Financial Planner Background Check: A Complete Guide [2024] (2024)

Companies that hire financial planners must ensure their new hires are trustworthy and qualified.

Did you know a former financial advisor was charged with stealing $5.8 million from a single client?

Since financial planners have access to sensitive information, making a bad hiring decision could result in significant losses for both the employer and its clients.

Including financial planner background checks as an essential component of your hiring process can protect your business and clients.

Here’s what you need to know about these types of pre-employment searches.

What is a Financial Planner Background Check?

A financial planner background check typically searches an applicant’s criminal history, credit history, past employment, education history, disciplinary sanctions history, and professional licenses.

This information helps employers determine if the applicant is trustworthy, qualified, and does not have a history of unethical or illegal conduct.

Since financial planners have access to the sensitive financial information of their clients, these types of pre-employment background checks are often more extensive than for other types of jobs.

Who Should be Screened?

Applicants for the following types of positions should undergo financial planner background checks:

• Investment brokers
• Insurance agents
• Registered investment advisor (RIA)
• Certified public accountant (CPA)
• Certified financial planner (CFP)
• Chartered financial analyst (CFA)
• Wealth management advisor (WMA)
• Personal financial specialist (PFS)
• Broker-dealers
• Chartered financial consultant (ChFC)
• Portfolio manager
• Registered representative
• Retirement income certified professional (RICP)

Why Are Background Checks Important for Financial Planners?

1. Protect Your Brand

As an organization that offers financial planning services, your company depends on its reputation.

Clients need to have trust in financial planners, which can be destroyed with the wrong hire.

Conducting financial planner background checks can help to ensure your new hires are trustworthy and have the credentials and experience necessary for their jobs.

2. Mitigate Liability Risks

If you fail to investigate the background of a financial planner you hire, you could face significant liability if they lack the requisite credentials to perform the job.

Hiring someone who has been debarred or excluded from working within the industry could also expose you to substantial penalties and fines.

3. Protect Your Clients

Financial planners have access to your clients’ sensitive financial information and identifying data.

Failing to ensure the people you hire are honest and ethical could lead to significant losses for your clients.

4. Prevent Losses From Theft and Embezzlement

Internal thefts and embezzlement are prevalent problems within the financial services industry.

Checking the backgrounds of prospective financial planners can reveal whether a candidate has any convictions indicating past dishonesty or financial problems that place them under significant pressure.

5. Protect Confidential Information

Ensuring the candidates you hire are trustworthy and honest is also important for protecting your company’s confidential information and trade secrets.

What Does a Financial Planner Background Check Consist of?

Employers that are hiring financial planners often request the following types of background searches:

• Social Security number (SSN) trace
• Criminal history search
• Employment verification
• Education verification
• Credit history check
• Government watchlist check
• Global watchlist search
• Professional reference check

Here’s a look at what might appear on some of these searches.

SSN Trace

An SSN trace is a starting point for employment background check providers and reveals areas requiring further searches.

An SSN trace shows the following information about an applicant’s provided SSN:

• Date it was issued by the Social Security Administration
• State in which the number was issued
• All names (including maiden names and aliases) that have been associated with the SSN
• Date of birth associated with the SSN
• Validity of the SSN
• Addresses with which the SSN has been associated

Criminal History Search

Criminal history searches reveal if an applicant has any pending criminal charges or convictions.

If an applicant has a conviction or pending criminal case, a criminal records check will report the following information:

• Date of offense
• Offense type
• Severity level of the offense (misdemeanor/felony)
• Disposition (if available)
• Date of disposition (if available)
• Sentence received (if available)

Convictions that have been expunged or sealed can’t be reported.

Employment Verification

Verifying a candidate’s employment information helps to confirm an applicant’s honesty and experience.

Employment verification shows the following information about each previous job:

• Name and address of the employer
• Dates the candidate was employed
• Titles and positions held by the candidate

Education Verification

Verifying an applicant’s reported employment confirms they have the qualifications necessary for the job and have been honest.

