“If someone did something deliberately unethical, I obviously won’t work with them,” she said. “But it’s surprising how many situations there are where that’s not the case. Maybe the advisor messed up, but had no intention to harm. Maybe it was a paperwork issue, or they cut a corner but it was because the client asked them to.”
All brokers caught up in a U5 conflict face the same set of choices, and the first question to answer is whether it’s worth investing in challenging the termination notice. Knowing that there’s only a 51% chance of reversal and the facts leading to the termination must be false, with no mitigating factors, it might be time to put pride aside.
For example, Diamond said there was a tremendous increase in the number of brokers being terminated when they helped out a client with “docusigning” at the beginning of the Covid-19 pandemic.
“Advisors were logging into client accounts to help them, because clients didn’t know what to do,” he said. “If you’re in this situation, my job is to get you into the best possible firm in the quickest amount of time. The brokers who do the best are the ones who are from the jump incredibly contrite and apologetic, and kicking themselves for what they did wrong.”
Papike agreed. “These brokers have to salvage what they can, while they can, in order to make it,” she said. “It’s a really hard decision, but it’s usually not worth it to go up against a firm with unlimited resources for two years.”
Instead, Papike and Diamond follow a “next-spot plan,” sifting through the thousands of broker-dealers in the employment universe to find a good match. For those advisors who want to continue working for someone else, that’s still a viable career track, though some adjustment might have to be made.
“A lot of top firms have a don’t-take-a-terminated-person-under-any-circumstances policy,” Diamond said. “And maybe it takes the advisor being turned down a few times to realize the top-tier firms aren’t interested. Of course it hurts. But we hope to get you eight offers and then you choose the best from among the firms willing to take a terminated advisor.”
If terminated brokers have a history as $2 million producers, such firms might still see them as highly appreciated assets, Diamond said. Still, he warned, depending on the circumstances of the termination, it may be hard or impossible to get hired by a Finra-member firm. In those cases, he suggests, the best course might be dropping the Series 7 securities license and going into an RIA as an advisor.
Brokers who left their employer to start their own firm, or who decide that opening a solo shop is what they want to do after termination, will find the regulatory hurdles a little higher when having to address a blemished U5, which adds time where the broker cannot service his or her clients.
“I can’t overemphasize how traumatizing it is,” Papike said. “It used to be Finra was more difficult, but now individual states’ regulation is a long daunting task, and I’ve seen advisors treated like they’ve done something wrong before [they are even done with the process]. It’s no one’s fault. The states have staffing issues. There just aren’t a lot of folks within state registration departments. It doesn’t sound like that much of an issue, but when an advisor’s registration is held up, a day feels like a year.”
Whatever the strategy, it will take work and patience for a rep to stabilize a career after a defamatory U5 filing. A far better option, along the lines of an ounce of prevention equaling a pound of cure, would be for a rep to red-flag anything that might be misconstrued or blown out of proportion and consult with personal counsel while they are still with a firm.
“We get the calls when something is happening, or even after it’s happened,” Lax advised. “It would be better to get the call before. Just a quick, ‘What do you think?’ It could save a lot of time, money and stress.”
Part I – Deep-pocketed firms can wield the Form U5 like a cudgel.
Part II – A lack of brokerage accountability can turn careers to dust.
(A condensed version of this story ran in the April 2022 issue of Financial Advisor magazine.)