Protect Your Employment Record (Form U-5) By Negotiating Your Termination Language

We’ve counseled several advisers who didn’t appreciate the importance of maintaining a “clean” Form U-5 – until prospective employers and customers started asking about it!

Remember the U-5 basics.  Firms have 3 termination options: “Voluntary”, “Permitted to Resign” and “Discharge”.  It is important that the U-5 be marked Voluntary if at all possible.  Permitted to Resign sometimes is used for a “mutual” decision for the adviser to move on, and other times for special circumstances.  Discharge always is a red-flag, both for prospective new employers as well as the regulators (who often follow up with their own inquiries to advisers).

Moreover, both Permitted to Resign and Discharge require firms to explain the reason for the termination.  This is where competent, knowledgeable securities legal counsel can assist negotiate an explanation (and sometimes the type of termination) which is as innocuous as possible.  Note that time is of the essence as firms have 30 days to file the U-5 and most firms file it sooner.

Finally, advisers do have some negotiation leverage in all of this.  That’s because the U-5 must be accurate and complete.  A few states (wrongly) have given firms an absolute privilege (immunity) to file what they want without legal consequence, but the great majority of states allow advisers to sue for U-5 defamation and to seek damages and other relief (such as changing the official language of the Form U-5 both in terms of the type of termination and the explanation for the termination).

With employment records being publicly available, advisers need to protect their very best asset: their reputation.