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The Importance of a U5 to Financial Advisors


Under the applicable Financial Industry Regulatory Rules (“FINRA”), whenever a registered representative is terminated from a broker-dealer (“BD”), registered investment advisor (“RIA”) or other type of issuer of securities which is a member of FINRA, the firm is required to a file a Form U5.  The U5 must be filed for every departure, whether voluntary or otherwise, because it is a termination of employment. The firm at issue is terminating the individual’s registration with FINRA. The form is required to be filed within thirty (30) days of the date of the termination event.  Firms are required to provide the individual with a copy of their Form U5 within the thirty (30) day time frame.  The form must disclose why an individual left the firm and other certain events.

Types of U-5 Filings

There are three types of U5 filings afforded to a firm:

  1. Full Form: A full Form U5 is used when terminating an individual from the firm. Registrations with all SROs and jurisdictions will be terminated.
  2. Partial Form: A partial Form U5 is used to terminate individuals from selected SROs and jurisdictions. The reason for termination and disclosure questions are not included on partial Form U5 filings. Residential addresses can be updated. Branch office address information cannot be updated on a partial form.
  3. Amendment Form: An amendment Form U5 is used to update or amend disclosure, date of termination, the reason for termination and residential information for an individual previously terminated.

Firms are required to provide a reason for termination and can select from five (5) choices:

  • Discharged
  • Permitted to Resign
  • Deceased
  • Voluntary
  • Other
The Importance of a U5 to Financial Advisors

If the reason for termination entered is permitted to resign, discharged or other, firms are required to provide an explanation.  For the financial advisor, the language used by the firm to describe the termination is important for three reasons.  First, FINRA reviews all U5 forms that are submitted that the firm marks as either discharged, permitted to resign or other.  FINRA is required to send both the firm and the financial advisor a request for information regarding the explanation for termination provided by the firm (FINRA Rule 8210).  Thereafter, the financial advisor will be able to tell his/her side of the story. Second, it is important to remember that future employers will have access to the language put forth by the firm and if the language is adverse, it could harm the financial advisor’s ability to gain future employment.  Furthermore, depending on the language chosen by the firm, the investigation conducted by FINRA could lead to an enforcement action.

The third most important feature of the U5 are the disclosure questions.  The answers to these questions may raise a red flag to potential new employers.  It is important that the financial advisor communicate with the firm prior to the filing of the U5 to avoid any surprises that may have to be addressed down the line.  This will allow the financial advisor to be prepared to address questions raised by a future employer.  Specifically, the financial advisor should take special note of the firm’s responses to questions 7A-7D.  Conversely, the firm should be concerned about the accuracy of the information set forth in this section of the U5 and confirm that the financial advisor was aware of any internal investigations to protect itself from being subjected to a defamation claim by the terminated financial advisor.  Historically, FINRA arbitration panels have issued substantial awards against forms which abuse the U5 form as a platform for making unnecessary disparaging comments about the financial advisor.

What to Do

The reality is that financial advisors move from firm to firm on a daily basis.  The two most important assets of a financial advisor is his/her reputation and the clients they service.  Financial advisors should avoid making spontaneous decisions regarding their old firm and focus on their new employer.  Informing clients of the reasons for your departure is a good first step.  If you are unable to negotiate acceptable language on your U5 with your current employer, get out in front and address any concerns that your future employer may have and address the issues head on.  Under FINRA Rule 8312, FINRA BrokerCheck Disclosure, FINRA independently reviews the disclosure and determines its validity. Lastly, if a financial advisor believes that the language set forth on the U5 form is defamatory in nature, the financial advisor can always bring an action before FINRA to have the language expunged from their record.

This Article is not legal advice and should not be taken as such or relied upon as legal advice. The litigation attorneys at Wilchins Cosentino & Novins LLP are ready, willing and able to assist with financial services litigation matters and have a proven track record of successfully prosecuting cases representing securities and investment firms, financial advisors and investors, including individuals and institutions throughout the country.

Please contact Michael B. Cosentino to discuss at 781-235-5500 or 781-247-8013 and at mcosentino@wcnllp.com.

To learn more about our Financial Services Litigation practice, click here.

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