Frequently Asked Questions
Frequently Asked Questions
U5 Termination Expungement
Tax Lien Expungement
Criminal Disclosure Expungement
No. AdvisorLaw is an independent firm defending the interests of individual financial advisors against the regulatory authorities, investor-attorneys, and employers.
Each advisor should contact their manager or compliance officer to verify. Some firms will pay directly for AdvisorLaw services. On occasion, advisors have also been allowed to use their internal pre-tax business development accounts. In the case of new disputes brought against an advisor, many times your E&O insurance carrier will offset the majority of the cost.
AdvisorLaw represents financial advisors from all 50 states and Puerto Rico.
The most common allegations brought by investors against their advisor are Breach of Fiduciary Duty, Negligence, Failure to Supervise, Misrepresentation, Suitability, Breach of Contract, Fraud, and Unauthorized Trading. Disputes are typically lodged in cases where the investor has had a decrease in their portfolio. However, many investors have had positive returns on their portfolio and brought a complaint alleging the returns should have been even higher. These days, under FINRA’s rules, investors can bring a complaint for virtually any allegation you can think of.
Learn more about our Industry Litigation Services.
Nearly every allegation, even false claims, will show up on an advisor’s BrokerCheck® record per the extremely stringent rules of FINRA. Many financial professionals are unaware that they may fight the disclosure, even in the case of settlement by the firm.
Firm compliance attorneys only represent the interests of their benefactor: the firm. If you choose to be represented by firm attorneys, you should be advised of the inherent conflict of interest of representing two parties whose interests may not perfectly align. You may wish to hire outside counsel if you feel that you are being forced to contribute to a settlement or are being saddled with a negative disclosure that you never earned.
Learn more about our Industry Litigation Services.
Over the last several years, AdvisorLaw has had thousands of clients reporting various harm to their business:
- Prospective clients suddenly becoming unresponsive
- Advisors using another broker’s disclosure history against them
- Losing institutional clients who require an impeccable profile
- Tarnished name and brand
- Being passed over for firm promotions
- Inability to land at a new firm
- Decreased compensation packages
- Increased threat of new complaints from investor-attorneys
- Diminished value of their book when selling
It depends on the nature of the customer complaint. If there was a violation of firm policy or FINRA regulation, the firm may move to terminate instead of mitigate the damage and risk. With each customer complaint, FINRA will initiate an inquiry to determine the severity of the alleged transgressions. If you sense that you are likely to be terminated, you should hire outside counsel immediately. The termination may initiate another negative BrokerCheck® disclosure for essentially the same underlying event.
Yes, most states mirror the CRD database and therefore will be acutely aware of any new complaint. You may receive disclosures from one or more states in which you are registered in addition to the customer complaint disclosure posted by your firm. At the very least, you are likely to have to explain the disclosure each and every time you register or renew your licensure.
Yes, in the industry vernacular, the Employment Separation After Allegations (ESAA) is the title of the disclosure that you will receive for being terminated from a registered firm. That ESAA is the public disclosure listed on BrokerCheck®. That termination will be referenced on the U5 portion of your CRD which broker-dealers must use to terminate your registration with their firm.
The “Allegations" portion of your U5 disclosure is input by the terminating firm’s compliance. You may negotiate the exact language within 30 days of termination. The “Broker Comment” section is where you may submit your response to the allegations (subject to FINRA approval).
In today’s regulatory environment, the U5 Termination is widely considered to be one of the worst disclosures you can have for landing at a new firm. Many top-tier firms have rules against having even a single U5 disclosure. Depending on the risk tolerance of a new employer, some firms will hire a broker with a checkered past contingent upon a probationary period. Some lower-tier firms will choose to look past the disclosure entirely. In today’s environment, it can be nearly impossible to land at a “brand name” firm or bank.
Firms will typically not leave any physical record of misleading your clients with your BrokerCheck® disclosures in order to retain them given the risks of defamation claims. However, it is a widely accepted practice to imply wrongdoing by the departing advisor when a mass exodus of clients hangs in the balance.
