Form U5 Is A Powerful Weapon Part I

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This is the first in a three-part series on broker U5 forms.

When a brokerage firm wants to intimidate a broker, nothing works better than the Form U5 Notice of Termination whereby firms disclose the reasons for brokers leaving. For the broker, U5’s threat of disclosure is a game of brass knuckles shining down a dark alley, the slam of a tire iron against a meaty palm.

Using it in this way, according to industry sources, speaks to an ultimate power imbalance between employer and employee, which plays out after an employee leaves and, once filed, is very difficult, if not impossible, to remedy. Many see this looming threat as one of many incentives for more brokers to drop their securities license altogether and migrate to the RIA world, where such practices are less commonly used by employers.

“Advisors are terrified of what may happen. Having something negative recorded on a U5 is a big thing,” said attorney Laurence Landsman, founder of Landsman Saldinger Carroll in Chicago, a law firm specializing in representing brokers and advisers in all areas of career transition. “Every week I am contacted by someone who has been made redundant. There is so much movement in this industry that Registered Representatives need to understand what their rights are. And they have rights. They have protections. But it’s easy to get tricked by companies, and the results can be heartbreaking.

If a broker or dual-registration hybrid RIA thinks they are about to be fired, their next decision is the most important they will ever make. Even if they’re just considering moving from one company to another or hanging their own shingle, the next move can be critical to their ability to work in the industry.

“If something starts to feel bad, or if something is wrong with the business, or if you know you’re headed out, get a lawyer,” advised Jodie Papike, president of Cross- Search in Encinitas, California, a financial company. service recruiter that helps brokers get to their next location. “You can’t wait for the U5 to be dropped off. It’s so rare to be able to change that. It takes so much time and money to push back.

According to sources interviewed for this three-part series on Form U5 and its impact on the financial services industry, layoff – what other industries simply call job separation – produces a dynamic ripe for potential abuse. , where a broker with a clean track record simply leaving to join another company can get similar treatment to a bad actor embezzling client funds for personal gain.

A broker-dealer has up to 30 days from a broker’s departure to file Form U5, which will outline the company’s explanation for the break. If the circumstances involve a client, the company’s version is immediately registered on BrokerCheck, a popular directory of broker records used by clients and potential employers. The release of BrokerCheck occurs even though the broker has a very different version of events and has filed for arbitration.

“Getting fired in the financial industry is not like getting fired in any other industry. If a company sells straws, you’re a salesman, and you’re fired, no one will know. You can go to another straw company,” Landsman said. “In fact, even if someone called your old employer, they couldn’t figure out why you left.

The reason, of course, is that brokers deal in money, especially other people’s money, and BrokerCheck is ultimately (and rightly so) designed to protect investors. But industry sources say there’s a gray area stretching between the flawless Boy Scout and the Bad Actor who deserves jail time, and too many brokers are getting stuck there, people who shouldn’t have to spend up to two years of their careers and up to six figures fighting what may be nothing more than an allegation.