(May 1, 2002 ) Investigating Brokerages |
At Benchmark we conduct investigations of pension fund, money manager, pension consultant and brokerage wrongdoing, virtually all on behalf of institutional clients. When appropriate, matters are referred to regulators and law enforcement. A few cases have received public attention; the vast majority have not. From our experience we have learned wrongdoing in the money management and securities industry is far more pervasive than the public is aware. Over the past ten years this message has not always been enthusiastically received. Drawing attention to industry problems that were not obvious, in a market environment where there were few outright "losers" was not appreciated. Today, however, many industry practices are being scrutinized and a consensus is building that many of these practices are harmful to investors.
While attention has been focused upon conflicts of interest in the brokerage industry (specifically those related to research analysts), the greater issue of the conflict of interest related to self-regulation of the brokerage industry has not been addressed. The brokerage industry is unique in that it has been permitted to self-regulate with limited SEC oversight, self-insure through the Securities Investor Protection Corporation, self-adjudicate through mandatory NASD Dispute Resolution arbitration, and even control, through the NASD Public Disclosure Program, the information the public receives about firms. The degree of control the NASD and its members exercise is both remarkable and disturbing. It is our conclusion, based upon of years of investigations, that self-regulation of the brokerage industry is the root cause of many brokerage abuses. If self-regulation worked then presumably money managers, insurance companies and banks would be similarly self-regulated. Are brokerages especially trustworthy that they should be permitted the privilege of self-regulation when these other financial institutions are not?
Brokerage firms often are in the midst of wrongdoing because they serve as the lynch-pin between pensions, money managers, pension consultants and securities trading. Virtually every time money moves, whenever money managers or securities in a portfolio turnover, a brokerage facilitates the transactions and gets paid a commission. While massive studies regarding money managers have been published, little attention has been paid to brokerages. It is as if brokerages are regarded as unworthy of serious attention.
As of December 2001, there are were approximately 5636 NASD member firms operating in the U.S. with over 88,000 branch offices and 673,822 licensed brokers. Like banks in the past, today it is brokerage firms that are primarily responsible for handling the nation's wealth. Yet there is a dearth of information regarding these firms.
While conducting an investigation last year, it occurred to us that there was no comprehensive source for researching securities dealers. Rather than continue to conduct private investigations of brokerages on behalf of institutional clients focusing upon a limited number of brokerages, we proposed to publish a Directory that would provide investors with valuable information regarding all the firms. We are offering this comprehensive guide to the nation's brokerages for sale at this time.
The Siedle Directory of Securities Dealers provides retail and institutional investors alike with critical information regarding the integrity of all brokerage firms registered with the National Association of Securities Dealers, Inc. (NASD). We believe the information provided in The Directory will assist investors in their determination whether to conduct or continue to conduct business with a NASD member firm. For the general public, a review of brokerage firms prior to investing and on an ongoing basis makes sound financial sense. For fiduciaries involved in brokerage decision-making, such as money managers, pensions, endowments and foundations, regular review of the brokerages they entrust with assets is mandatory.
The Directory was created to respond to the public's need for comprehensive, objective information about NASD member brokerage firms. The Directory provides investors with important data regarding certain criminal charges and convictions, regulatory actions, civil judicial actions, and certain financial actions, such as bankruptcies, unsatisfied judgments or liens. By providing this and other information pertaining to all NASD member firms in a single place, available for simultaneous viewing, investors are able to compare and contrast firms, as well as garner information about the industry generally.
The Directory can be helpful to investors by providing them with industry-wide and firm specific data. For example, what percent of firms have disciplinary events in their histories? What is the average number of disciplinary events in each category? What are the types of products and services offered by a given firm? Does a firm frequently land in arbitration regarding a specific product or practice? In how many states is the firm registered to do business? Has the firm been suspended or expelled from the NASD? These are but a few of the questions The Directory will address.
Most important, The Directory can give investors a better understanding as to the disclosure process related to brokerages, including which matters are required to be disclosed and which are not and the integrity of the process.
The Siedle Directory of Securities Dealers has been described in articles in Fortune, the Wall Street Journal, and Bloomberg News. We believe it represents a substantial step forward in brokerage due diligence. We invite you to purchase The Directory by clicking on the order button below.