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Financial advisors are increasingly finding themselves on the wrong side of defamation claims — thanks to inaccurate information on their Form U5. This form, filed with regulators, details the reasons for any termination from a firm. Doc Kennedy, President and Founder of AdvisorLaw, dives into the challenges that advisors face and the proposed changes to the Form U5 process.
The Scar Of Defamation: A David V. Goliath Battle
Inaccurate or misleading information on a Form U5 can be career-crushing. It can paint a false picture of your conduct as an advisor, making it difficult to land your next dream job. The situation is further complicated by the inherent power imbalance. Brokerage firms, often with vast resources at their disposal, can readily defend themselves against defamation claims. Conversely, individual advisors often face significant financial and logistical hurdles when attempting to clear their names. Imagine yourself in a David v. Goliath scenario — but instead of a slingshot, you’re armed with limited resources and facing a well-funded public relations machine. This disparity can lead to settlements that prioritize expediency and cost-cutting over establishing the truth.
Proposed Checkbox U5: Solution Or Trap?
The Securities Industry and Financial Markets Association (SIFMA) is proposing a new system for advisor terminations, which would replace free-text fields with predefined options. While this aims to reduce errors, Doc Kennedy argues that it could significantly hinder advisors’ ability to contest inaccurate information.
Under this system, a minor policy violation could be categorized as a serious offense — with a single click. This could brand an advisor unfairly and make it incredibly difficult for the individual to find future employment. Essentially, advisors would be forced to choose from predefined options — all of which could paint the advisor in a negative light — offering little opportunity to explain the nuances of their situation.
Doc Kennedy Weighs In
“When a rep’s violation of such policies and procedures (by itself) equates to a violation of FINRA Rule 2010, we have just given every member firm on the planet the authority to determine what constitutes a FINRA rule violation,” said Kennedy, highlighting a major concern with the proposed system. FINRA Rule 2010 requires brokers to observe high standards of ethical conduct. By allowing firms to interpret policy violations as rule violations, Kennedy argues, SIFMA’s proposal weakens advisor accountability for firms and strengthens their ability to potentially defame former advisors.
He further emphasizes the potential dangers of the proposal: “What SIFMA is proposing further diminishes the already almost nonexistent accountability of member firms that choose to publish false, misleading, incomplete, and defamatory information to the CRD System.” The CRD system is a central database that contains information about all registered brokers and advisors. Inaccurate information within this system can have a devastating impact on an advisor’s career.
Finding The Right Path: Accuracy & Fairness
The ideal solution would be a system that ensures accurate reporting while also protecting advisors from defamation. This might involve stricter guidelines for firms when completing Forms U5 and a more streamlined process for advisors to challenge false information.
AdvisorLaw: Your Partner In This Fight
If you’re an advisor facing defamation on your Form U5, you’re not alone. AdvisorLaw has extensive experience navigating these complex situations. Our team of expungement experts can help you:
- understand your rights and options;
- challenge false information on your Form U5; and
- pursue action against firms that defamed you.
Defamatory language on a Form U5 is a serious threat to financial advisors. If you’re facing this issue, don’t hesitate to seek legal help. AdvisorLaw has the experience and expertise to guide you through this challenging situation.