Executive Summary
All Investment Adviser Representatives (IAR) of registered investment advisory firms are required to file Form U4, a regulatory filing containing public disclosures of certain information about financial professionals. And while IARs are responsible for keeping their own Form U4 up-to-date, Form U4 – unlike other regulatory forms like Form ADV that require an annual amendment – doesn’t need to be amended unless there is a change warranting an update, which can often lead to an IAR’s Form U4 being neglected over years or even decades, potentially becoming out-of-date if the IAR forgets to amend the form for any changes to their situation. Which means that, in order to fulfill their regulatory responsibilities for maintaining the accuracy of their Form U4, IARs (particularly those who haven’t looked at their Form U4 in a while) can benefit from a deeper understanding of Form U4 in general and from refreshing themselves on what’s in their own Form U4.
In this guest post, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal LLC, breaks down the key details of what’s included on Form U4, common missteps that may trip up IARs in their filings, and best practices for preparing and filing Form U4 with state and Federal regulators.
One of the first challenges in preparing Form U4 is understanding which sections to complete: Because Form U4 is used by both IARs and registered representatives of broker-dealers, some sections of the form aren’t applicable for those registering solely as IARs. And when completing the sections of Form U4 that they are responsible for, IARs may come across language that is ambiguous or even conflicts with the language used on different regulatory forms. For instance, while some IARs who are independent contractors with their firms may be considered “employees” for the purposes of the firm’s Form ADV, they would still need to classify themselves as “independent contractors” when completing their Form U4.
Additionally, IARs and their employers may need to familiarize themselves with the requirements of the state(s) in which they’re registered to properly complete Form U4. For example, some states require registrants to be fingerprinted before approving their registration, and some have different rules for dually-registered IARs, which may only allow IARs to be registered with RIAs and broker-dealers if they are affiliated with each other – or may not allow dual registration in any case. And because IARs generally cannot solicit new business or render investment advisory services until their registration has been approved by their applicable states, any hangups in the registration process caused by incorrectly filling out Form U4 can leave the IAR unable to do their job for several weeks or more.
Ultimately, even though many IARs rely on their compliance departments to handle their Form U4, IARs are still responsible for reviewing and ensuring the accuracy of their Form U4 and for making sure that any required updates are reflected on the form (either by amending the form themselves or by notifying the proper compliance personnel at their firm). Additionally, it’s worth remembering that, save for certain personal information like home addresses and birthdates, much of the information on Form U4 is made public on the SEC’s website. Which makes it all the more important for IARs to ensure Form U4 is up to date and that the way they are presenting themselves to current and potential clients in public – including content on their website, advertisements, and social media post – aligns with their (also publicly available) regulatory disclosures!
If the Form ADV is the most important regulatory filing for a registered investment adviser firm, the Form U4, also known as the Uniform Application for Securities Industry Registration or Transfer, is the most important regulatory filing for its individual investment adviser representatives. Form U4 is a unified form filed electronically through the FINRA Gateway that is used to register representatives of broker-dealers, advisory firms, and issuers of securities.
Yet, at least in my experience, it is also the filing that collects the most dust and is most likely to be out of date in comparison to the other filings required of an advisory firm. FINRA itself (and indirectly the SEC) has also apparently relegated the Form U4 to the rafters of its garage, as neither the Form U4 nor its associated instructions has been materially updated since 2009.
Be that as it may, an individual cannot become registered as an Investment Adviser Representative (IAR) of an advisory firm without Form U4, and all IARs are under an ongoing duty to ensure their respective Form U4s are accurate and up to date. I’m guessing many readers of this article haven’t peeked at their U4 in years, and during that time, may have moved, obtained a new professional designation, started a side hustle, or have maybe even made a compromise with creditors or filed for bankruptcy – all of which are required to be reported on Form U4.