Generally, any allegations of breaking firm policy or possible FINRA regulations will result in a FINRA inquiry letter to determine the severity of the events. Both the firm and the advisor should receive a copy of the inquiry to respond to.
Yes. You must promptly notify (no later than 30 days) FINRA of any unsatisfied tax liens when you become aware, or should have become aware, of any judgment or tax lien. IRS tax liens are legal claim to any and all property that an advisor may own, anywhere in the world.
It is always recommended to hire an attorney experienced in IRS resolution. There are many options available to tax debtors whether they be relating to enforcement, payment arrangements, or liens. In our experience, many of the best options to resolve tax liens, IRS agents do not volunteer.
You may receive an inquiry letter from FINRA relating to tax liens, especially if you disclose them late. The late reporting alone is often grounds for a formal investigation and possible regulatory suspension.
U4 Customer Dispute Expungement
FINRA oversees an arbitration forum through which an advisor can argue for removal of any meritless customer complaint disclosures. FINRA’s Rule 2080 governs the process and criteria by which these negative disclosures can be expunged. The process consists of a full administrative arbitration case to argue the merits of each disclosures and removal.
FINRA’s Rule 2080 requires that you meet at least one of the following criteria:
A) the claim, allegation or information is factually impossible or clearly erroneous; B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or C) the claim, allegation or information is false.
Prior to 2010, FINRA rules did allow for removal of customer disputes based upon certain criteria. Smaller settlements as well as non-adjudicated claims were to fall off automatically after 24 months. FINRA changed those rules in 2010 and made them retroactive to August of 1999. Now, nearly all customer disputes must be processed through FINRA’s arbitration forum, conduct a hearing on the merits of the case, and be awarded expungement by the arbitration panel.
No, a financial advisor cannot sue FINRA for expungement. The rules for customer dispute expungement state that you must name the broker-dealer as the respondent. FINRA oversees the arbitration process and is not party to it.
It may be very viable based upon the merit of the allegations contained on the disclosure. AdvisorLaw posts our results to show you recent wins. AdvisorLaw alone has removed more than 2,000 disclosures from advisors’ BrokerCheck records.
AdvisorLaw conducts more advisor-initiated expungement requests than the next 10 firms combined. In fact, AdvisorLaw handles 20% of all FINRA arbitration cases in any given year.
Under FINRA’s new rules, you may attempt expungement of any customer dispute. Settled, Denied, Closed-No Action, Withdrawn, Dismissed, or even Award/Judgments disclosures are possible. There are a couple caveats; you may not try a second time if an expungement was requested and previously ruled upon by a FINRA arbitration panel and you may not request expungement of a disclosure where the customer settlement was conditioned on the investor’s agreement to not contest future expungement.
Yes. FINRA has multiple proposals to tighten down certain aspects of the expungement process for advisors. Due to current political pressure, and pressure from the lobby of investors-attorneys, FINRA is attempting to decrease the currently high win-rates of these cases.
AdvisorLaw publishes blogs on any of the material rule proposals here.
There is no limit on the number of disclosures that may be expunged from Brokercheck® if a financial advisor can prove they are without merit.
Yes. Broker-dealers and RIA’s have internal policies that vary by firm. Some top-tier firms will not allow even one disclosure. Most firms will have a set amount per time frame (i.e. three disclosures in the last five years). All firms will inquire as to the background of each of the claims as part of their due diligence in hiring.
Rarely does an advisor lose a current client over a disclosure listed on BrokerCheck®. However, the majority of the harm comes from losing prospective households or institutional accounts that choose to go another direction after Googling the advisor. Losing any new clients, especially an HNW client, can be painful to an advisor looking to grow their business.
Per FINRA rules, the investor that brought the complaint must be notified that the advisor has initiated an expungement case to seek relief through arbitration. However, it is not required to have the authorization of the investor in order to proceed to expungement.
