Not Maintaining a Current and Accurate Form U4 Can Result in Disciplinary Actions

July 27, 2012

The Form U4, the Uniform Application for Securities Industry Registration or Transfer, is the form used by investment advisers, broker-dealers, or issuers of securities to register representatives in the appropriate jurisdictions and/or with the appropriate self-regulatory organizations.  As a registered investment adviser, you must make the determination of which individuals in your firm will meet the definition of an investment adviser representative, complete a Form U4 for each individual, and submit it to the applicable state securities regulators in order for the investment adviser representatives to be properly licensed under the firm.  However, it is important to understand that the obligation for completing the Form U4 does not stop once the investment adviser representative is licensed.  Investment adviser representatives are obligated to amend and update the information required by the Form U4 as changes occur and not doing so can result in disciplinary actions.

Investment advisers must keep in mind at all times the information required to be disclosed in the Form U4. The following are some examples of changes that likely will result in the need for an investment adviser to update the investment adviser representative’s Form U4:

  • A name change
  • A change in business location or personal residence
  • Changes to employment or outside business activities
  • Certain criminal, regulatory, civil judicial, customer complaint/arbitration/civil litigation, and financial disclosure events

Investment advisers must keep in mind that much of the information disclosed on the Form U4 is also available to the public through the Investment Adviser Public Disclosure website.  This means that clients may use this information in making the determination whether to do business with the investment adviser and its representatives.

Not providing proper disclosure for any information on the Form U4 may result in various sanctions including, but not limited to, fines, suspensions, or even being barred from acting as an investment adviser representative.  In one recent example, on July 17, 2012, the Texas State Securities Board issued a disciplinary order against an investment adviser representative for various regulatory violations including the investment adviser representative’s failure to amend and disclose certain items on his Form U4.

It is important that investment advisers develop internal policies and procedures to ensure that investment adviser representatives know and understand their continuing obligation to maintain current and accurate disclosure information on their Form U4s.  In efforts to further educate investment advisers regarding their responsibilities concerning 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 12:00pm CDT. During this webinar our consultants will provide a review of the Form U4 along with a review of triggering events for updating the Form U4.  Additionally, our consultants will provide discussion related to the Form U4 disclosure questions and corresponding disclosure reporting pages (DRPs).  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: Form U4, IAR Licensing, Outside Business Activities