The goal is to bring the Form U4 down from the garage rafters, blow the dust off, and flesh out both common missteps and best practices in the process (as applicable to IARs of advisory firms that are not otherwise associated with a broker-dealer or self-regulatory organization, such as FINRA or any registered clearing agency).
Common Myths About Form U4
While the intent of this article is both to educate advisory firm personnel with respect to the preparation and filing of Form U4 and to empower Investment Adviser Representative (IAR) registrants to review their own Form U4 with a keen eye before signing on the dotted line, let’s first dispel a few common Form U4 myths I’ve encountered over the years:
- No, Form U4 is not just for registered representatives of broker-dealers. It is also applicable to investment adviser representatives of registered investment advisers as well. Certain sections are only applicable to registered representatives of broker-dealers, and certain sections are only applicable to IARs of advisory firms, but the same basic form is used across the brokerage and advisory industries. There are no separate versions of Form U4 for broker-dealers and investment advisers. Broker-dealers and advisory firms associate individuals with their firms using the same Form U4.
- No, FINRA does not automatically have jurisdiction over IARs that have filed a U4, even though FINRA is, for all intents and purposes, the author of Form U4 and Form U4 is submitted through a FINRA-branded website (the “Central Registration Depository” or “CRD,” which has partially rebranded to the “FINRA Gateway”). IARs not otherwise associated with a broker-dealer remain under the jurisdiction of the states in which they are registered (and the SEC, for IARs associated with an SEC-registered advisory firm).
- No, Form U4 cannot be used to register an IAR without designating an advisory firm with whom the IAR will be registered. In other words, only an advisory firm that is already registered (or in the process of registering) can file Form U4 on behalf of an individual to associate that individual as an IAR. An individual cannot be registered as an IAR in the ether without an advisory firm.
- No, the SEC itself does not technically require the submission of Form U4 for IARs of SEC-registered advisory firms. Thus, all else being equal, the SEC will approve a new registration application for an advisory firm even if no Form U4s have been filed to register any IARs of such advisory firm. It is solely the states that ultimately govern the qualification and registration of IARs via Form U4, both for state-registered and SEC-registered advisory firms. The SEC itself does not require the registration of IARs, as it does not have such a statutory mechanism to do so, but states do have such a statutory mechanism that applies to IARs of both state-registered and SEC-registered advisory firms.
Structure Of Form U4 Relevant To IAR-Only Registrants
Because Form U4 is used to register so many different types of individuals with so many different jurisdictions and Self-Regulatory Organizations (SROs), a decent chunk of it is simply inapplicable to IAR-only registrants. For example, IAR-only registrants can ignore Section 4 (“SRO Registrations”) and typically Section 7 (“Examination Requests”) as well. What’s left are the following sections to be completed on behalf of an IAR-only registrant:
Section 1: General Information
Think of this section as a summary section that primarily captures the IAR registrant’s name, CRD number, Social Security number, employment date with the advisory firm, address of employment, and classification as an independent contractor (if applicable).
Section 2: Fingerprint Information
IAR-only registrants can ignore the headings entitled “Electronic Filing Representation” and “Exceptions to the Fingerprint Requirement,” as they are solely required to respond to the affirmations under the heading entitled “Investment Adviser Representative Only Applicants”.
If the state(s) in which the IAR registrant is seeking to become registered as an IAR require fingerprinting as a condition of registration (only a handful of states do), then select the radio button that states the following:
I am applying for registration in jurisdictions that have fingerprint card filing requirements and I am submitting, have submitted, or promptly will submit the appropriate fingerprint card directly to the jurisdictions for processing pursuant to applicable jurisdiction rules.
If not, then the radio button with the statement below should be selected instead:
I am applying for registration only in jurisdictions that do not have fingerprint card filing requirements.
Section 3: Registration With Unaffiliated Firms
This section captures dual registrants that, in addition to being registered with the advisory firm filing Form U4, will also be registered either with an unaffiliated broker-dealer or another unaffiliated advisory firm while also being registered at the filing advisory firm. The term “unaffiliated” is intentionally italicized here, as registrations with affiliated firms are captured later in Section 6.