Investor-attorney sites such as israelsneuman.com/blog/ will usually obtain disclosure information from BrokerCheck® on a particular advisor and re-post it on their blog. This will be the basis for a “new alert” to any customer of that particular advisor. The alert will notify the investing public that they may also have a viable case to lodge new allegations.
Since the information republished by investor-attorneys is accessing public information on FINRA’s BrokerCheck®, there is little an advisor can do to remove this information without the authority of an actual expungement order.
Yes. E&O insurance carriers assign rates based upon the potential risks of liability for a given advisor. A record of customer complaints, whether they are settled or not, will typically increase the advisor’s liability insurance rates since past complaints are a large predictor of future customer complaints.
This depends on the advisor and the firm. There may be downward pressure applied to a new compensation package to offset any potential risk by taking on a broker with a checkered past.
Advisors that retire will have their BrokerCheck® legacy profile, with all relevant disclosures, available for 10 years after they leave the industry. Retiring advisors may still pursue expungement through FINRA arbitration if there are concerns about their legacy.
The CFP Board does not completely mirror the CRD, although they are moving close to that goal. The CFP Board recently initiated a task force to address customer complaints that may have not been fully addressed during obtaining the CFP mark. The CFP board can initiate internal investigations on any dispute, just as FINRA would, to determine if any actions should be taken against the advisor.
If a FINRA arbitration panel decides against an advisor’s case for expungement of a customer dispute, they will not have another chance to file a new expungement case. There are no new additional disclosures after a loss and only the initial complaint will remain.
No. These are FINRA arbitration cases and each one is unique and variable as any case of this kind. Although not guaranteed, AdvisorLaw has completed over 1,500 expungement cases and the historical results are extremely good.
Tax Lien Expungement
Yes. AdvisorLaw has worked with the IRS to remove tax lien disclosures from BrokerCheck® in many scenarios..
Criminal Disclosure Expungement
Each of the states vary widely but most do have legislation allowing for expungement or sealing based upon various criteria. There has been a push in many states to expand these expungement rules over the years and they continue to become more favorable for the advisor.
Yes. FINRA’s Rule 8310 allows for FINRA to impose many penalties or sanctions including temporary suspensions and permanent bar from the industry.
If you have received a FINRA inquiry letter (8210) you should immediately hire attorney representation. These inquiry letters are typically the first chance you will have to respond immediately and succinctly to FINRA about a possible rule violation. Since the consequences of any inaccurate response include the inability to work in the industry ever again, these letters should not be treated lightly. Any response will be the evidentiary basis for FINRA to determine rule violations and/or possible false statements by the advisor.
Responses to 8210 letters should answer the question, be precise, and be succinct. Knowledge of the entirety of FINRA rules is recommended however, as to not cause subsequent problems by answering the initial questions incorrectly.
Yes, and they often do. If FINRA believes that there was a chance that a FINRA rule has been violated, their next step will be to request an On-the-Record interview with the advisor which is the beginning of a formal investigation. The advisor should take this step very seriously as the outcome may lead to sanctions, suspensions, or barring.
OTR (On-the-Record Interview)
FINRA’s On-the-Record (OTR) interview is essentially a deposition that is held in person at a FINRA district office. The OTR used to take oral testimony, under oath, and to make an official transcript to FINRA’s direct questioning.
If FINRA requests an OTR, you must attend. Via FINRA Rule 8210, anything short of full cooperation in providing evidence at this point in the game can lead to a permanent bar from the industry.
FINRA conducts a Sufficiency of Evidence Review and makes a determination of the best route to proceed in the investigation. FINRA may choose to issue a Letter of No Action on the matter, a Cautionary Action, or to negotiate an AWC settlement. While an informal No Action or Cautionary Action are disciplinary, they are informal and the advisor is not required to disclose the matter on the CRD or BrokerCheck®.
