Form U4 Matters
The Form U4 frequently raises serious questions and poses problems to countless financial advisors or persons seeking to become financial advisors. We often hear questions about whether an event has to be reported on the Form U4, and if so, whether there is a way to remove the disclosure. Many advisors are concerned about ensuring that their Form U4 is as clean as possible since many of the events reported on it are made available to the public through the regulators and others. Then, those disclosures are available for clients, prospective clients, prospective employers, as well as your competition down the street to see.
Add to that the problems that completing the U4 wrong can cause, and it's easy to see why many are concerned about getting their Form U4 right. You don't have to look hard to find reports of financial advisors who have been disciplined by FINRA for violations of rules relating to the Form U4. This document is an important factor in maintaining your career as a financial advisor; significant repercussions can arise when an advisor neglects his or her Form U4.
The U4, also known as the Uniform Application for Securities Industry Registration or Transfer, is the predominant vehicle by which regulatory bodies (FINRA, the states, and exchanges) screen candidates for registration and registered folks for new or continued registration. It is also one of the primary sources of information for an advisor's Central Registration Depository (CRD) or Investment Adviser Registration Depository (IARD) record. It contains personally identifiable information about each applicant such as name, SSN, physical characteristics, address history, work experience, and education. Beyond these basics, applicants are required to self-report information relating to customer complaints, arbitration claims, regulatory proceedings, bankruptcies, certain criminal history record information, certain civil litigation and unsatisfied liens and judgments, among other things.
On the broker-dealer side, the primary regulations relating to the Form U4 come from FINRA. Article 5, Section 2 of the FINRA Bylaws require that any person applying for registration with FINRA submit an application (the Form U-4) and that the application be kept current, by amendment, at all times. This Bylaws section requires amendments be made to the Form U4 within 30 days after learning of the facts that cause the amendment to be necessary, but if the amendment involves a statutory disqualification, then it must be filed within 10 days. FINRA historically enforces this requirement by pursuing violations of FINRA Rule 1122 and 2010 against applicants and brokers who fail to honestly report information on the U4, or fail to timely amend their U4. Unfortunately, in a rather draconian scheme, a “willful” failure to report information on the Form U-4 can have disastrous consequences, resulting in a permanent statutory disqualification of the person found to have willfully failed to disclose something on the U4.
For those registered with an investment adviser, the U4 is important as well. The states will review it and can take regulatory action when the proper disclosures are not made, and those actions can have significant consequences too.
Joel Beck with The Beck Law Firm, LLC has been recognized as an expert on the Form U4. In his time at NASD (now FINRA), he investigated and prosecuted countless cases involving the Form U4. Since moving into private practice, he has provided expert witness testimony in arbitration matters involving Form U4 and Form U5 issues, and has counseled numerous financial advisors, and other lawyers, across the country on Form U4 issues. Joel often represents financial advisors and counsels them on their Form U4 disclosure obligations, and, where appropriate, helps them clean up their U4 by seeking to expunge certain disclosures. In other cases, he works with his clients to provide a more robust disclosure to put the matter in context and help reduce the negative impact of the disclosure on an advisor's career if it cannot be removed by other means.
Remember that the U4 is meaningful to your career. If you have a question about it, seek knowledgeable counsel. If you'd like to discuss your situation with an experienced securities regulation lawyer, please contact us. Note that because we receive so many contacts about Form U4 issues, Joel charges a consultation fee for these matters; he does not have the ability to address the numerous requests for a “quick question and answer” that he receives concerning U4 matters.
You'll also find a wealth of other information about the Form U4 on our blog, as well as our YouTube channel.