Section 5: Jurisdiction Registrations
This section is simply a list of U.S. states and territories, each with corresponding checkboxes that, if marked, indicate the IAR is to be registered in such states/territories. For a discussion of when an IAR is required to be registered in a particular state/territory, refer to this prior article.
Also – IAR-only registrants can ignore the “AG” checkbox column and instead only check applicable states/territories in the “RA” column. For whatever reason, Form U4 uses “RA” as the abbreviation for “investment adviser representative” and “AG” as the abbreviation for “registered representative” (of a broker-dealer). Intuitive, right?
Section 6: Registration Requests With Affiliated Firms
In contrast to Section 3’s focus on unaffiliated broker-dealer or advisory firm registrations, Section 6 captures registrations with affiliated firms that are “under common ownership or control” with the filing advisory firm.
Section 8: Professional Designations
If an IAR registrant currently maintains one of the following professional designations, simply check the corresponding box:
- Certified Financial Planner
- Chartered Financial Consultant
- Personal Financial Specialist
- Chartered Financial Analyst
- Chartered Investment Counselor
These professional designations are generally accepted by state securities authorities in lieu of an IAR registrant passing the Series 65 or the Series 7 + the Series 66 qualifying examinations.
Section 9: Identifying Information / Name Change
This is where Form U4 gets personal, as it calls for your full legal name, date of birth, place of birth, sex, height, weight, hair color, and eye color. This is probably a good place to note that only certain sections of Form U4 are made public through the Investment Adviser Public Disclosure website (IAPD), while other more sensitive sections (like this one) are not.
In researching for this article, however, I happened to notice the following cryptic warning in the Form U4 Instructions: “Social Security Numbers are collected for regulatory purposes and may be publicly disclosed by certain jurisdictions.” I admittedly have no idea what stars have to align for a jurisdiction to publicly disclose an IAR registrant’s Social Security number, but the warning is there, nonetheless.
IARs who want to see what information is pulled from Form U4 and made publicly available can visit the IAPD website, click on the “Individual” tab, and search by their name or CRD number. To generate a full PDF excerpt of information pulled from the individual’s U4, click on the “More Details” link and, on the page that opens next, click “Detailed Report” in the top right.
Section 10: Other Names
If you’ve changed your name or have been known by any other names since the age of 18, they should be listed here.
Section 11: Residential History
5 years of residential history without any gaps longer than 3 months in between is required in Section 11. Similar to Section 9, this information is not made publicly available through IAPD.
Section 12: Employment History
10 years of employment history is required in Section 12, including an accounting of full and part-time employment, self-employment, military service, homemaking, stints of unemployed, full-time education, extended travel, or other similar statuses without any gaps longer than 3 months in between. The IAR’s current position(s) and employer(s) should be included as well.
Section 13: Other Business
While Section 12 requires disclosure of both current and past employment over the last 10 years, Section 13 instead focuses only on current business activities other than the IAR registrant’s activities for the filing advisory firm.
There are 3 conditions that must apply to any activity for it to be considered excludable: 1) it is not investment-related; 2) it is exclusively charitable, civic, religious, or fraternal; and 3) it is recognized as tax-exempt. All other activities as a proprietor, partner, officer, director, employee, trustee, agent, or otherwise are to be included. More on this below.
Section 14: Disclosure Questions
Like Form ADV Part 1, Part 2A, and Part 2B, Form U4 also has a section dedicated to the disclosure of certain events. Such events are categorized as criminal, regulatory action, civil judicial, customer complaint/arbitration/civil litigation, termination, and financial disclosures.
This section should be read very carefully as it is littered with terms that are separately defined in the Form U4 Explanation of Terms. Affirmative responses in this section will generally trigger further responses in the Disclosure Reporting Pages (DRPs) appended to Form U4.
