Why are U5 termination disclosures now making it so difficult for advisors?
Those with this type of disclosure are asking us what changed and why they now have so few options. The short answer is to read the recent proposed Rule change regarding Rule 4111.
For years FINRA has been tightening the noose on firms hiring brokers with a “history of misconduct” by more frequent audits, increased scrutiny of membership applications, risk monitoring, broker-dealer scorecards, and a wave of Enforcement investigations targeting this group. But now FINRA is looking to hit the firms where it matters most; in their pocketbook.
Through the proposed rule, FINRA will have access to a broker-dealer’s money which they will be required to “maintain a specific deposit amount, with cash or qualified securities, in a segregated account at a bank or clearing firm, from which the member could make withdrawals only with FINRA’s approval.
Few if any member firms are sitting on mountains of cash to hold in reserve; none of which will count towards their Minimum Net Capital Requirements. The changes exacerbate the harm caused by false or trumped-up allegations commonly put onto the exiting broker’s U5. Landing at a top firm with a favorable payout will be nearly, if not entirely, impossible as these changes are implemented.
Please call me at 720-613-2044 if making your record clean is important to your business.
Regards,
| Josh Barber
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