Investment advisers are required to maintain current and accurate disclosures on their Form ADV documents and Form U4 – Uniform Application for Securities Industry Registration or Transfers Forms. The Form U4 and Form ADV each have sections that require disclosure of the same or similar information regarding the investment adviser and its investment adviser representatives. Examples of disclosure information that is required by both the Form U4 and Form ADV include educational and business background, outside business activities, and regulatory disclosures. If the information provided is inconsistent between the Form U4 and the Form ADV it can be an immediate red flag to regulators that an investment adviser is not maintaining current and accurate information as required. Not providing required disclosure information or failing to update the required information for the Form U4 or the Form ADV can result in regulatory violations and penalties. In order to avoid such regulatory violations and penalties, investment advisers and their investment adviser representatives must maintain the Form U4 and Form ADV documents to ensure that the information provided is current, accurate, and consistent at all times.
Both the Form U4 and the Form ADV require detailed employment information to be reported for the investment adviser representatives. The Form U4 requires disclosure of complete employment history for the last 10 years, including periods of full and part-time employment, self-employment, military service, and homemaking. The Form U4 also requires reporting in the employment history section for periods of unemployment, full-time education, extended travel, or other similar statuses. The Form ADV requires information about formal educational background completed post high school and requires business experience information for the past five years including specific positions held.
Disclosures related to outside business activities are required in both the Form ADV and the Form U4. Lack of proper disclosures relating to outside business activities is an area that has been a frequent cause for the assessment of penalties by the Securities Exchange Commission (“SEC”) and state securities regulators. The Form U4 requires details about any outside business activity including the name, address, whether the outside business activity is investment-related, the investment adviser representative’s title, and the number of hours devoted to the particular outside business activity. The Form ADV requires essentially the same information but divides the reporting of the outside business activity information into multiple items in the Form ADV.
Additionally, both the Form U4 and the Form ADV require disclosure of certain regulatory, civil, or criminal actions, financial disclosures, and –for state registered firms –disclosure of certain arbitration claims. Both the SEC and state securities regulators have found a significant number of regulatory violations that are the result of the failure to properly disclose regulatory, civil, or criminal actions, financial disclosures, and/or arbitration claims. Both the U4 and the Form ADV include in-depth questions about civil, criminal and regulatory actions. The Form U4 requires investment adviser representatives to provide information relating to arbitration filings, bankruptcy filings, bonding company claims or filings, and any unsatisfied judgments or liens. The Form ADV requires all investment advisers to provide certain disclosures related to bankruptcy filings. However, only state registered investment advisers are required to make disclosures on the Form ADV related to bonding company claims or filings and unsatisfied judgments or liens.
If you are properly maintaining the Form U4 and the Form ADV and filing updates in a timely manner to ensure that those documents remain accurate and consistent, you can avoid one of the common regulatory violations by investment advisers and investment adviser representatives, which is the failure to provide proper disclosure on the Form U4 and Form ADV.
To learn more about properly filing and maintaining current and accurate information on the Form U4 sign up for “Solutions and Answers to Form U4 and Form U5 Challenges,” which will be presented by RIA Compliance Consultants on August 23, 2012, at 12:00pm CDT.
RIA Compliance Consultants can assist you with preparing, updating, and filing the Form U4 as well as developing internal policies and procedures for maintaining these documents. If you are an existing client of RIA Compliance Consultants interested in discussing how we can assist your investment adviser, please contact your consultant. If you are a new client that would like to speak with us regarding the services we can provide, please contact us to schedule a time to speak with one of our consultants.