Section 15: Signatures
Both the filing advisory firm and the IAR registrant are required to ‘sign’Form U4 as part of the submission process, but signatures for both parties can simply be typed in by the filing advisory firm during the online submission process through the FINRA Gateway.
Note, however, that the filing advisory firm must make the following representation when typing in the IAR registrant’s ‘signature’ during the Form U4 submission process: “I have provided the applicant an opportunity to review the information contained herein and the applicant has approved this information and signed the Form U4.” In other words, the filing advisory firm should separately maintain a copy of Form U4 signed by the IAR registrant in its records.
Form U4 Common Missteps And Best Practices
As a threshold matter, it is worth reemphasizing that Form U4 is generally filed on behalf of the IAR registrant by the advisory firm (or the advisory firm’s third-party compliance partner), not by IAR registrants themselves. For a solo advisory firm owner, this distinction is naturally irrelevant (as the advisory firm owner is also the IAR registrant), but IAR registrants joining an existing advisory firm should first realize that they will likely have no involvement in actually preparing or filing their own Form U4 through the FINRA Gateway; in such instances, the IAR registrant is purely tasked with reviewing the Form U4 prepared by the advisory firm to ensure its accuracy and signing where indicated to authorize the advisory firm to file the Form U4 on the IAR registrant’s behalf.
How an advisory firm facilitates the review of an IAR registrant’s Form U4 and ultimately obtains the IAR registrant’s signature to approve the filing of their Form U4 will vary from advisory firm to advisory firm, but there are essentially 2 mechanisms to accomplish an IAR registrant’s review and signature:
- Download a draft copy of the IAR registrant’s Form U4 as a PDF from the FINRA Gateway and send it to the IAR registrant for review and electronic signature (perhaps through an e-signature service like Dropbox Sign); or
- Send a draft of the IAR registrant’s Form U4 to the IAR registrant directly through the FINRA Gateway for review, revision, and electronic signature. This intra-FINRA Gateway review and signature process requires the IAR registrant to create a FinPro account and for the advisory firm to enable the “Allow Rep Edits” and/or “E-Signature” features from within the FINRA Gateway.
The benefit of workflow #2 is that the entire Form U4 preparation, IAR registrant review, revision, IAR registrant signature/approval, and ultimate filing process are all completed within the FINRA Gateway ecosystem. The benefit of workflow #1, on the other hand, is that the IAR registrant doesn’t have to separately create a FinPro account and familiarize themselves with the FinPro system.
Notwithstanding an IAR registrant’s justified hesitation in creating yet another online account and username/password to keep track of, there are other ancillary benefits of creating a FinPro account in addition to streamlining the Form U4 review, revision, and signature process – namely, the ability to review the contents of their Form U4 and to obtain a copy of a Form U5 (Uniform Termination Notice for Securities Industry Registration) filed by a former advisory firm (or broker-dealer) on-demand.
Whether preparing a Form U4 as an advisory firm or reviewing your own Form U4 as an IAR registrant, and whether such preparation and review are done from within or beyond the FINRA Gateway, the following common missteps and best practices should be kept in mind by advisor firms that prepare Form U4s for the IAR registrants, and also by IAR registrants themselves when reviewing the information being submitted.
Section 1 - General Information
There are 3 areas in Section 1 that often lead to confusion. These include the following:
- The term “Independent Contractor”: Even though independent contractors who perform advisory functions on behalf of an advisory firm are actually considered “employees” and not independent contractors in the Form ADV Part 1 Glossary, no such distinction exists in the Form U4 instructions. Thus, a statutory 1099 independent contractor should be reported as such on Form U4 and answer “yes” to the question, “Do you have an independent contractor relationship with the above named firm?” even if that same person is counted as an employee for ADV Part 1, Item 5 reporting purposes. Heaven forbid 2 common industry filings use the same definition of terms!
