A new policy of the National Association of Securities Dealers is making it easier for investors to find out if their stockbrokers have ever been in trouble.
John Baldwin, director of the Utah Securities Division, applauded the move as long as the information provided is pertinent to a person's work history and tells whether he or she has been disciplined. The more a consumer knows what he is buying, the better off he will be.This move won't hurt the good broker, Baldwin said, and should weed out the bad ones. The information is available in the Utah office.
Other state securities regulators are applauding the move but say brokers ought to be required to disclose any black marks on their rec-ord even if the customer doesn't ask.
NASD officials said it will provide information to anyone who requests it in writing from the organization's records on its 6,600 member firms and on 460,000 brokers - virtually every retail broker in the country.
Previously, NASD, which oversees the over-the-counter stock market, has revealed only the current employer of a broker and any major disciplinary actions brought by the association itself, said NASD spokesman Enno Hobbing.
Now, the association, at no charge, will supply information on all infractions, including brokers' criminal convictions and disciplinary actions taken by federal and state agencies and by other stock exchanges, he said.
NASD will also list a broker's previous employers so "you can determine if this guy has been a job hopper," Hobbing said.
He said expanded records will be supplied only in response to written requests, while the limited information previously provided will continue to be given over the telephone.
The North American Securities Administrators Association, which represents state securities regulators, has been pushing to shift the onus of triggering disclosure from customers to brokers.
It is suggesting that brokers be required to give new customers a brochure outlining their disciplinary history as well as the commissions they charge and other information.
The new NASD policy "certainly represents a vast improvment over what was previously available," said James C. Meyer, NASAA president and Tennessee's top securities regulator.
However, he said it was only "an important first step," adding, "it's really a little unrealistic" to expect most customers to take the initiative in investigating their broker's record.
Meyer said that many investors who called a hotline set up after the October stock market crash complained that their brokers had placed them in unsuitable investments or had engaged in unauthorized trading. A requirement that brokers disclose past violations of that nature may have prevented additional transgressions.
Wall Street executives have labeled NASAA's proposal "red letter disclosure," after Hester Prynne, the adulteress in "The Scarlet Letter" who was required in Puritan New England to wear a red letter "A."
They argue that if brokers had to reveal their disciplinary history, customers would shun brokers guilty of any offense.
In the meantime, the NASD said investors can get a form for requesting information about a broker or securities firm by contacting NASD regional offices or by writing the NASD Membership Department, P.O. Box 9401, Gaithersburg, MD 20898, or by calling (301) 738-6500.