This article explains the purpose of the recently-issued Rule 2210, the advantages and disadvantages, and the relevance of it to the wider wealth management industry.

Rule 2210, which came into effect in June, requires broker-dealers to add a “readily apparent reference and hyperlink” to FINRA’s BrokerCheck, which publishes credentials, licenses and compliance issues for registered representatives and investment advisors. Here, John Wise, chief executive at InvestCloud, considers some of the issues at play, and the ramifications to the broader RIA industry.

According to FINRA, BrokerCheck was used to search firm and broker records 71 million times last year. While adding this link to a firm’s website might seem like a benign requirement, many of the nearly 4,000 member firms and over 600,000 registered brokers might not agree. BrokerCheck logs are not just substantiated client disputes, but unsubstantiated claims as well. While it is certainly important for the industry to flag “rogue” brokers with a history of supported client claims, BrokerCheck also shows claims that may just be the result of a disgruntled client unfairly blaming the broker for a market downturn. 

Arbitration is good, except when...

Some claim that this issue is worse than it would otherwise be because of the industry’s move to binding arbitration almost 30 years ago.  While the move to arbitration did bring the widely understood benefits mediation, it also lowered the bar for filing complaints.  With over 1,000 cases currently filed with FINRA every quarter, the potential for unfair marks on a broker or firm’s record is very real (source: FINRA).  

Affected brokers claim that it has become commonplace to settle even false claims if they believe that it will be cheaper or quicker than fighting. This might help the firm initially but it is at the expense of negatively impacting the broker’s record. While BrokerCheck will record a broker’s counterclaim, the resulting record may still look suspicious. 
 
Motivation to mitigate

Since false claims can stay on the broker’s record for up to 10 years, mitigating the effects of these claims on the broker’s record will now be more important than ever (source: FINRA). BrokerCheck has never been a widely publicized database of broker activity, so claims often go unnoticed. 

Forcing firms to publish the BrokerCheck URL on their home pages will increase visibility into the overall history of the professional. When an advisor denies a client complaint, it is particularly important to publish a credible response to the CRD. 

An unaddressed complaint on the record can appear more substantial than it really is if there is no counter-response representing the “other side.” It is important that advisors use their ability to respond in order to balance the client claim. It may go without saying, but with these higher stakes of BrokerCheck front and center, hiring an experienced attorney for advice on managing these filings has become more valuable. Such an attorney’s value may now be less about winning a battle than managing its residual record.

The range of “readily apparent reference”

Beyond comments on size and position for BrokerCheck’s URL, FINRA has made available logos, widgets and programming instructions. However, these guidelines still raise several questions. Is “apparent reference” considered to be “above the fold,” or is scrolling acceptable? Does it need to be clear that the link provides substantially more information? What is the context set by the information surrounding the link? Is the BrokerCheck link segregated or “buried” in a surrounding paragraph? Does the font size and color match the other content on the page? 

It should be noted that FINRA has expressed that including the BrokerCheck link in the page footer would not satisfy the “readily apparent” standard. A final decision is whether a firm wants to simply link to the BrokerCheck search page or directly to the firm’s or broker’s individual CRD page. 

An informal survey of sites suggest that while some are judging “readily apparent” to mean using FINRA’s BrokerCheck logo, which gives it branding and makes it more “apparent” others are taking a more subtle, integrated approach that does not hide it, but does not flag it as being more important than other information on the page.

Playing it on the down low

Given the limited upside and meaningful downside of the BrokerCheck disclosure system, the prudent approach for complying with the new rule is to go for the most reasonably subtle implementation possible. A good example of this approach is how the rule has been implemented by one firm. Their BrokerCheck access is one of five equally featured text links in the footer band of the home page. No FINRA logo, just a simple text link colored and branded exactly like all of the other text links on the page.

When you click on the link, you find a pop-up panel with a bit of additional info, and when you click to go on, it simply sends you to the BrokerCheck home page. They forgo the option of giving any CRD numbers or linking more deeply into the site. If most firms elect to take this approach, then FINRA’s eminent domain claim may prove inconsequential. The evidence will be how much more the BrokerCheck service is used going forward. We will have to wait and see the numbers.

Conclusion 

From an operations perspective, the top RIAs, regional and national broker-dealers will have budgets, time and resources to properly implement subtle digital changes to meet these new disclosure guidelines.  Emerging RIAs and independent advisors with limited resources often find these industry changes to be quite disruptive.  Technology is not a strong skill-set for the relationship-based advisory community, and legacy web properties are harder and harder to change over time.  Legacy technology that is forced to change can result in an entire system change to meet modern demands of both business and consumer needs. 

Regional networks of RIAs and registered reps typically rely on shared services from home offices to supplement their technology, marketing, compliance and back-office operations.  Websites and digital assets of these networks are monitored and archived for compliance purposes, creating a hurdle for change.  These networks of advice professionals have added more and more custom requests to their digital foot print as the advisory population grows.  Custom changes compound the problem for simple changes.  These digital changes, multiplied by additional DoL and suitability rules, and a broader fintech revolution, is creating an environment where smaller advice businesses are finding transformational changes more difficult than ever before.