Investment Advisers Should Consider Form U4 Obligations when Developing Written Supervisory Procedures

July 20, 2012

When a registered investment adviser is developing its ongoing compliance program, the investment adviser should develop written policies and procedures regarding the filing, retention and administration of an investment adviser representative’s Form U4.

The Form U4 Uniform Application for Securities Industry Registration or Transfer is used to register representatives of investment advisers, broker-dealers, or issuers of securities in the applicable jurisdiction and with the applicable self-regulatory organization (“SRO”). Investment advisers are required by most regulatory jurisdictions to license the investment advisers’ representatives through submission and approval of the Form U4. Investment advisers are also responsible for ensuring that any information supplied by the investment adviser representative is accurately and completely represented. Any information that is provided on an investment adviser representative’s Form U4 that is misleading, inaccurate or omits material information may result in regulatory deficiencies for an investment adviser.

As part of an investment adviser’s ongoing compliance requirements, any information that changes or becomes inaccurate on an investment adviser representative’s Form U4 should be promptly amended. According to the General Instructions for Form U4 Uniform Application for Securities Industry Registration or Transfer “An individual is under a continuing obligation to amend and update information required by Form U4 as changes occur. Amendments must be filed electronically…by updating the appropriate section of Form U4. A copy, with original signatures, of the initial Form U4 and amendments to DRPs U4 [Disclosure Reporting Pages] must be retained by the filing firm and must be made available for inspection upon regulatory request.” Some common examples of events that may require amending an investment adviser representative’s Form U4 include: a change in home address; an outside business activity or change in employment; or certain disclosure reporting events (i.e., filing personal bankruptcy or compromise with creditors, a civil judicial action, a customer complaint, arbitration, or civil litigation, a judgment or lien, certain criminal actions, and certain regulatory actions).

In efforts to ensure an investment adviser is properly handling an investment adviser representative’s Form U4, an investment adviser should at a minimum ensure that its written supervisory policies and procedures address:

  • Retaining and upon request, making available for regulatory inspection, a copy of the signed initial Form U4 and a copy of each amendment to the Form U4.
  • Recording and retaining documentation of Form U4 amendments to show that changes to the Form U4 were filed in a prompt manner (within 30 days).
  • Ensuring that investment adviser representatives are fully aware and understand the information being represented on their Form U4 prior to signing the original copy and before signing and submitting any amendments that are made to the Form U4 thereafter.
  • Requiring each investment adviser representative to periodically review the representative’s current Form U4 to confirm that all information is current and accurate.

To help investment advisers further understand their responsibilities regarding the Form U4, RIA Compliance Consultants is hosting a webinar “Solutions and Answers to Form U4 and Form U5 Challenges,” on August 23, 2012, at 12:00 CDT. To register for this event, click here. If your investment adviser would like additional information on how RIA Compliance Consultants may assist your firm with services pertaining to the Form U4 and similar ongoing compliance requirements, contact your consultant if you are an existing client or click here to schedule a time to speak to one of our senior compliance consultants if you have not previously worked with RIA Compliance Consultants.

Posted by Bryan Hill
Labels: Compliance Program, Form U4, Written Policies and Procedures