Throughout the years we have interviewed candidates who have wide ranging experience levels, and come from a variety of backgrounds. And we’ve seen first-hand how a wide breadth of candidates can make it challenging to decide which one to actually hire for your firm.

Having your candidate(s) go through a structured screening process with interviews, exercises, and assessments is a great place to start understanding who they are, how they operate, and where they might be the best fit within your organization. As part of this process, we also suggest reviewing the public data that is collected by the Investment Advisory regulatory agencies on each of these candidates, assuming they already are or have been registered with a Registered Investment Advisor (RIA) or BrokerDealer (BD), as it is available at no cost to you.

For the clients we represent, we pull and review the candidate’s FINRA BrokerCheck record, or Investment Adviser Public Disclosure (IAPD) for those who do not hold a FINRA securities license.  These reports provide you with a history of the candidate’s professional background, conduct, work history, current registrations, and any disclosures regarding disciplinary events. We use these reports to uncover any concerns (disclosures) with the candidates record and to ensure a candidate’s career history matches what they have told us on their resume. This is helpful information to have when making a hiring decision!

In this month’s article, we are going to explore how to handle candidates where such a background search reveals material disclosures that are attached to their record.  Because it is very likely that at some point, you will encounter a candidate who looks interesting to you, but who also has a material disclosure (or few). Ideally, the candidate will bring it up to you prior to you, finding it on your own. But unfortunately, that will not always be the case.

Here are some tips on approaching potential hires with items disclosed on their records:

 

• Review the facts, and keep an open mind when they explain the situation.
• Order a background check as well, to ensure no other relevant details fall through the cracks.
• Pay close attention to the type of disclosure, and the time elapsed since the incident, as some may be recent and very concerning, but others are sometimes not.

 

The disclosures we usually see are customer disputes, criminal charges, and financial. Here are some common examples:

1.Customer disputes – These can range from an investor compliant about potential fraudulent or suspicious activities, to Arbitration to recover monetary awards for damages.  Most of the ones we see have been dismissed, but even if not, just because monetary damages were paid, does not mean the candidate was necessarily at fault. We have witnessed several times when a new advisor takes over for a departing and/or retiring advisor, and the customer names the new advisor in the dispute even though someone else made the initial recommendation because the new advisor is now their point of contact. Similarly, sometimes a broker-dealer will decide it’s more expeditious to settle an allegation than defend it, even if the broker was innocent. It is important to look at the time frames and circumstances surrounding any dismissal or any settlement.

2. Criminal charges – These may include misdemeanors such as a Minor in Possession of Alcohol (MIP), to more serious felony convictions like wire fraud. These are fortunately not as common. But there are many people trying to enter the profession who have some unfortunate dings on their records, like DUI/DWIs; what we see the most is usually due to someone, underage, doing something involving alcohol. It is obviously better if it was a onetime event many years removed, and not a pattern of repeat behavior.
3. Financial – It could be something as minor as a medical bill that was turned over to collections (or more generally, small bills that go into collection from a doctor’s office, cell phone provider, etc., due to the bill being sent to the wrong address), or as concerning as outstanding liens, or a recent foreclosure or bankruptcy. . These types of items will generally show up on a credit report as well. As famed and very successful financial planner Carl Richards can attest, these types of things can happen to anyone, and have, which is helpful to keep in mind at the moment. Nonetheless, if candidates want to have a career and/or are seeking a career in financial planning for others, they need to be able to handle their own affairs effectively (as people under financial duress can make compromised recommendations to clients).

If the candidate is a Certified Financial Planner practitioner as well, we suggest verifying the certificants certification with the CFP Board as well, which will also reveal any bankruptcies or disciplinary history by the CFP Board within the last 10 years.

Considering a candidate with a disclosure is a delicate matter. Some firms consider these types of candidates without hesitation, while others can’t and won’t consider them no matter what circumstance. Whatever your thought process is, but especially if you are inclined to move forward, we suggest a comprehensive review of the facts, consulting your compliance expert, and a frank conversation with the candidate.

We hope this was helpful for if/when you encounter a candidate with a material regulatory disclosure!