The right thing to do

As media like the Star Tribune have pointed out - we have a local Madoff-scandal brewing it seems. While DG is/has been writing about this.. and we'll have another installment soon - I wanted to put something out which answered a question I was recently asked by someone on right-wing radio - namely, what are the standards FINRA looks at in my experience - and I hope this answer is instructive in some regard for those who have questions about what a respectable investment company should normally look like.

First - the industry-based oversight authority for stocks/securities generally is the Financial Industry Regulatory Authority or FINRA. This used to be two distinct regulatory bodies, the NASD (or National Association of Securities Dealers) and the regulatory arm of the NYSE (New York Stock Exchange).

Per FINRA's website, their review authority is sweeping:

"FINRA touches virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. It also performs market regulation under contract for The NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange."

This means FINRA has oversight over much of the securities market of the United States. I would urge anyone who has a question about a broker, or a broker-dealer (i.e. corporate entity) to go to FINRA's site and confirm the current licensure of the investment service and review the complaint status regarding that broker.

That said, here was my answer when asked -

The oversight review is not easily encapsulated into easy pidgeon-holes and my answers should be seen only as guide-posts, not as a complete list of all points of interest or oversight.

FINRA and any investor should/will look for (among other things) three key elements in my experience, those are:

Transparency - A customer is supposed to be able to understand where there money is, where it is being invested and why, and where it will go, in easy, well-understood language. A customer shouldn't have to try to weave his or her way through a myriad of cryptic services or disclosures to understand how, who, what, why and where their investments are being placed.

Accountability - The statement is the 'bible' both for banking and for investment services. Statements should be easily understood, and above all, accurate. Any mistake on a statement should be remedied normally by the creation of a replacement statement unless such mistake is of an immaterial nature. Any investor who routinely sees mistakes, or who cannot confirm the data as accurate, should be concerned. Any repetition of mistakes might well warrant a call to FINRA to inquire about the status of the broker. Brokers are accountable for the accuracy and completeness of statements. Inaccurate or incomplete statements are a hallmark of deceptive and/or fraudulent investments.

Credibility - Most brokerages require even their customer service representatives to be Series 7 licensed - meaning they are so concerned about not crossing the line of providing unqualified commentary about investments, they train anyone likely to answer the phone and have to provide a detailed answer - to be seen as competent and qualified to do so by the regulatory authorities. They do this to protect themselves against complaints, but also against people providing unsound commentary about investment products. Any investment service which does not have appropriate credentials, is one to be avoided entirely. They may not even be acting within the law by conducting such activity, but at a minimum, they are acting in a way the regulatory body wouldn't prefer (remember, FINRA is non-governmental, they don't pass or enforce law).

The key points I am trying to convey are these, you should have accurate, ready and competent access to how, where and why your funds are invested. People who say they 'want to work outside the system' or that 'they are tired of how the big companies take your money' etc.. are almost always selling something which is too good to be true. Investment brokers do make money, but there are already discount brokers like TD Ameritrade and Charles Schwab, and those which charge no load (percentages of earnings or investment amounts) at all, but instead charge by transaction. People who claim to be able to make 20% per annum when the market is losing ground, are saying they are smarter than the 670,000 registered brokers in the United States. It's possible, but don't you think if it was possible, the big companies would do it? For that matter, everyone would? Anyone who says they'll provide you these kinds of returns, should seem like the guy/gal who isn't registered with FINRA (or the commodities board, etc..) - or who produced a faulty statement, or who's check's bounce.. it's a sign that something is very fishy.

The people apparently and ONLY ALLEGEDLY bilked in our local case were nearly all victims found through right-wing radio. There are apparently a lot of these 'investment strategies' plying the airwaves talking about how to beat the system and protect your money from the government. The Right thing to do would be for the stations themselves to start providing information like that listed above - but they aren't, at least not yet. Until then, forewarned is forearmed.