By George C. Miller, Partner of Shustak Reynolds & Partners, P.C. posted on Friday, October 27, 2023.

George C. Miller

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 105)
Direct: (619) 501-8270
Email: [email protected]

Being fired is never easy, but it is a particularly challenging and uncertain time for licensed financial advisors and their clients. Within 30 days of the termination, the advisor’s prior firm must file a Form U5 with the Financial Industry Regulatory Authority (FINRA), which provides information about the circumstances of the termination. In this blog post, we explore what advisors can expect if they are fired and the implications of the Form U5 filing.

Understanding the Form U5

The Form U5 is a regulatory filing financial firms must complete when a registered representative is terminated or otherwise leaves their employment. It includes information about the reasons for termination, any allegations of wrongdoing or pending investigations, and other relevant details. FINRA member-firms must file the Form U5 via FINRA’s CRD system and maintain accurate records of the advisor's employment history and any associated disclosures.

Seeking Legal Counsel

First and foremost, it is critical for any terminated financial advisor to seek the advice of experienced counsel. An experienced FINRA attorney can provide guidance on navigating potential legal ramifications of the termination, analyze potential wrongful termination claims, and take steps to protect the financial advisor’s professional reputation.

Notifying Clients

Upon terminating an affiliated financial advisor, the firm is responsible for notifying affected clients. Clients may receive a letter explaining the termination (or, at a minimum, disclosing that their chosen advisor is no longer affiliated), and providing information about what happens next. Subject to regulations limiting communications by unlicensed advisors, it is important for advisors to proactively communicate with clients during this time to address any concerns and offer reassurance.

The Impact on Existing Client Relationships

A termination can raise obvious concerns for clients who have developed a relationship of trust with their advisor over time. Clients may have questions about the circumstances of the termination, the continuity of their investment strategy, or the availability of ongoing support. Advisors should be prepared to address these concerns honestly and transparently to maintain client trust.

Regulatory Review

Upon the filing of the Form U5, FINRA will review the termination and associated disclosures. For terminations involving investment-related conduct or alleged sales practice violations, the advisor should anticipate that FINRA will conduct an 8210 inquiry, which could lead to a formal enforcement action. It is critical to work with counsel in responding to any regulatory inquiry and understanding how FINRA may approach a potential enforcement action. Financial advisors should be prepared to work with counsel to provide any requested documentation or information promptly.

Updating Employment History

Form U5 becomes a permanent part of an advisor's employment history. It will be disclosed to potential employers and may factor into hiring decisions. Advisors can comment on a termination disclosure, or, if it is inaccurate, may challenge that disclosure through a FINRA expungement proceeding. Advisors should make it a point to update their records to accurately reflect the circumstances of their termination.

Rebuilding and Moving Forward

Despite the challenges and stigma associated with termination, most financial advisors will have an opportunity to rebuild their careers at a new firm. It is important to reflect on lessons learned, focus on personal and professional development, and address any weaknesses or areas for improvement. Taking steps to rebuild trust with clients and industry peers is crucial for moving forward successfully.

Conclusion

Financial advisor termination is a complex and challenging experience. By understanding the implications of the Form U5 filing, seeking legal counsel, maintaining open communication with clients, and taking proactive steps to rebuild, advisors can navigate this period of transition and move forward in their careers.

Shustak Reynolds & Partners, P.C.’s experienced California FINRA, securities and financial services lawyers are well versed in the financial services industry.
We routinely represent brokerage firms, registered representatives and registered investment advisory firms (RIAs).  
Attorney George C. Miller can be reached at (619) 696-9500.

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