- Located At/Supervised From & Private Residences: Form U4 contemplates 2 types of employment office addresses: 1) the physical location from which the IAR registrant actually works (designated as a “Located At” address) and 2) the physical location from which an IAR is supervised (designated as a “Supervised From” address). Either or both can be designated as a private residence.
For example, an IAR registrant that works from home will generally see 2 employment office addresses listed (unless the IAR registrant is a solo advisory firm owner): the IAR registrant’s own residential address as the “Located At” address and the IAR registrant’s supervisor’s address as the “Supervised From” address. If any of the addresses listed in this section are private residences, it is imperative that the “private residence” box be checked to prevent such addresses from being made publicly available through IAPD or otherwise.
- Employment Date: The date that the IAR registrant was first employed by the advisory firm should be listed here, not the date the Form U4 was drafted or the date the IAR registrant transitioned from a non-IAR role to an IAR role. If an IAR registrant has been employed by the advisory firm for several years as a non-IAR (e.g., working purely in an administrative or operational capacity), list the date that such IAR registrant was first hired by the firm in such administrative or operational capacity.
Section 2 - Fingerprint Information
For IAR registrants seeking to become registered in one or more of the handful of states that require fingerprinting, just be aware that this process can materially slow down the IAR registration approval process and should be accounted for when sequencing a new IAR’s onboarding. Remember, an individual generally cannot solicit new clients on behalf of an advisory firm or render investment advisory services to existing clients of an advisory firm until the applicable state(s) approve the IAR registrant’s registration after receiving Form U4.
Said another way, the mere filing of Form U4 does not automatically enable an IAR registrant to commence new client solicitation or existing client advising; the state has to review/approve/register the IAR registration before such activities are permitted.
In states that do not require fingerprinting, this IAR registrant review/approval/registration process can take a matter of a few days or less. In states that require fingerprinting, it can take several weeks (assuming nothing problematic is uncovered in the course of the state’s fingerprinting process). Such timeframes are especially important for IARs that are hoping to transition quickly from one advisory firm to another.
Section 3 - Registration With Unaffiliated Firms
Certain states prohibit IARs from being dually registered with more than 1 advisory firm at the same time or from being dually registered with an advisory firm and a broker-dealer at the same time. Certain states only permit dual registration if the 2 advisory firms or the advisory firm and the broker-dealer are affiliated, while others prohibit dual registration even if the 2 firms are affiliated. Welcome to the state-by-state regulatory web.
Luckily, the Investment Adviser Registration Depository (IARD) publishes a handy matrix of states’ dual-registration prohibitions. The relevant columns to review are entitled “Dual RA Registration”, which refers to registration with 2 advisory firms at the same time, and “Dual AG/RA Registration”, which refers to registration with an advisory firm and a broker-dealer at the same time (remember that “RA” refers to an IAR of an advisory firm and “AG” refers to a registered representative of a broker-dealer).
An “Always” response means the state always permits dual registration, a “Never” response means the state never permits dual registration (even with affiliates), and an “Affiliates Only” response means the state only permits dual registration with affiliates. If dual registration is important for an IAR registrant, it is worth contacting the prohibitive state directly to explore any workarounds or waivers that may be available.
As a sidebar, the same dual-registration matrix also lists each state’s IAR registration fee, IAR renewal fee, and NASAA model rule adoption with respect to IAR continuing education. This aggregation of state-specific information makes the dual-registration matrix incredibly valuable, even though the IARD sells it short by only entitling it “IA Representative Fee and Setting Schedule” and burying it in the “Fees and Accounting” section of its website.
Note that the direct link included above is as of January 1, 2023, and the matrix is updated periodically. Thus, ideally, one would bookmark not the direct PDF matrix link itself but the separate URL that points to the latest downloadable version of the file to access the most current version.
