FINRA exists to protect investors in the following ways:
- Makes sure all security products have been tested and qualified: FINRA-registered brokers can only sell investment products that have been reviewed and approved by the agency.
- Makes sure securities advertisements are truthful and not misleading: You may have noticed the seemingly endless fine print in all financial advertising. FINRA sets and enforces those guidelines.
- Makes sure securities products sold to investors are suitable for their needs: Brokers who sell volatile penny stocks to retirees or expensive annuities to college students will run afoul of FINRA.
- Makes sure investors receive complete disclosure for products before investing: Potential risk and a complete rundown of historical returns must be disclosed to investors.
FINRA handles these responsibilities by enforcing its rules and educating investors, thereby affecting both sides of security transactions.
Client-facing employees of broker-dealers are required to be licensed through FINRA. This is done by passing one of its "Series" Exams. The most famous exam is the Series 7, but it is likely any representative you deal with personally has also passed at least the Series 66 and possibly several other exams. More than 600,000 people are currently registered with FINRA to be client-facing representatives of a broker-dealer.
Additionally, FINRA has 3,600 employees currently working to detect fraud and discipline wrongdoers. According to its website, FINRA processes 37 billion transactions each day to monitor U.S. markets.
On the investor education side, FINRA's website offers tools to learn how to invest, calculators for analyzing investments, and BrokerCheck, a tool you can use to check the background of every individual registered.
History of FINRA
FINRA was created in 2007 when the SEC approved the combination of the National Association of Securities Dealers (NASD) and the regulatory operations of the New York Stock Exchange (NYSE).
NASD was founded in 1939 to prevent stock exchange abuse, and it eventually founded the NASDAQ stock exchange in 1971. The NASD was the main regulatory authority for broker-dealers and spun off the NASDAQ in 2000. In 2007, the SEC approved its merger with the NYSE's regulatory operations to create FINRA.
