What is a U5? Securities Attorneys Answer Your Questions

A Form U5 is the form that brokerage firms must file with the Financial Industry Regulatory Authority (FINRA) to document a broker’s departure from the firm. Depending on the reason for the U5, these forms can have a significant influence on the trajectory of a broker’s career.

Once the U5 is filed, the broker has two years to register with another firm. If the broker does not re-register within this timeframe, the broker’s license will lapse.

The firm can provide several different U5 termination reasons:

• Voluntary,
• Discharged (meaning Terminated),
• Deceased, or
• “Other”

Voluntary resignations and terminations appear on the broker’s BrokerCheck record under the disclosure entitled, “Employment Separation After Allegations.”  

Voluntary Resignations

Voluntary resignations could indicate that the firm is still on good terms with the broker. This can make it easier for the broker to register with a new firm. However, in certain cases a broker “voluntarily resigns” following an internal investigation, indicating that there may have been some suggestion of impropriety behind the scenes.

Discharged Brokers

Firms must give basic information regarding the reason for the termination.

• Investigation Disclosure
• Internal Review Disclosure
• Criminal Disclosure
• Regulatory Action Disclosure
• Customer Complaint/Arbitration/Civil Litigation Disclosure
• Termination Disclosure

In some cases, a broker may be “permitted to resign” instead of fired.

What is Form U5 Partial Termination?

There are also “partial terminations,” meaning the brokerage firm has terminated part of the broker’s job function, but not the broker’s entire position with the firm. For instance, a firm could terminate a broker’s role as a General Securities Sales Supervisor or a Compliance Officer while (surprisingly) still keeping the broker on as a representative.

Reasons for Termination

Termination frequently stems from a customer complaint.

Investors who lose money should file a Statement of Claim if they believe their broker engaged in unfair sales practices. (Securities lawyers can help with this process.) In many examples of investment fraud, the broker has a conflict of interest when recommending a high-risk investment. Risky investments typically feature significant commissions, and brokerage firms may also offer brokers incentives for selling more products that generate higher fees for the firm.

The following allegations are some of the most common to appear in a U5 filing. You can find more information about investor complaints on the FINRA Dispute Resolution Statistics page.

• Misrepresentation or Omission of Material Facts: Brokers should provide investors with a clear and accurate description of a security, as well as its risks, tax implications, and maturity date. Failure to do so violates FINRA Rule 2020.
• Unsuitable Recommendations: Brokers should only recommend investments that make sense in light of the investor’s profile. The profile contains information concerning the investor’s financial goals, risk tolerance, age, and liquidity needs, as well as their other investments.
• Regulation Best Interest: Regulation Best Interest builds on the requirements of the Suitability Rule (FINRA Rule 2111) and requires firms to mitigate any conflicts of interest, as well as to disclose any potential conflicts of interest to investors.
• High Standards of Commercial Honor: This rule can apply to any broker misconduct that does not meet “high standards of commercial honor and just and equitable principles of trade.” Allegations of negligence fall under this umbrella.
• Selling Away: Brokers may solicit their investors for investments that are sold away from the firm. Because these transactions take place outside of the firm’s supervision, they are not subject to the same supervisory scrutiny and may pose more risk to the investor.
• Failure to Supervise: FINRA Rule 3110 requires brokerage firms to monitor their broker’s recommendations and communications with clients. They should have safeguards in place that are designed to catch the tell-tale signs of broker misconduct.

What is a U5 Form’s Purpose?

FINRA reviews U5 termination descriptions to determine if it should launch an investigation. Certain U5 forms have led to regulatory actions.

• For instance, in July 2024, FINRA barred a broker following a U5 filing in which his firm alleged that he had been “misdirecting client investments and funds and misappropriating client investments and funds for his own use, starting in approximately 2007 at his prior broker-dealer firm.”
• Another broker entered into an Acceptance, Waiver, and Consent agreement (AWC) in June 2024 after his former firm’s U5 revealed that he had allegedly engaged in excessive and unsuitable trading. As part of the terms of the AWC, the broker consented to a $5,000 fine and a five-month suspension.
• According to an AWC from June 11, 2024, FINRA barred a broker following allegations that she “misappropriated” funds from an elderly investor and had been named as a beneficiary in the client’s will. FINRA Rule 3241 prohibits brokers from serving as client beneficiaries, except under limited circumstances, such as when the broker is a member of the client’s immediate family.

What Happens to a Broker After Receiving a U5?

Following a U5 filing, a broker is still subject to FINRA and/or SEC regulations, depending on their registration type. They must also provide their regulatory body with information regarding any residential address changes for the two years following their U5.

The firm can also file U5 amendments to disclose more details regarding the broker’s termination.

Broker Comment

In cases where the broker believes their termination to be unfair, they can submit a comment to FINRA. U5 broker comments appear under the “Broker Comment” section of their BrokerCheck disclosure.

How Can I Determine if My Broker Has a Termination on Their Record?

Investors should always check their potential broker’s BrokerCheck record before entering an investment contract.  BrokerCheck has essential information about a broker’s track record, including employment terminations, regulatory actions, and customer complaints. To check BrokerCheck, ask your broker for their Central Registration Depository (CRD) number and plug it into the BrokerCheck search engine.

If you are looking into your broker’s background and FINRA U5 forms because you have concerns about your broker’s conduct, you may want to speak with a securities fraud attorney. Our attorneys offer free case evaluations and do not collect a fee unless they win your case. Call (877) 600-0098 or email info@kurtalawfirm.com.