As a sidebar to the sidebar, there is a similar matrix on the same “Fees and Accounting” section of IARD entitled “IA Firm State Registration/Notice Filing Fee Schedule” that lists registration fees, registration renewal fees, notice filing fees, notice filing renewal fees, and branch office requirements and associated fees for advisory firms on a state by state basis.
Section 7 - Examination Requests
For an IAR registrant who has not yet passed either the Series 65 or the Series 7 and Series 66 (the 2 examination avenues to qualify to register as an IAR) and who has no qualifying professional designations that would otherwise serve as an exemption from such examinations (i.e., the CFP, CFA, ChFC, CIC, or PFS), it seems logical that the Series 65 or Series 66 and Series 7 checkboxes would need to be marked in Section 7 of Form U4 to open up an examination window for the IAR registrant. However, this is not the case.
The Form U4 Instructions state the following in relevant part:
Do not select the [...] Series 65 (S65) examinations in this section if you have completed Section 5 (Jurisdiction Registration) and have selected registration in a jurisdiction. [...] If you have completed Section 5 (Jurisdiction Registration), and requested an RA registration in a jurisdiction that requires that you pass the S65 examination, an S65 examination will be automatically scheduled for you upon submission of this Form U4.
Said another way, the filing of Form U4 for an IAR registrant who has not already passed a requisite NASAA exam or who does not have a qualifying professional designation will automatically cause a 120-day Series 65 examination window to be opened on behalf of the IAR registrant.
IAR registrants without a requisite NASAA exam or any qualifying professional designations can alternatively enroll for the Series 65 (or the Series 66) themselves, but the point here is that they can rely on the filing of their Form U4 to automatically open up such Series 65 exam window as described above if preferred.
Section 8 - Professional Designations
One of the most common deficiencies I see when preparing a Form U4 for an IAR registrant with one or more qualifying professional designations (i.e., the CFP, CFA, ChFC, CIC, or PFS) is that the FINRA Gateway system generates a “completeness check” error that does not recognize the IAR registrant as having the indicated professional designation(s) and prevents the Form U4 from being filed.
This common issue is explained in the IARD System Frequently Asked Questions - Form Filing for IA Representatives, and advises IAR registrants to do the following:
Contact the Professional Designating Authority directly to verify the designation(s) and have the Professional Designating Authority send the updated information to FINRA via an electronic file. Once CRD processes the information, the firm may re-submit the pending Form U4 filing with the designation and will no longer receive the error message.
Translation: professional designating authorities such as CFP Board do not automatically synchronize its list of CFPs with FINRA, and IAR registrants sometimes have to nudge such professional designating authorities such as CFP Board to sync its list of CFP certificants with FINRA’s own list of CFP certificants.
For example, if a CFP professional is attempting to register as an IAR and the “Certified Financial Planning” box is checked in Section 8 of Form U4, but the FINRA Gateway doesn’t recognize the IAR Registrant as maintaining CFP certification, the IAR registrant basically has to contact CFP Board and ask them to send an updated list of CFP certificants to FINRA that includes the IAR registrant’s name.
The CFA sync process is a bit more streamlined in that a CFA charterholder can usually just visit https://profile.cfainstitute.org/employment/information and provide their CRD number.
Section 13 - Other Business
Depending on how many side hustles an IAR registrant is involved with, Section 13 of Form U4 can get pretty messy. This section calls for the disclosure of the IAR registrant’s engagement in “any other business, either as a proprietor, partner, officer, director, employee, trustee, agent or otherwise” but excluding “non-investment-related activity that is exclusively charitable, civic, religious or fraternal and is recognized as tax-exempt.”
An IAR registrant can also exclude any engagement as a dual registrant with another affiliated or unaffiliated advisory firm (besides the advisory firm filing Form U4) or an affiliated or unaffiliated broker-dealer. As the Form U4 and U5 Interpretive Questions state:
Section 13 elicits current employment or business activities that are separate from (i.e., “outside”) the activities you perform in your capacity as a registered person with the broker-dealer(s) and/or investment adviser(s) that you report in Section 12.
