“He had already started his new job when he heard about it, so he took in a copy of the claim to explain the situation, and the new firm terminated him three days later. On the U5 it said because he failed to disclose the complaint. But he had no idea,” Landsman said. “He couldn’t find a job for a year.”
Despite these criticisms that the system isn’t working fairly, there may not be enough industry will to push for change on behalf of what amounts to roughly 100 careers a year. When contacted for an interview to discuss its policies and any concerns that the regulations may be inflicting collateral damage, Finra declined.
Through its head of public relations, Ray Pellecchia, the agency released the following written statement: “Firms are required to provide timely, complete and accurate information on Form U5 (the Uniform Termination Notice for Securities Industry Registration). To protect investors and help ensure the accuracy of this information, Finra closely examines for compliance with this obligation and investigates when termination notices indicate potential rule violations.”
Industry professionals who are passionate about employment law in financial services were underwhelmed by that position.
“Finra is certainly charged with protecting the interests of investors, and that is a proper focus of its overriding attention,” Landsman said. “But that goal should not come at the expense of the livelihoods of good advisors who are regulated by Finra and over whom the regulator maintains career life-and-death influence. Investors are not protected when advisors are wrongfully accused of misconduct. Finra must find the proper balance between investor protection and advisor integrity.”
The professionals representing brokers offer a variety of possibilities for making the disclosure process more fair. One recruiter suggested a fast-acting, emergency review board that could look at the U5 language and the broker’s side to make a quick determination about whether the broker deserves another shot at the industry or not. A lawyer suggested Finra make it cost-prohibitive for a firm to lose a U5 challenge by automatically levying a $350,000 fine.
“I would go further,” said Landsman, “to suggest when firms lose such arbitration cases, they should be required to pay the advisors’ full attorney’s fees in addition to paying the advisor an additional defined sum as a penalty, rather than a fine paid to Finra. That would be in addition to any damages suffered by the advisor. Whether the penalty is $350,000 or another amount, it should be enough to compel the firm to engage in a critical review of its decision-making process in connection to the termination of an advisor and the related U5 disclosure.”
Hope for change aside, brokers caught up in U5 disputes one way or another have to choose a path forward, and a well-considered strategy can be the difference between finding new footing in the industry or changing careers entirely.
Watch for Part III of the series later this week: "Choosing A Path Forward When Next Steps Are Limited."
Read a condensed version of this series in the April 2022 print issue of Financial Advisor magazine.