Every member of FINRA has completed and filed a Form U4. But what may seem like an easy and uncomplicated task does carry with it some serious weight. It’s critical that advisors keep their disclosures up to date in order to prevent an investigation or penalty resulting from an enforcement action.
Business Activities Outside The Firm
All outside business activities (OBAs) must be reported to and approved by your broker-dealer, prior to engaging in them, according to FINRA Rule 3270. In addition, your Form U4 must list all of your approved OBAs.
While quite broadly defined, OBAs include any work for which a rep is paid (or expects to be paid) that is outside of the rep’s role with the firm. Passive, personal investments and blind trusts, however, do not qualify as OBAs.
In recent years, FINRA has been hyper-focused on punishing advisors with unreported OBAs by making a series of sweeping audits. Along with the audits, FINRA uses several enforcement tactics to pinpoint wrongdoers, including conducting in-depth searches of social media pages and state filings.
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Bankruptcies, Liens, & Judgments
Do you have any unpaid judgments or liens, or have you filed for bankruptcy or reached a settlement with creditors? Many advisors are unaware that such events must be disclosed on their Form U4, and advisors frequently find themselves under scrutiny for “willfully” neglecting to report them. If you’ve settled with American Express to pay a lower amount than you owe on a credit card, for example, that must be reported on your Form U4.
Update Your Address
When you’re in the process of moving to a new home, likely the last thing on your mind is updating your residential address with FINRA. Unfortunately, doing so is required, and advisors have been penalized for forgetting to make the update.
Disclosures Involving Criminal Cases
Even if an alleged crime occurred more than ten years ago, FINRA requires that all advisors report any criminal charges on their Form U4 — including misdemeanors. Advisors who were charged with a felony that was later reduced to a misdemeanor, or even dismissed altogether, are still required to report the charge as a felony. Decades later, advisors are forced to explain why they have a “criminal” mark on their BrokerCheck record to clients and hiring firms — otherwise, potential clients may just move on to another advisor without further investigation.
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Do you need to report all complaints? How do you determine whether a customer complaint is worthy of disclosure? Regardless of merit, customer complaints that allege a “sales-practice violation” with a monetary value of $5,000 or more must be reported on Form U4.
The term “sales-practice violation” is defined in the Form U4 instructions as any conduct directed at or involving a customer that would constitute a violation of any self-regulatory organization’s rules; any provision of the Securities Exchange Act of 1934; or any state statute prohibiting fraudulent conduct in connection with the offer, sale, or purchase of a security or the rendering of investment advice.
There are several other forms of customer complaints that must be reported on Form U4, including misrepresentation, churning, suitability, negligence, and more.
Removing An Existing Disclosure
Having a disclosure on your record that’s not reflective of your true conduct can be a burden —not only to your reputation but also upon the potential to grow your business. If you’re interested in seeking removal of a negative customer complaint or termination disclosure, or if you need assistance navigating an investigation within the securities industry, AdvisorLaw can help.
FINRA gives wealth managers and financial advisors a chance to expunge disclosures from the CRD, BrokerCheck, IARD, and IAPD through arbitration with FINRA’s Dispute Resolution forum. We have helped thousands of advisors whose once-pristine records were damaged by a meritless or categorically false disclosure, and numerous disclosures have been successfully removed from advisors’ records — as if the events had never happened. In fact, we recently achieved our 2,000th disclosure expungement.
Our team of attorneys has extensive experience in the industry’s regulatory space. They understand business, tax, and securities law and can protect financial advisors and wealth managers from overzealous regulatory bodies and retaliatory member firms.
Reach out to us today for a complimentary consultation.