Broker-Dealer Agents: Clearing Your Name on a Form U5

Dec. 14, 2017

When a broker-dealer firm ends its relationship with a registered representative (“agent”), the firm must file a Form U5 with FINRA and state regulators notifying them of the agent’s departure.  When completing the form, firms must classify the agent’s departure in one of several ways: “discharged,” “other,” “permitted to resign,” “voluntary,” or “deceased.”  If the firm selects one of the first three options, it must also include an explanation providing reasons for the termination.


Typically, this explanation is provided via a terse phrase or two meant to succinctly summarize what may be a complex set of facts and circumstances preceding the agent’s termination. Because the explanation is drafted by the firm doing the terminating, it can also seem one-sided, shifting the blame towards the individual and away from the firm.  The firm’s explanation becomes part of the agent’s BrokerCheck report, meaning it is accessible to anyone with Internet access—including clients and potential employers.  This can create enormous stress for the terminated agent, who might perceive the former firm’s comments to be a black mark or ball and chain preventing the agent from moving forward with his/her career.


If you find yourself in this sort of situation, don’t panic.  There are a few things you can do to try to minimize any damage resulting from negative U5 comments on your record.  Before taking any of the following actions, you should first consult an attorney familiar with FINRA rules and state securities regulations for guidance.


1.    Talk to the firm before they submit the U5


The most important thing you can do is to try to influence how the firm characterizes your departure.  The best way to provide this influence probably does not include yelling at or pleading with your former manager.  Rather, think through defenses you have to any allegations that led to your termination, and present them to the right person (probably a compliance officer) in a rational, objective way. If possible, support your defenses with references to FINRA rules or other applicable regulations.  (Again, a securities attorney can help with this.) The sooner you contact the firm the better—the firm is required to submit the U5 within 30 days of your departure.


2.    Request an amendment to your BrokerCheck report


If you are upset about how the firm characterizes your termination, you can request that FINRA amend your BrokerCheck report while you are in an unregistered status to include your side of the story.  To do so, complete, sign, and notarize this form.  FINRA has discretion as to whether or not to honor your request, making it important to be careful to follow the instructions on the form and not include any confidential, inappropriate, or potentially defamatory language in your comments.  You should also be succinct and rational in drafting your response—remember, this may also go on the public record accessible to your clients and potential employers.

3.     File an arbitration claim


If you are unsuccessful in either of the above attempts, you can file an arbitration claim against the firm seeking monetary damages and/or “expungement” (removal) of the offending language.  Navigating FINRA’s arbitration process is time-consuming and expensive, and it may ultimately not lead to any result beneficial to you.  But, it is likely less time-consuming and less expensive than litigating a wrongful termination or defamation claim in court. More information on FINRA’s arbitration process is available here.

 4.    Try to move on


Finally, if nothing else, be proactive about moving on with your career, and don’t despair over what may not be as big a problem as it may seem.  No one likes having negative information on their record, but being terminated by one firm does not automatically disqualify you from being hired by another. When communicating with potential employers, be ready with an explanation that shows you have learned from the experience, and focus on the many benefits you can bring to that new firm looking to hire and the clients you aim to serve.

Written By:
Brian Edstrom

Brian Edstrom is a Shareholder and Attorney at Avisen Legal, P.A. He brings to Avisen clients the ability to “speak regulator,” having spent several years working for federal and state regulators in Washington D.C. and Saint Paul, MN before entering private practice. Brian assists clients in all aspects of working with securities regulators, whether it be to obtain a license or registration, prepare for an audit, or respond to an enforcement investigation.  Brian also regularly advises clients on their general business needs, particularly surrounding raising money through securities offerings.

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