Throughout any financial professional's career transitions are inevitable and an integral part of the transition is the filing of a Form U5.
For those who are unaware, Form U5 is a formal documentation filed by a financial institution, which memorializes reasons and specific details regarding transition and/or termination. Form U5s are required each time an individual investment adviser representative ("IAR") or registered representative ("RR") leaves a registered firm.
As the U5 process can get complicated, below are 5 guidelines to keep top of mind when navigating the U5 process...
- The Form U5 is universal but Form U5 reporting differs based on the firm and the terms under which the IAR/RR has departed. Certain situations and scenarios require different details and documentation. For example, an IAR's/RR's prior firm may be required to submit a detailed explanation about the circumstances surrounding their departure. Those situations include:
- The termination of an IAR/ RR by a firm,
- The scenario where the IAR/ RR was permitted to resign, which usually occurs after allegations are made against or after an internal review of the IAR/ RR is started.
- The explanations and disclosures made on Form U5 tend to be viewable for a long time. Be aware that explanations are sometimes permanent, so we encourage IARs/RRs to be proactive in the Form U5 reporting process.
- Edits and corrections to Form U5 may take time. Corrections or modifications to an inaccurate U5 disclosure are sought through the expungement process. IARs/RRs should be aware that this process is time-consuming, costly and outcomes are uncertain.
- Always take all work history into consideration. Firms have 30 days to file a U5, and IARs and RRs should carefully consider whether their prior firm will be required to explain the circumstances around their departure (and whether that explanation will be less than positive).
- Be Proactive. IARs/ RRs need to be aware that firms can process U5s on their own timeline, which can be quite fast. We encourage all IARs and RRs to proactive regarding Form U5 matters and details in the early phases of their transition, especially when dealing with terminations.
For more guidance, please refer to a recent Risk Management Legal Tip I authored last month, "How Termination Events Trigger Form U5 Disclosures," where I dive deeper into the Form U5 process and provide a few best practices when navigating this portion of a transition.
If you'd like further information or to discuss your matter directly, please feel free to contact us at firstname.lastname@example.org or by calling us at (619) 298-2880.
Robert Conca has over 19 years of experience advising businesses and financial professionals. He has acted both in legal counsel and senior executive capacities for companies spanning all stages of development. From start-ups to ...
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