Wealth Advisor Institute Calls for Reforms of the U-5 Termination Process For Brokers

The Wealth Advisor Institute wants the way U-5 termination forms are filed to be reformed. The forms are used for reporting information about why a broker has left a firm. A copy of the form then has to be given by the broker to a new employer.

The WAI called on NASD (Now part of FINRA) to make the reforms after the New York State Court of Appeals gave total legal immunity to the information that firms choose to include on U-5 forms. This means that under New York law, brokers cannot obtain monetary damages in rulings involving U-5 defamation cases. An appeals court in California issued a similar ruling regarding U-5 forms two years go.

The WAI says it was appalled by the New York Court’s decision and expressed worries “advisers can end up getting sold out” by their firms.

The WAI issued a paper last month outlining several modifications it wants made to the U-5 process:

• Require that brokers be informed of any suggested U-5 language and why the specific wording is being used.
• Provide representatives a means of challenging the language that is chosen.
• Set up an unbiased review board to oversee and resolve disagreements regarding U-5 filings.
• Set up a “fast track” expungement process that will allow any false records to be cleared quickly.
• Have FINRA (Financial Industry Regulatory Authority Inc) send a notice to members that clearly delineates what the reporting standards are for investment firms so that filings will be accurate.
• Issue automatic fines to employers over misleading or inaccurate filings.
• Reimburse legal fees to representatives that are involved in these disputes.

FINRA says that it does not have the authority to rule over employment and business disagreements between firms and registered representatives. Arbitration panels and courts are generally in charge of these kinds of disputes.

WAI has also recently addressed illegal late trading activities involving mutual fund shares.

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Related Web Resources:

Adviser group pushes for U-5 reporting reforms, Investment News, August 6, 2007

Wealth Advisor Institute