FINRA Expedites Public Disclosure of Advisor Terminations

FINRA Expedites Public Disclosure of Advisor Terminations

The Securities and Exchange Commission recently approved the Financial Industry Regulatory Authority’s plan to reduce the previously established 15-day waiting period to publish details of advisor terminations and investigations on its BrokerCheck system, according to a regulatory notice published Monday. Starting Dec. 12, FINRA will only have to wait three business days before publishing the information.

But the change could create complications for advisors.

“The fact that it’s now three days is great for the public,” said Bill Singer, a securities attorney representing firms, advisors and customers and author of the BrokeAndBroker.com blog. “There’s no real reason why these things can’t be posted in three or four days. The problem is that the process is not fair for brokers.”

The original waiting period was set up to give advisors the opportunity to comment on any reported disclosure events. But FINRA believes the current waiting period could provide investors with an “incomplete picture” of an advisor’s history during the delayed reporting time. 

“In such cases, the broker may not be aware of all the facts and circumstances involving the disclosure event and may therefore provide only limited details about the event. In addition, some brokers may attempt to intentionally reframe the circumstances surrounding the event to put it in a light that is most favorable to the broker,” the regulator noted in its proposed rule change in September

FINRA believes the proposed three-day waiting period is more reasonable, saying it provides investors with quicker access to advisors’ disclosure information.

“We know that the U5 info can often have some meaningful information for clients,” said Don Runkle, director of consulting services at Edgerton & Weaver. “If they are considering moving to a new firm with their rep, and they check BrokerCheck and see nothing about the circumstances of the rep's termination from their prior firm, that could be seen as a real shortcoming to the BrokerCheck system.”

Advisors will still be provided with the opportunity to comment on any reported events under the new rule. And, 99 percent of the time, the changes will be a non-issue, Runkle said. But some brokers do justifiably dispute what a firm puts on a U5, and some advisors may not get their objection or response submitted before the update to their record goes live.

“I don't think this will happen often, but when it does, some reps aren't going to be happy about it, and if they are in the right with their objection to the U5 language, it will certainly appear like the rights of reps were hampered a bit in the interest of getting info out to the public 12 days earlier,” Runkle said. 

The problem with the new timeframe really goes back to the process for terminated advisors to dispute a firm’s filing within the central licensing and registration system (CRD), according to Singer. “They’ve come up with such a Byzantine system for a registered person to complain about a U5 or CRD filing, that it’s virtually impossible to get your side of the story up in a timely manner,” he said.

Some firms do give former advisors an opportunity to see what they are going to put on the U5 before they submit it, Runkle said, noting that many work with advisors to reach a middle ground before it escalates into a legal dispute. But, not all firms do this, depending on the specific facts and circumstances, so advisors may not see the U5 until it is already public.

And once terminated, brokers are no longer registered and may not have access to the CRD. Some wait until they are hired at another firm and then work with their new compliance department to address the issue; others work with their previous firm. FINRA also currently provides advisors the option to submit a request to add a comment to their BrokerCheck record, as well as dispute or update the accuracy of information listed. In many cases, advisors hire an attorney to address the issue. 

“If you’re going to accelerate it, then at least accept the fact that there has been a history of abuse in these filings and try and do something to make the process more responsive to legitimate complaints,” Singer said.

FINRA did not immediately respond to questions Monday on whether it planned to implement any changes to help advisors with complaints about their records under the new filing process.  

The change could help some advisors when changing firms or looking to go independent, said Mindy Diamond, president and CEO of recruiting and consulting firm Diamond Consultants. Most firms do not want to bring on individuals while things are unsettled.

“We are working right now with a high quality, terminated advisor who is going crazy while he waits for his firm to publish details,” Diamond said.

The advisor was with a major b/d, but now wants to launch his own hybrid RIA and find a brokerage firm to process the small commission business he plans to continue. But even the custodians won't accept him until the U5 is filed, Diamond said.

“The people being hurt the most are the advisors’ clients who are in limbo while the firm takes their time,” she added. 

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