In the case of an AWC settlement, the advisor will be required to have a disclosure with details of the settlement posted on their CRD and BrokerCheck®. If no settlement can be reached, FINRA may then move to a Wells Call to notify the advisor of their intent to bring formal charges in the case.
FINRA AWC (Acceptance, Waiver and Consent Order)
An AWC (Acceptance, Waiver and Consent Order) is similar to a plea bargain or settlement. After FINRA has investigated and gathered evidence against a financial advisor for a possible rule violation, they may negotiate a suspension and/or fine in order to draw the case to a conclusion. If the advisor signs the AWC they are accepting the plea deal, consenting to the sanctions, and waiving nearly all possible arguments to fight the AWC in the future.
An AWC is not always offered to settle a particular case. If an advisor is afforded an option to sign an AWC, there are many factors to weigh. These include the cost of litigation if not signed, the advisor’s career trajectory, legacy concerns, whether the advisor feels the settlement is fair and reasonable, business harm of the public AWC disclosure, and timeframe of fighting the outcome.
FINRA will usually include two types of sanctions when settling a matter through an Acceptance, Waiver and Consent (AWC). A financial advisor may be required to be “suspended” from doing any type of financial advising for a certain period of time. This may be a few days to sometimes over a year based upon the severity of the allegations and possible harm to the investing public. Additionally, they may include monetary fines that also span a very large range based upon the allegations.
You are not required to sign an AWC. The AWC is a settlement from FINRA to resolve the current matter. If you choose to fight the AWC, FINRA may bring formal charges against the financial advisor for violation of the rules. This is commonly referred to as a Wells Notice.
A Wells Notice memorializes the intent of FINRA to file formal charges on a particular matter. Although not required, (in the case where investor funds may be at risk) FINRA will usually call the advisor and inform them of the investigator’s recommendation to file the charges. The advisor will be allowed to submit a Wells Submission in response, arguing why the charges are not appropriate.
Statutory Disqualification (SD)
Statutory Disqualification is a process by which FINRA disqualifies an advisor from working with any member firm based upon the severity and intent of certain events. Most commonly, these take the form of certain criminal convictions, temporary or permanent bars, false statements in applications, or willful violation of the rules and laws.
Statutory Disqualification is an effective bar from the industry unless the advisor files a Membership Continuance Application (MC-400) or “Heightened Supervision Plan”.
The MC-400 Application is a form that is submitted to FINRA with a supervisory plan agreed to by the member firm looking to hire the advisor. This plan covers all of the extraneous supervisory details that will be required of both the firm and advisor to ensure no future transgressions take place. This plan must be approved by FINRA before the advisor may work in the industry again.
Practice Purchase Network (PPN)
The best time to begin planning to sell your practice or RIA is as early as possible. The decision to sell your practice should be made on your own terms. Having an appropriate succession or exit plan in place will afford you the best opportunity to maximize your return when it is time to exit. External factors, such as business cycle, interest rates, and demand, must also be accounted for when determining the timing of your sale.
AdvisorLaw’s infrastructure of attorneys and M&A experts has the proven ability to minimize costs and headaches by handling all facets of the sale — valuation and maximization, negotiation, buyer financing, buy-sell contracts, succession plans, and final closing — so there’s no need to hire a different firm for each part of the process.
Our team has moved over $1 billion in M&A transactions.
If you already have a buyer lined up, utilizing professional representation can facilitate attaining the maximum return on the sale of what is likely your largest asset. AdvisorLaw manages and executes all negotiation and contractual aspects of your sale on a retainer basis.
Financial advisors who sell their practice exclusively through AdvisorLaw’s Practice Purchase Network (PPN) pay nothing for a valuation of their business, being matched to a qualified buyer, or contract work related to the sale transaction. All costs are covered by AdvisorLaw or the purchaser.
RIA or Practice Valuation
The actual transactional price of your practice will be determined by what the market is willing to pay. It is important to be able to justify the amount you’re seeking, as you can bet that potential buyers are looking for reasons to pay less.
