FINRA’s Career-Ending Form U5

Financial advisors and wealth managers should be very concerned with the potential consequences of negative Forms U5. The Financial Industry Regulatory Authority (FINRA) has launched a two-pronged attack on its registered representatives through its newly-implemented Rule 4111 and its latest proposed changes to FINRA’s disclosure expungement and dispute resolution processes. 

Due to the mounting pressure imposed by FINRA’s Rule 4111, many firms and broker-dealers have been forced to fire reps en masse, in order to avoid crippling and costly restrictions. Recruiters are also finding it difficult to place advisors at new firms. Brokers marked “discharged” on their Forms U5 are being turned away and deemed damaged goods. This leaves advisors with only one choice — attempt to have the disclosures removed from their public records.

But that might be difficult to achieve, come this spring. If FINRA’s expungement proposal is passed, advisors will essentially lose their right to due process. In other words, any complaint, regulatory violation, or termination — regardless of merit — can be permanently attached to a rep’s name, for the rest of their career and with no path to relief. 

The scary part about all of this is that we know firsthand how easy it is for financial advisors and wealth managers to end up with negative Form U5 disclosures on their records. More frequently than not, firms weaponize the Form U5 against reps in efforts to preserve high retention rates, employ high-producing advisors, and keep customer assets. Even when reps had great relationships with their firm or manager, at the end of the day, they’re treated as just another cog in the machine. 

AdvisorLaw Expunges A 2020 Form U5 Termination Disclosure — Restores Perfect Records

Recently, an advisor came to our team seeking to remove a negative Form U5 termination allegation from her public record. In this particular case, the advisor had been with the firm for more than 15 years with a pristine record. While she had a good relationship with the firm and her clients, she decided it was time to move on to a new firm. The day after she informed the firm of her resignation, she was terminated. Immediately, the firm filed a Form U5 stating that the advisor was being discharged for allegedly impersonating a client via telephone. 

Even though no formal complaint was ever filed, our advisor found herself in a tough position. Ultimately, her career suffered for the next two years, due to the misleading public termination disclosure on her record. But through FINRA arbitration, AdvisorLaw proved that the allegations made against the advisor tended to mislead and were therefore defamatory in nature. Our advisor will soon be back to having disclosure-free CRD and BrokerCheck records.

Read the full award summary here.

Unfortunately, cases like these aren’t rare. In fact, these types of expungements make up a quarter of all of the arbitration cases that AdvisorLaw handles. If there’s one thing we’ve learned over the years, it’s that financial advisors and wealth managers are given little to no protection against false accusations and harmful allegations. Firms can do and say virtually anything they want to, without repercussion or consequence. Meanwhile, regulators get the statistical satisfaction of weeding out thousands of whom they consider to be bad actors, at once, with draconian rules and regulations. 

In case you weren’t already far too aware of FINRA’s unscrupulous practices, last week, the SEC revealed that it would be rejecting an appeal to disclose concerns that were discovered during FINRA’s annual examinations. 

Brokers Ditch FINRA Membership to Join the RIA Sector

Sources from across the industry believe that the Form U5 is one of many incentives encouraging brokers to give up their securities licenses altogether and join the RIA sector. With all of FINRA’s recent antics, if you’re a FINRA registered representative, this may be exactly the right time to do just that. Fortunately, AdvisorLaw has extensive experience assisting brokers and reps in making their final exit from FINRA. Our team of specialists offers custom RIA setup and registration, as well as ongoing compliance services for registered investment advisor (RIA) firms. For the month of September, we’re also offering clients who sign up for our ongoing compliance services, full access to our Nexus Compliance Platform, free of charge.

Contact AdvisorLaw Today

FINRA always finds reasons to increase oversight, raise fees, and impose even more restrictive rules. Registered reps should take these recent events seriously and realize that FINRA has no plans to make things easier (or less expensive) for reps.

If you’re interested in learning more about how to protect yourself from overzealous regulators, contact AdvisorLaw today. From September 26th-30th, we are also extending a fee credit to new clients looking to remove meritless marks from their records through Expungement Week 2022. Make sure your livelihood is protected with AdvisorLaw.

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