How to Write a Form U-5 Disclosure for the Termination of an Investment Adviser Representative
How to Write a Form U-5 Disclosure for the Termination of an Investment Adviser Representative
Filing Form U-5 (Uniform Termination Notice for Securities Industry Registration) is a crucial regulatory step for registered investment advisory (RIA) firms when terminating an investment adviser representative (IAR). Whether the termination is voluntary or involuntary, RIAs must complete Form U-5 accurately and in compliance with regulatory expectations to avoid potential legal and reputational risks.
Understanding Form U-5 and Its Importance
Form U-5 is filed with the Financial Industry Regulatory Authority (FINRA) and/or state securities regulators to disclose an IAR’s departure from an RIA firm. It serves multiple functions, including:
Informing regulators and prospective employers of the nature of the termination.
Helping regulators track potential misconduct or compliance concerns.
Ensuring transparency and accountability in the financial services industry.
Failing to complete Form U-5 properly can lead to regulatory scrutiny, legal challenges, or potential reputational harm for both the firm and the departing IAR.
Key Sections of Form U-5
When completing Form U-5, firms should focus on the following critical sections:
1. General Information
Include the IAR’s name, CRD number, and the firm’s identifying details.
Indicate whether the termination is full or partial (e.g., withdrawal from certain jurisdictions).
2. Reason for Termination
Select one of the following termination reasons:
Voluntary – The IAR resigned or left the firm on their own accord.
Deceased – The IAR passed away.
Permitted to Resign – The IAR resigned under circumstances that may raise compliance concerns.
Discharged – The IAR was terminated by the firm.
Other – A reason not explicitly listed above (requires additional explanation).
3. Termination Explanation (if applicable)
If the termination is categorized as Permitted to Resign, Discharged, or Other, a firm must provide a brief but factual explanation.
Avoid vague, misleading, or overly general language.
Example:
Acceptable: “The representative was discharged due to non-compliance with firm policies regarding outside business activities.”
Unacceptable: “The representative did not meet firm expectations.” (This lacks specificity.)
4. Regulatory and Criminal Disclosures
Firms must disclose whether the IAR was the subject of an investigation, regulatory action, criminal charge, or civil litigation at the time of termination.
If “Yes” is selected, provide details in the required disclosure section.
5. Signature and Submission
Ensure the form is reviewed and signed by an authorized representative of the firm.
Submit the form through FINRA’s Web CRD system within 30 days of termination.
Best Practices for Drafting a Form U-5 Disclosure
Be Objective and Factual
Stick to facts and avoid opinions or speculation.
Use clear, concise language without unnecessary embellishment.
Ensure Consistency with Internal Records
The disclosure should align with internal HR documentation and compliance records.
Avoid Defamatory or Misleading Language
Overly negative or accusatory language can lead to defamation claims from the former IAR.
Firms should balance transparency with professionalism.
Consult Legal or Compliance Teams When Necessary
If an IAR’s termination involves misconduct, a regulatory investigation, or legal matters, legal counsel should review the disclosure before submission.
Monitor Post-Termination Obligations
Firms should remain responsive to any follow-up questions from regulators regarding the termination.
Conclusion
Filing Form U-5 properly is essential for ensuring compliance, protecting the firm’s reputation, and maintaining regulatory integrity. By adhering to best practices—providing factual disclosures, avoiding vague language, and ensuring consistency—RIA firms can navigate the termination process effectively while minimizing risks. When in doubt, seeking guidance from compliance professionals or legal counsel can help ensure accuracy and regulatory adherence.