Regardless of where you are in your career as a financial advisor, it is a good idea to have a full understanding of the value of your practice, its strengths, and any opportunities to increase its value. Appropriate planning and enhancements can maximize your return when it’s time to exit.
Selling a valuable asset, such as a financial practice, in the broader marketplace should yield more competitive offers. More potential buyers can increase the value of a practice, due to the inherent scarcity of that asset and the resulting competition to bid up its value. Even if your firm has made an offer that is attractive, it’s prudent to make sure that you’re not leaving money on the table.
AdvisorLaw locates sellers, conducts their valuations, and compares those values against your objectives to ensure that you’re being presented with viable acquisition candidates.
“Fair value” is a term that only has meaning in relation to another value. As the saying goes, “if you only have one buyer, you may as well have none."
AdvisorLaw works directly with the IRS to remove tax lien disclosures from BrokerCheck®.
Not necessarily. There are special rules that allow for removal of a tax lien disclosure before full payment is achieved.
While every situation is different, basic requirements include: (1) compliance with all filing requirements; (2) staying current with estimated payments or withholding requirements (as applicable); and (3) an installment agreement that is in good standing.
FINRA requires advisors to disclose information about their financial history, because it sees the disclosures as a means for highlighting the potential for unethical behavior. Whether or not they are true, FINRA views financial disclosures, specifically, as incentive for a broker to recommend high-commission products or otherwise behave unethically, in order to improve their own financial condition.
Our team will work directly with the IRS and FINRA to make sure that the financial disclosures reflected on your BrokerCheck® are correct.
Our team of resolution experts can help you achieve the best resolution strategy to fit your individual needs. Not only will we guide you through the process, we will also negotiate with the IRS on your behalf — striking a balance between getting you the best possible outcome and qualifying you for removal of the lien(s) as quickly as possible.
Our team will analyze your specific situation and goals and formulate a plan to fit your specific needs.
RIA Registration & Setup
No — there is no asset minimum required to start an RIA.
SEC registration is required for RIAs with assets of $100 million or more.
Yes. If an RIA has no assets under management (e.g., a financial software firm or an advisor with all TAMP assets), AdvisorLaw can provide annual compliance and filings at a significant discount.
An RIA must register in all states where it has more than five clients residing, while fewer than five may allow for more limited reporting.
AdvisorLaw is able to transition an RIA that has grown to be large enough that it must be SEC-registered. AdvisorLaw offers those transition services either through ongoing compliance or as an à la carte service.
AdvisorLaw suggests that a typical RIA takes approximately 8-12 weeks to form. However, there are multiple factors that may speed up or slow down the process.
RIA registration is private, and the information will be unavailable to your current firm. AdvisorLaw will leave your RIA launch date open until you resign, and we’ll make your new firm effective the following day, to avoid overlapping employment.
RIA Ongoing Compliance
Once a year, a firm is required to evaluate and document its adherence to policies and procedure guidelines and conduct a risk assessment.
Yes. AdvisorLaw creates a custom calendar for all of an RIA's compliance tasks. Our compliance team will keep you on schedule, do most of the “grunt” work, and confer with you quarterly to review results and make suggestions. Additionally, AdvisorLaw will keep you up to date on any regulatory changes that may affect your practice.
Yes. AdvisorLaw can handle all ADV filings and updates. Please note that new clients must be on board no later than March 15th for timely annual filings at the end of March.
As long as your firm has a chief compliance officer (CCO) to merely approve our work, we can complete nearly all compliance tasks without requiring the financial advisor’s participation.
No. Our ongoing RIA compliance is done at a flat rate, which includes year-round attorney consultation. We would rather make small, preventative changes to your compliance than put your firm at risk of an audit.
Yes. Both onsite and remote versions are available, and the type employed depends upon the specific needs of your RIA.
Guidelines are evolving swiftly in this growing space, and AdvisorLaw can keep you current.