practices—and even their scores on the so-called Series 7 exam and other licensing tests. Advocates say the efforts have been gaining ground since the financial downturn and the introduction of sweeping Dodd-Frank measures.

Not surprisingly, the idea is facing huge opposition—at least over test scores. After Wall Street’s self-regulator, the Financial Industry Regulatory Authority, asked for comments in February on possible changes or additions to the information disclosed through BrokerCheck, its public online database of brokers, many members came out against disclosing test results. Finra spokeswoman Michelle Ong says the group “does not intend to expand BrokerCheck to include test scores,” but declined to comment further.

Still, some states already provide the scores to investors and advocates say the push for more transparency isn’t going away.

“This will likely lead to a broader debate on disclosure, which should be good for investors,” says Ryan Bakhtiari, president of the Public Investors Arbitration Bar Association, an association of attorneys that represents investors in disputes with Wall Street firms.

The exam-score proposal is just one of several changes the regulator was considering after a staff study by the Securities and Exchange Commission last year asked that Finra look into expanding background information available to investors.

Finra is weighing a proposal aimed at providing details on why a broker was terminated from a firm and another that would provide a fuller history of complaints filed against brokers. Finra says it is currently reviewing comments from brokers and other industry experts before it decides whether to act.

But the brouhaha over exam scores illustrates that it isn’t always clear where to draw the line on transparency. Even some supporters of greater disclosure say posting the results goes too far. “I’d hate to see someone pick a financial adviser on the basis that they got the equivalent of an A- on the exam and another person got a B,” says William Jacobson, director of Cornell Law School’s Securities Law Clinic.

The exams are usually taken at the beginning of a career, for example. In the fast-moving world of markets and investing, brokers say results for tests they took years ago are meaningless. “Our argument is that the scores are largely irrelevant if not misleading,” says David Bellaire, general counsel and director of government affairs at the Financial Services Institute, which represents more than 35,000 independent financial advisers and was opposed to the proposal.

Moreover, there is no research supporting the idea that higher test scores are linked to better investment performance or quality of service, says Marilyn Mohrman-Gillis, managing director of public policy and communications at the Certified Financial Planner Board of Standards, a nonprofit that grants the CFP certification.


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