How to run a background check on a financial advisor — free, in 15 minutes

The base rate is higher than you think

In the institutional world — the pension plans and endowments I spent twenty years sitting across from — nobody hires a money manager without pulling the regulatory file first. Not out of paranoia. Out of procedure. The file exists, it's free, and it answers questions charm can't.

Here's why the procedure matters. A study published in the Journal of Political Economy — Egan, Matvos & Seru, 2019 — went through the disclosure records of the entire adviser population and found that roughly 7% of advisers have misconduct records. At some firms, the figure runs above 15%. Not seven percent of some shady fringe. Seven percent of the whole licensed population — and the study also found that many advisers with misconduct records stay in the industry, often by moving to firms where misconduct is more common.

So this isn't about assuming your advisor is a crook. Most aren't. It's about a fifteen-minute check that tells you whether the person asking to manage your life savings is in the 93% — or the 7%. You'd run a cheaper check on a babysitter.

Two databases, because there are two kinds of advisor

The industry splits into brokers (regulated by FINRA) and registered investment advisers (regulated by the SEC or the states). Plenty of people are both at once. You don't need to memorize the distinction — you just need to search both databases, because a clean file in one doesn't mean a clean file in the other.

BrokerCheck — brokercheck.finra.org

Type the advisor's name. If it's a common name, add the firm or city. No account, no fee. The report gives you their employment history going back years, every license and exam they've passed, the states they're registered in, and — the important part — a section called Disclosures.

SEC Investment Adviser Public Disclosure — adviserinfo.sec.gov

Same drill. Search the individual and search the firm. The individual's page shows their registration history and disclosures. The firm's page is where you'll find Form ADV — more on that in a moment.

If the person you're checking doesn't appear in either database, stop. Someone selling investment services who holds no registration anywhere is not a candidate. That's not a yellow flag; that's the end of the conversation.

Form ADV Part 2 — where the fees and conflicts live

Every registered investment adviser must file Form ADV with the SEC, and Part 2 — the "brochure" — must describe, in plain English, exactly how the firm makes money and where its interests conflict with yours. Not marketing plain English. Legally required plain English, with regulators reading over their shoulder.

Find it on the firm's page at adviserinfo.sec.gov — look for "Part 2 Brochures." Then read three sections:

Fees and Compensation. The actual fee schedule. Compare it to whatever number the advisor quoted you verbally. They don't always match.

Other Financial Industry Activities and Affiliations. This is where you learn the advisory firm is affiliated with a broker-dealer or an insurance agency — meaning the person giving you "advice" may also earn commissions selling you products. That arrangement is legal. It's also the root of most of the problems in the red-flag file.

Conflicts of interest. Revenue sharing, referral arrangements, proprietary products. The firm's own lawyers wrote down every way the firm's incentives cut against yours. Take them at their word.

Fifteen minutes in Form ADV tells you more about how an advisor actually gets paid than five meetings across a mahogany desk.