Broker fines: How to tell the bad from the sloppy

— -- Q: I've noticed most online brokerage firms have some regulatory actions against them. How can I determine which ones are a big deal and which ones aren't?

A: Whenever you're looking to deal with a broker, it's always good to check the record.

Regulators, namely the Financial Industry Regulatory Authority or FINRA, keep records of allegations against brokerage firms. These are available to all investors, free, on FINRA's Broker Check site .

Given the size of several online brokers, it's not surprising to see complaints against them. The question is how to determine which allegations are serious and should give you pause when you're considering dealing with the firm.

In a brokerage firm's Broker Check report, you'll find a section called disclosure of arbitration awards, disciplinary, financial and regulatory events. If it's a large firm, this report may be lengthy. Don't let that scare you off, though. You'll want to skim all the actions and determine, as you suggest, how many are minor errors and whether any are serious.

One of the easiest ways to do this quickly is to look at the size of the fines associated with each charge. Fines of $10,000 or less are generally for far less serious offenses than those that carry fines of $35,000 or more. This is just a rough guide, but it's a decent way to quickly assess the seriousness of the charges.

Next, you'll want to look at the timing of charges. Is the number of allegations increasing vs. years past? That might be a red flag that the firm is having some internal compliance issues.

Finally, read the charges closely. Charges of misleading advertising and improper trade reporting are far less serious than allegations of improperly handling customers' money. If you see recent charges involving problems with the way client money is handled, you might want to avoid the firm.