Education verification reveals the following information about each school an applicant has attended:

• Name and address of the institution
• Dates of attendance
• Any degrees, certificates, or diplomas conferred

Professional License Verification

Professional license verification shows the following information about a candidate’s credentials:

• Type of license
• Date the license was issued
• Expiration date of the license
• Any sanctions or discipline against the license
• License validity

Credit History Check

Since financial planners have access to their clients’ sensitive financial information, many employers request credit history checks on applicants.

A pre-employment credit history check shows the following types of information about an applicant:

• Amount of available credit
• Debt-to-income ratio (DTI)
• Applicant’s payment history
• Bankruptcies
• Unpaid collection accounts
• Other credit inquiries that have been made about the applicant
• Names and addresses of current and former employers

A pre-employment credit check will not reveal information about an applicant’s account numbers, birth year, marital status, or credit score because these types of information could violate other employment background check laws.

Government Watchlist Search

The federal government maintains multiple watchlists to identify people who could pose threats to national security.

Some of the types of people that might appear on a government watchlist search include:

• Domestic terrorists
• International terrorists
• Drug traffickers
• Specially designated foreign nationals
• Individuals and entities that have been excluded from federal contracts
• Debarred individuals or entities

How to Conduct a Background Check on a Financial Planner

Employers can conduct financial planner background checks in one of the two following ways:

1. Do-it-Yourself Financial Planner Background Checks

Some companies choose to conduct financial planner background checks themselves by sending requests to several agencies, past employers, and educational institutions and checking the references provided by their candidates.

They might also search regulatory agencies, including the SEC or FINRA, for information about regulated candidates.

Pros

• Free, other than the fees charged by agencies for information

Cons

• Fees can quickly add up
• Significant time and labor expenditures
• Might not have access to crucial information sources
• Easy to mix up candidates and others with similar names
• Could uncover inaccurate information about an applicant
• Might reveal information that is not legally compliant
• Could take weeks

2. Partnering With iprospectcheck

The best option is to partner with a reliable employment background check company like iprospectcheck.

Pros

• Affordable pricing
• Fast turnaround times in as little as a few hours
• Comprehensive, up-to-date, and FCRA-compliant reports
• Only validated and verified information will be reported
• Saves you time and resources

Cons

• Fees, but prices are affordable

Laws that Impact Financial Planner Background Checks

Federal Laws

Investment Advisers Act of 1940

The Investment Advisers Act of 1940 requires that registered investment advisers disclose disciplinary actions and financial information on their applications with the Securities and Exchange Commission (SEC).

The information that must be disclosed includes civil litigation, regulatory discipline, and criminal convictions that could affect their ability to provide financial and investment advice.

Securities Exchange Act of 1934

Under the Securities Exchange Act of 1934, broker-dealers and registered investment advisers must retain complete business records, including records of employment background checks.

FINRA Rule 3110(e)

FINRA Rule 3110(e) requires member organizations to investigate applicants and adopt background check policies and procedures that provide for national searches of public records.

Member firms must investigate the experience, qualifications, reputation, and character of applicants before they can apply to register the applicant with FINRA.

Firms must also have processes in place to verify the information reported by the applicant on Form U4.

Fair Credit Reporting Act

A leading consumer privacy law, the Fair Credit Reporting Act (FCRA) governs how consumer reporting agencies (CRAs) can collect and report consumer information, including the types of information gathered and reported on employment background checks.

The FCRA includes a seven-year time limit on reporting the following information for jobs paying salaries of less than $75,000 per year:

• Arrests not resulting in convictions
• Chapter 13 bankruptcies (Chapter 7 – 10 years)
• Paid tax liens
• Civil lawsuits
• Civil judgments

The time limits for reporting information don’t apply for jobs with annual salaries of at least $75.000.

They also don’t restrict the reporting of other critical information about an applicant, including employment history, education, and others.

For employers that request employment background checks, the FCRA governs what they can do with the information they learn.

When an employer learns negative information about an applicant from a background check and wants to turn them down for employment, the employer must first complete the adverse action steps before making a final hiring decision.

Title VII of the Civil Rights Act of 1964

Title VII of the Civil Rights Act of 1964 (Title VII) is the seminal anti-discrimination law that prohibits employers from discriminating against employees and applicants because of their protected characteristics.

