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When a registered representative leaves a FINRA-affiliated broker-dealer, the firm must complete Form U5 and submit it to FINRA. If you’re leaving voluntarily and peacefully, this can be a simple process. But if your departure is contentious or less than voluntary, what is reported on your Form U5 can vary greatly, depending upon the choices made by the broker-dealer’s compliance and registration departments. In other words, an individual from the firm’s compliance department has the freedom to report how the events that led to your separation will be recorded on your permanent record.
Form U5 Terminology
For anything other than a voluntary termination, the first decision the Compliance representative must make is whether or not to register your departure as “Permitted to Resign,” “Other,” or “Discharged.” That individual, who knows nothing of your career or ethics, then chooses the terminology used on Form U5 to explain what transpired. This includes filing a Disclosure Reporting Page (DRP). Once all of the information is gathered, FINRA then examines the reported facts before deciding whether or not to initiate an inquiry or an investigation.
The early judgments made by the broker-dealer and its compliance department, which are typically decided before you are even aware of the termination, can cause serious and long-term damage to your career. Those decisions can have a direct effect on whether you will even be allowed to continue working in the industry.
Defamatory And Retaliatory Terminations
We’ve seen hundreds of Form U5 termination disclosures of a defamatory nature that are used against financial advisors and wealth managers. One such example is when an advisor is fired due to “lack of production.” Should the language on their Form U5 reflect a termination type of “Permitted to Resign” or “Other”? Regardless of which is selected, both termination types are in need of an explanation. That explanation could simply state a “lack of production,” or it could be a long and convoluted sentence that will most likely elicit a response from FINRA.
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In cases where you’re facing more serious allegations or termination with cause, how the firm and its compliance department report the separation on your Form U5 becomes much more critical. Which procedure(s) are you alleged to have violated? Did you break a FINRA rule? Was it on purpose or unintentional? Did your firm listen to your version of the events? Could it have made a mistake?
In most cases, if a client makes a complaint, or management has a suspicion of misconduct, the firm is compelled to report it, even when the allegations are patently false. As some firm allegations may be politically or financially motivated to apply leverage to the advisor, how those allegations are reported will make a great deal of difference.
When the termination involves charges of fraud, theft, or another serious wrongdoing, the firm has 10 days from the date of termination to submit your separation (Form U5). Otherwise, the firm has 30 days in which to do so. Though the days following a termination can be tough, it is critical to keep in touch with the firm prior to Form U5 filing. In many cases, an advisor will assume the separation was amicable, yet upon receipt of their Form U5, they’ll find that it states otherwise.
What happens when a Form U5 is filed, and you are blindsided by the disclosure?
First, the information from your Form U5 will be posted directly to your public BrokerCheck profile. Any new firms’ compliance departments will undoubtedly scrutinize the information. While some may ask you to explain your side of the story, most will not. Your choices moving forward may be restricted, and any transition assistance offered will be reduced or even eliminated. FINRA’s broker-dealer examinations are also based on a program-wide risk hierarchy that includes Form U5 termination statements. Top-tier hiring firms routinely and immediately reject new advisors with termination disclosures that show anything other than a “voluntary” termination.
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Second, FINRA may conduct an investigation. If it does, you will receive a letter with a series of compound questions that must be answered honestly and correctly, while also being phrased in such a way as not to aggravate the situation. When the investigation is handled by experienced representation, advisors have a better chance at FINRA closing the inquiry before it reaches arbitration. However, when cases do progress to the point where an on-the-record (OTR) testimony is needed, an advisor could face sanctions. Sanctions can be anything from a fine, to a suspension of FINRA licenses, to a bar from the industry altogether. Such situations are often the point of high-stakes negotiation when an advisor who chooses to go it alone without seeking experienced counsel can risk results that are significantly less favorable.
Fighting A False Form U5
What if the information on your Form U5 is inaccurate? What if it was a deliberate act? Should you just live with it? Are you willing to explain the termination disclosure in detail every time your BrokerCheck profile is viewed by the public?
For nearly a decade, AdvisorLaw has been successful in assisting financial advisors in obtaining an expungement of negative Form U5 disclosures or, as a fallback, having them amended to more accurate and less damaging descriptions of the events.
Each scenario is unique, and each disclosure must be thoroughly examined based on the facts. At AdvisorLaw, we have the proven expertise to help you rebuild your reputation and reclaim control of the story. AdvisorLaw represents financial advisors exclusively — never the broker-dealer, never the investor.
Contact us for a complimentary consultation today!