Brokers who have failed a basic securities exam at least one time are more likely to have been subsequently disciplined by FINRA, the SEC or other regulators, according to recent analysis by the Wall Street Journal. In its study, WSJ reviewed the records of over 51,500 who have failed FINRA's Series 63 examination and found that these individuals were more likely to have disciplinary violations on their record than other test-takers who did not fail the basic securities exam.
The findings were not just statistically significant, they were overwhelmingly clear and convincing.
According to the WSJ study, brokers who failed the Series 63 exam at least once were 77% more likely to be the subject of a financial-related misdemeanor or felony investigation than brokers who passed the test the first time around (did not fail). Those who failed the test at least once were also 55% more likely than passing brokers to have been fired from a previously employing firm.
The 3,000 brokers who failed the Series 63 at least three times were 67% more likely than non-failures to have disclosure events and complaints on their record.
During an April 11 interview with InvestmentNews, FINRA chairman and chief executive Richard G. Ketchum addressed the issue of risky brokers, stating that FINRA is "laser-focused on the issue of high-risk brokers" and that a proposed Comprehensive Automated Risk Data System (CARDS) is a "critical step" towards bolstering the regulator's ability to monitor suspicious trading activity and remove rogue brokers.
When asked about brokers who "firm-hop," or land at new firms after being disciplined or fired, Ketchum described FINRA's reaction as "a three-legged stool," incorporating efforts of the industry's fraud unit, enforcement division and data mining and analysis, for which CARDS is "critical."
Meanwhile, those opposed to offering brokers' examination records on BrokerCheck and other broker or financial adviser databases reason that exams scores "don't reflect their real competency or experience" and may even be irrelevant if the test is old enough. Some add that it is "unfair" to post scores taken on a pass/fail basis.
According to FINRA, the Series 63, 7 and similar exams require a score of 72% for passage and offer test-takers the opportunity to take the exam as many times as they would like to, though a few brokerages set firm-specific limits on how many times a trainee can fail the test.
On the other hand, the strong correlation between previous exam failures and the present existence of disciplinary actions on BrokerCheck records suggests their may be merit to disclosing the exam results as well: "Full disclosure of exam grades (available already from some states regulatory agencies) ... will have the effect of improved regulation by economic selection," according to attorneys Jonathan W. Evans and Michael S. Edmiston.
At present, the FINRA BrokerCheck feature "Broker Qualifications" includes a list of all examinations the broker has passed without any further information such as exams failed or scores attained.
As stated in our firm's comments to FINRA on Regulatory Notice 12-10, the Law Offices of Jonathan W. Evans & Associates believes that "more public disclosure and easier access to it means clients and potential clients will have more information to decide whether to entrust their life savings to a specific firm or associated person." If you have invested with a broker or financial adviser whose poor performance has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
News: Brokers' test failures raise red flag (InvestmentNews) | Brokers: Don't Show Our Exam Scores (Wall Street Journal)