Releasing the potential of BrokerCheck to protect investors would also benefit some brokers and brokerage firms, McCann said. Brokers with clean CRDs would have an incentive to move to firms with a lower proportion of bad brokers so they would not be penalized in the rankings for associating with bad brokers.
“Brokerage firms would compete to hire better brokers and fire brokers with prior settlements and awards to improve their quality rankings,” McCann said. “Continuing with the analogy above, proposals to supplement data items available on BrokerCheck or add a search term miss the mark badly.”
Currently, research also finds that instead of leaving the industry, bad brokers are often re-employed at lower compensation and by less prestigious firms than brokers who do not have customer complaints.
“Rather than weeding bad brokers out of the industry, the regulatory environment and labor market sifts bad brokers down the quality ladder over time into brokerage firms with loose hiring practices and lax compliance ethics, and these bad brokerage firms specialize in preying on unsophisticated investors,” McCann says.