The Equal Employment Opportunity Commission (EEOC) creates and enforces regulations under Title VII and has issued employer guidance concerning how it applies to background checks.

When an employer learns an applicant has a criminal record, the EEOC advises that the employer should individually consider the conviction information as it directly relates to the job’s duties before deciding not to hire the applicant.

Fair Chance to Compete for Jobs Act

The Fair Chance to Compete for Jobs Act is a relatively recent federal law that applies to federal contractors and federal agencies.

This law controls when federal contractors and agencies can inquire about criminal record information during the hiring process.

Federal contractors and agencies can’t ask about criminal history information until after a candidate has been interviewed.

A federal agency can’t contract with a federal contractor that asks about criminal history information earlier in the hiring process.

State Laws

Different states across the U.S. have enacted their own employment background check laws.

Ban-the-Box Laws

A type of law that has gained momentum across states and localities within the past few years is a ban-the-box law. This is a law that restricts when in the hiring process an employer can ask about criminal history information.

Some state ban-the-box laws only forbid employers from including questions about criminal history information on their applications. Others mandate employers to wait until after an applicant has been interviewed, and others prohibit criminal history checks until after the employer has extended a conditional job offer.

Some states exclude positions that prohibit employers from hiring people with certain convictions under state or federal law, including many within the financial industry.

Since these laws can widely vary, employers need to consult legal counsel to ensure regulatory compliance.

Expungement Laws

Many states have expungement laws that allow individuals with misdemeanor or felony convictions to petition the courts for their records to be expunged.

If a conviction is expunged, the individual doesn’t have to report it to a prospective employer, and employers can’t rely on expunged convictions to make hiring decisions.

While many states limit expungement to minor misdemeanor crimes, others have broader expungement laws that allow people to obtain expungements of felony convictions.

Some states, including Colorado, have automatic expungement laws that erase records after specific periods have passed.

Industry Laws

People who work as financial planners might be regulated by a variety of different entities based on the licenses they hold, including:

• State Board of Accountancy
• Securities and Exchange Commission (SEC)
• Financial Industry Regulatory Authority (FINRA)
• Certified Financial Planner Board of Standards

What Can Disqualify You on a Financial Planner Background Check?

Employers might deny employment to an applicant based on a background check for multiple reasons.

Some of the most common reasons are discussed below.

1. Misrepresenting employment history

Some applicants misrepresent their employment records on their resumes to try to appear more experienced or hide employment gaps.

Employers that verify employment can easily see these types of misrepresentations and will likely deny employment to dishonest applicants.

2. Lying about education

A second area in which applicants might misrepresent their qualifications is education.

Candidates might claim to have received degrees they have not, attended schools they never did, or purchased diplomas from unaccredited and fraudulent diploma mills.

When an employer completes education verification, they can see if an applicant has misrepresented their educational background and will likely turn down a candidate who has lied.

3. Having a disqualifying criminal conviction

While an applicant won’t necessarily be turned down for a job based on a criminal conviction, a candidate for a position as a financial planner might be denied employment if they have convictions that could place their clients or the company at risk.

Some examples of crimes that might be disqualifying for a financial planner include:

• Theft
• Fraud
• Embezzlement
• Forgery
• Identity theft

4. Failing a pre-employment drug screen

Employers that require applicants to take pre-employment drug screens as a condition of employment will likely withdraw their offers if an applicant tests positive for one or more illegal drugs.

5. Issues with a professional license

Regulated finance professionals with a history of sanctions or discipline against their licenses might be turned down by employers.

Employers might be prohibited from hiring applicants who have been suspended or debarred by any number of different federal or state agencies.

iprospectcheck: Your Reliable and Trusted Financial Planner Background Check Partner

When you’re hiring financial planners to work for your organization, you must ensure the candidates you hire are qualified and trustworthy.

A bad hiring decision could expose your company to significant liability and risk the safety of your customers’ confidential financial information.

At iprospectcheck, we conduct comprehensive financial planner employment background checks for companies across the U.S.

Contact us today to learn more about our services and obtain a free quote: (888) 509-1979

DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.