A few nuances to consider when determining disclosability of other business activities in Section 13:
- Note that the term “investment-related” is a defined term in the Form U4 Explanation of Terms, as follows:
Pertains to securities, commodities, banking, insurance, or real estate (including, but not limited to, acting as or being associated with a broker-dealer, issuer, investment company, investment adviser, futures sponsor, bank, or savings association).
Thus, even investment-related activities that are charitable, civic, religious, or fraternal and recognized as tax-exempt should be reported in this section.
- The term “business” is not defined, which at least suggests that the term is to be read broadly to include such activities that may not initially be construed to be swept under this disclosure requirement (e.g., passive involvement in a business as a silent partner, rental real estate ownership, etc.). Due to the attendant privacy concerns of such disclosure and the character limitations of the responsive text box of this section of Form U4, judgment calls will invariably need to be made with respect to what is to be disclosed and how.
- If a business activity is to be disclosed here, the following specific information is to be included:
- The name and address of the other business;
- The nature of the other business, including whether it is investment-related;
- The IAR registrant’s position, title, duties, or association with the other business;
- The start date of the IAR registrant’s relationship with the other business;
- The approximate number of hours per month the IAR registrant devotes to the other business; and
- The number of hours the IAR registrant devotes to the other business during securities trading hours.
Section 14 - Disclosure Questions
The disclosure questions asked in Section 14 of Form U4 deserve special attention and careful reading by both advisory firms and IAR registrants, as the consequences of 1) answering a disclosure question in the affirmative that should not have been and 2) failing to answer a disclosure question in the affirmative that should have been are equally significant.
Affirmative responses to any disclosure questions will trigger a red-emblazoned demarcation on the IAR registrant’s IAPD profile, requiring a full explanation of the associated disclosure event, and they will also require the “Disciplinary History” section of Form CRS (which asks if the firm or its financial professionals have legal or disciplinary history to report) of the IAR registrant’s employing advisory firm to be answered in the affirmative (for SEC-registered advisory firms).
Additionally, affirmative responses may result in the following:
- Additional advisory firm disclosures may be required in the Form ADV Part 1, Part 2A and/or wrap fee program brochure, and Part 2B;
- The IAR registrant’s ability to become registered or stay registered as an IAR in applicable state(s) may be delayed or jeopardized; and
- It may be challenging to unwind and remove from Form U4.
Suffice to say, this section is important to get right. Getting it right will require both the advisory firm and the IAR registrant to cross-reference the Form U4 Explanation of Terms and the Form U4 and U5 Interpretive Questions and Answers (the bulk of which are dedicated to Section 14).
The disclosure questions answered in the affirmative that I’ve seen most commonly relate to “consumer-initiated arbitration or civil litigation” (Section 14I), but bear in mind that even personal or organization-related bankruptcies and compromises with creditors (Section 14K), unsatisfied judgments or liens (Section 14M), and bonding company denials, payments, or revocations (Section 14L) are required to be laid out in the open as well.
If a Section 14 disclosure question has to be answered in the affirmative, it will generally require a corresponding Disclosure Reporting Page (DRP) to be completed as well (which requires additional information about the disclosure event to be spelled out).
Independent legal and compliance counsel can help decipher the intricacies of Section 14 and draft the associated narrative responses that may be required, and this is one of the instances in which I highly encourage the retention of such counsel.
Form U4 may be a bit antiquated, and certain sections may seem to elicit a square-peg-round-hole response for IAR-only registrants, but it is the linchpin in an IAR’s registration and the source document for an IAR’s public disclosure as a financial professional. Accordingly, it is in the best interests of both advisory firms and their IARs to collectively bear the burden of ensuring – on an ongoing basis! – that Form U4 remains accurate and up-to-date.
