What to do if you get a Form U5
As Wall Street has become more regulated, compliance departments have become more vigilant. As a result, more financial advisors are receiving a “Finra U5” or Form U5 and being terminated. Infractions which in the past might have been handled by a slap on the wrist can now end up costing you your job. Firms historically tended to protect their own, but these days they are more likely to err on the conservative side and set an advisor free. Let’s not debate the merits of today’s higher standards, but instead, discuss what you should do if you are fired. Understand that the chances of being terminated have increased from a remote possibility to a harsh reality. As such, it makes sense to have a well thought out game plan in case the unthinkable occurs. The first thing to remember is to avoid knee-jerk reactions and have a tactical approach. One’s first post-termination instinct is to call the host of managers who have been aggressively recruiting you. They all would like to hire you, and will be happy to meet with you. Your termination is great gossip, and inquiring minds want to know! You soon learn, however, that most firms cannot bring you aboard until they have seen the language on your form U5 and it has been reviewed and approved by their compliance departments.
Form U5 Termination Reasons
As it turns out, this U5 language which is filed by your old firm is a vital piece of information. The Form U5 is the document that a firm sends to FINRA and its contents are then recorded on your U4 or permanent FINRA record. What is written on your U5 will have a lot to do with who, if anyone, will employ you in the future. So rather than meeting with your friendly local managers, the first order of business is to secure a knowledgeable attorney to help negotiate this important U5 language. You may be inclined to seek out a prominent employment attorney, but that most often is the wrong option. A terminated advisor is better represented by a lawyer well-versed in securities law. It is best to find one who has successfully worked with your former firm’s legal and compliance departments. Most of the employment specialists we have dealt with have no experience negotiating U5 language and don’t know what to ask for or accept.
Form U5 Voluntary Termination is the Best Possible Outcome
Your former firm must classify your departure in one of three categories. If they decide to describe the parting as “voluntary” you will be in the best possible negotiating position. Basically “no harm, no foul.” The firm may elect to color your separation as “permitted to resign.” No one can give an absolute definition of what that means, but it is generally understood to be code for a minor offense. Because firms in today’s environment feel the need for complete disclosure, this category has become virtually a thing of the past. Finally, the harshest category “terminated,” is the most frequently used these days to describe a separation. With a termination classification, firms are required to list the reason(s) for their action, and this becomes your Form U5 language.
What Not to Do
Many fired financial advisors think they have a meaningful wrongful termination case against their previous firms, but that is usually not the best course of action. It takes many months before such a claim makes its way to arbitration, and by then most advisors we have assisted have found new firms and are thriving. If your career seems back on track, arbitration panels are unlikely to find in your favor. Because of that, we typically urge fired advisors to hire a securities law expert and focus on getting the best possible U5 language. Most top-tier firms cannot make a hiring decision without the U5 disclosure, and unfortunately, your former firm has up to 30 days to make that filling. If you choose to negotiate prior to disclosure, it can be difficult to explain precisely why you were let go. The negotiated explanation often tells a different story than the reasons your former manager or compliance officer gave you on your way out the door. So sometimes the early interview results in an explanation that conflicts with the official report. Such conflicts hurt credibility and are detrimental to a potential deal.
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What to Do
So what are the best practices during the waiting period? First and foremost, talk to your clients. They are likely being solicited by your former colleagues, and you need to stay involved and let them know your situation. If the advisors who have been assigned your accounts are making slanderous comments about you and your separation, relay that information to your lawyer and let him communicate with your former firm. Don’t make the mistake of calling those advisors or your former manager. Your lawyer may be able to use this information to help negotiations, but your involvement could well turn emotional and detrimental. Since you are not in a position to give specific investment advice, it makes sense to stay in close contact with your clients. Tell them what you can about your separation and plans for the future. If they don’t hear from you, many will assume the worst. Some terminations require a different strategy. If your violation will likely exceed the tolerance of major firms, you would do best to seek out that group of potential employers who will be most open-minded about your situation. If the U5 outcome is very uncertain or you and your clients simply cannot wait, you may be best advised to proceed with firms willing to hire before your U4 is generated.
Surround Yourself with Trusted and Experienced Advisors
The best way to make these important decisions is to form a team of trusted and experienced professionals. Find a recruiter who has significant experience with terminated advisors and also has deep relationships with a large sample of firms. Select an attorney who has a successful track record helping advisors to achieve the best possible language. It is important to build your team immediately but take the time to be sure that you have the right teammates. You will be spending a lot of time with them in the coming weeks, and if you have assembled the right group, together you will be making the best choices. Together, you can tackle all the important issues—including financial matters. If a financial advisor owes his firm money in connection with a transition or retention obligations, this matter must be addressed. When you separate from your firm for any reason, including termination, you will be expected to pay the balance of any outstanding notes. Sometimes your attorney can negotiate a more favorable settlement. Know that an unsettled note will not preclude you from starting with a new firm. In many instances, your new firm might be willing to offer upfront money to help you withstand the financial storm. Yes, there may be a pot of gold at the end of this ugly rainbow! If your Form U5 language is acceptable to mainstream firms, you will likely receive competing offers that will help you settle any outstanding obligations and possibly even put some money in the bank. This happy ending is reserved for those who executed a solid plan. So if the unthinkable occurs and you are terminated, establish your team and proceed judiciously. Your fate is in the hands of your former firm’s legal department. As a result, it is imperative that you get quality legal representation. Your attorney will help you get an early determination of how your departure will be characterized. And you and your recruiter can begin to craft your interviewing approach that takes you to a new beginning.