Check Registration: Sellers and Investments

The majority of registered financial industry professionals strive to conduct business fairly and make recommendations that are in the best interests of their customers. However, there are bad actors who attempt to operate outside the rules. 

Many financial scams involve unregistered or unlicensed individuals, or the sale of unregistered investments through unregistered financial institutions. Without the protection of regulation, filing a complaint or recouping lost funds can be difficult. That's why it’s particularly important to ask questions about investments and investment professionals and do your own research to confirm their answers—before you commit your money.

Regardless of your trust or ties, or prior dealings with the professional, take the following steps to maximize your protection.

Check Out the Seller

If someone is trying to sell you an investment, research them using the following steps.

Step 1: Ask, “Who are you registered or licensed with and in what capacity?” 

Legitimate investment professionals—including registered financial professionals (also known as registered representatives), investment advisers and insurance agents—must be registered or licensed with FINRA, the Securities and Exchange Commission (SEC) and/or your state securities or insurance regulator before they can sell you anything. If they say they aren't registered or licensed, say goodbye—and don't buy. And even if they say they’re registered, proceed to Step 2 to conduct your own research.

Step 2: Do Your Own Research

Before working with any investment professional, check their credentials and look for any red flags in their background. You can use FINRA’s BrokerCheck tool or call the BrokerCheck Help Line at (800) 289-9999 to research professionals who sell securities, provide financial advice or both. If you find the individual on BrokerCheck, click the "More Details" button below their name to view their summary report. The summary report provides information on the individual's employment history, qualifications, disclosure events and more. Learn more about how to use BrokerCheck and the kind of information you’ll find on the database.

Some investment professionals, like investment advisers, may not be registered with FINRA. However, you can still use BrokerCheck to look up these individuals and find out if they’re registered with the SEC. If so, clicking on their profile in BrokerCheck will direct you to the SEC’s Investment Advisor Public Disclosure (IAPD) database to view information on the individual’s employment history, qualifications, disclosure events and more. 

BrokerCheck and the IAPD database can be used to research firms as well as individuals. It’s a good idea to contact your state securities regulator as well. You can also use the SEC’s Action Lookup Tool to find individuals who have had formal actions taken against them by the SEC.

Keep in mind that some bad actors might falsely claim to be registered and even provide doctored information from seemingly reputable sources, like BrokerCheck. In some instances, scammers misuse the name of real registered investment professionals or firms to create the appearance of legitimacy. Impersonation scams can be difficult to spot unless you know what you’re looking for. It’s important to do independent research and keep an eye out for any inconsistencies between what they tell you and what you find on your own.

Learn more about common types of investment professionals and how to choose who you might want to work with.

Check Out the Investment

Step 1: Ask, "Is this investment registered with the SEC?"

If the answer is no, ask why not. Not all securities offerings are required to be registered with the SEC—such as those issued by municipal, state and federal governments. The SEC also provides exemptions for certain intrastate offerings and small public and private offerings under a rule known as Regulation D, and most crypto assets aren’t registered.

Keep in mind, an unregistered investment generally means more risk. Before you invest, make sure you know its reasons for remaining unregistered and verify whether they’re legitimate. Be sure you fully understand what you’re buying, any liquidity constraints and the inherent risks. And if you can’t find or verify this information, or if the investment isn’t being sold through a registered financial institution, be especially wary.

Step 2: Do Your Own Research

If you’re told the security is registered, check for yourself. You can use the SEC’s EDGAR database to research companies and their investment offerings, including registration statements, prospectuses and annual financial reports. The SEC provides tips for using EDGAR to research investments. If a company is offering an investment with a legitimate registration exemption, you should be able to find that information as well.

You can also contact your state securities regulator for additional information about an investment and the company offering it.

Keep in mind that registration with the SEC doesn’t guarantee that an investment will be a good one or immune to fraud. Likewise, lack of registration doesn’t automatically mean the investment lacks legitimacy. One of the critical differences is the level of risk you assume when you invest in a company with little or no information publicly available. SEC registration carries a number of advantages for investors, including disclosure of financial and other information that can help you assess whether to invest in a particular product.

Learn more about investment products and how to protect your money.