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Success Story: FINRA Inquiry and Transition
to RIA


​Paul Davidson
A financial advisor in his prime growth years has to contend with a FINRA enforcement inquiry and his firm deciding to not stand behind him. What begins as a verifiable threat to his career ends up in a defining transition for the better.

Situation


Blindsided
Mr. Davidson was registered with a broker-dealer for 16 years. During that time, he had minimal involvement with three ventures that technically qualified as outside business activities (OBAs). The roles played by Mr. Davidson in the entities and the amounts of the investments were relatively small. However, it was ultimately determined that the OBAs had not been properly disclosed to Mr. Davidson’s broker-dealer, and Paul was terminated.

The firm posted allegations to Mr. Davidson’s Form U5 stating that he had undisclosed OBAs while registered with the firm and that his registration was terminated following the allegations. Mr. Davidson then received a FINRA enforcement inquiry. As he had, in fact, participated in three of the four alleged OBAs, Paul turned to AdvisorLaw for help in navigating what had become treacherous waters.


AdvisorLaw helps keep it real


FINRA’s inquiry required Mr. Davidson to provide details and explanations regarding the allegations pertaining to the OBAs. AdvisorLaw helped Mr. Davidson to maneuver the response process, which included the requirement to provide on-the-record (OTR) testimony and negotiation of an acceptance, waiver, and consent (AWC) settlement.

AdvisorLaw was able to convey to FINRA that Mr. Davidson’s involvement in the alleged OBAs was as a passive investor who had held no actual leadership role in any of the OBAs. His financial contributions had been relatively insignificant, and he had never made a solicitation to any firm client in regard to the OBAs. With the help of AdvisorLaw’s negotiation, Mr. Davidson received a relative “slap-on-the-wrist” suspension which allowed him to continue working after a short turnaround.


Moving on


However, after experiencing firsthand the inequities of dealing with FINRA enforcement, not surprisingly, Mr. Davidson determined that he no longer wished to be FINRA regulated. He decided that the best value for his clients was going to come through building a business brand and identity, something that could develop long-term value and provide a higher level of transparency.

As such, AdvisorLaw then guided Mr. Davidson through the process of setting up his own, state-regulated registered investment adviser (RIA). AdvisorLaw found him a custodian to clear through, prepared all necessary state and federal registration documents, assisted with the registration and preparation of all firm compliance documents, and ultimately acts as Mr. Davidson’s compliance team on an ongoing basis.

What started out as a nominal violation of FINRA rules and subsequent termination turned into a tremendous opportunity for Mr. Davidson. He successfully defended his reputation and has rebuilt his career to provide him with better control and flexibility for his clients and himself.


Consider all your options


Are you looking to provide a more personalized experience for your clients?
 
Are you fed up with the management of your broker-dealer and are looking to be y
our own boss?
 
Perhaps the concept of not owning your client relationships has hindered your ability to create long-term value in your career.

If these issues are keeping you up at night, you may want to join the ranks of thousands of advisors, who are trading in their FINRA licensure to gain independence and control of their brand.
 
Creating your own RIA firm will give you the autonomy and flexibility to truly create the business value that you desire while doing what is best for your clients.


*Names and some details have been changed to protect anonymity.

Contact us to discuss AdvisorLaw's RIA services.

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