The information published by the IAPD includes qualifications, such as licenses, professional designations, and any exams passed; previous employment, including a list of firms where the investment adviser representative was previously registered, as well as any employment within the last ten years both inside and outside the securities industry; and a disclosure section which details any customer disputes or disciplinary events on the investment adviser representative’s record.  The published information is obtained through Form U4, which is a registration and licensing form used by securities regulators to collect information about investment adviser firms and investment adviser representatives.  Both investment adviser firms and investment adviser representatives are required to ensure this information is accurate and up-to-date.

Six regulatory action disclosure questions were added to the Form U4 on May 18, 2009. The new disclosure questions are Questions 14C(6)(7) and (8) and Questions 14E(5)(6) and (7). These questions are recorded with a blank answer on an investment adviser representative’s Form U4 filing, and investment adviser firms must provide answers to these new disclosure questions by not later than November 13, 2009. In order to respond to the new disclosure questions, a firm will need to submit Form U4s with responses to these new questions for all of the firm’s investment adviser representatives. If the firm determines that a “yes” response is required for any of the new disclosure questions, then the U4 filing would need to include a corresponding completed disclosure reporting page regarding the “yes” answer.

For additional details regarding the new Form U4 regulatory action questions, you may review information published on the FINRA website at the Approved Changes to Forms U4 & U5 web page and in the FINRA Regulatory Notice 09-23.

RIA Compliance Consultants, Inc. can help you file updated Form U4s for your investment adviser representatives. If you would like our assistance in updating the Form U4s for your investment adviser representatives, please contact our office at 877-345-4034.

Initially, there may be a question about whether a particular communication from your customer is considered a complaint. If you have had any communication with a customer that you suspect may be interpreted as a complaint, you should promptly share that communication with your registered investment adviser’s chief compliance officer. In the event that you are also affiliated with a broker-dealer as a registered representative, you will need to share this communication with your broker-dealer’s compliance department. If you have errors and omissions professional liability insurance (“E&O”) coverage, any complaint will need to be promptly submitted to your E&O carrier. If your registered investment adviser’s chief compliance officer is not experienced in handling and reporting customer complaints, then you should not hesitate to request the assistance of outside legal counsel with expertise in securities law. Your registered investment adviser’s chief compliance officer, as well as your broker-dealer’s compliance department, if applicable, and outside legal counsel will help you determine whether the communication will need to be treated as a customer complaint and how best to respond to the customer’s communication.

Generally, any verbal or written grievance by a customer should be treated as a complaint. Your registered investment adviser, as well as your broker-dealer, if applicable, likely have policies and procedures in place which require you to promptly forward any complaints to the chief compliance officer or other designated compliance personnel. It is important that all customer complaints are taken seriously, fully investigated and responded to in a prompt manner.

A suggested best practice is for the registered investment adviser’s chief compliance officer or other designated complaint analyst to promptly acknowledge receipt of the complaint to the customer. The acknowledgment to the customer should indicate that the customer’s concerns will be investigated, that the individual(s) reviewing the concerns may contact the customer for additional information, and that the registered investment adviser will provide a response to the customer upon the conclusion of its investigation. It is a good idea to provide the customer with a reasonable expectation about when the customer may receive a response.

It is critical that the customer complaint is thoroughly investigated, which involves gathering all of the material facts and interviewing the key individuals associated with the complaint. The chief compliance officer will need to review and assess the facts discovered during the investigation and determine what constitutes an appropriate resolution. Use of experienced outside legal counsel may be valuable in conducting an investigation of the complaint.

If there is a need or an anticipated need to keep certain communications or work product confidential due to the likelihood of arbitration or litigation, it will be necessary to retain outside legal counsel to conduct the investigation and prepare your defense in order to preserve the confidentiality of such communications or work product under attorney-client privilege. You should ask your attorney to explain the requirements and limitations of this privilege in greater detail. It is important that the investment adviser representative, compliance staff, and any other parties involved with the complaint understand that all information and documentation leading up to the complaint as well as information and documentation (if not subject to attorney-client privilege) created per the review of the complaint, including all written and verbal correspondence, may be discoverable in a formal proceeding such as arbitration or litigation or by regulators who conduct an investigation of the complaint.

If the review determines that a customer complaint has merit, then the chief compliance officer or outside legal counsel should make good faith efforts to fairly resolve the complaint. It is suggested that any settlement documents should be prepared by legal counsel to assure that the settlement is legally binding on the parties. If the review determines that a complaint does not have merit, the chief compliance officer or outside legal counsel usually provides a thorough explanation to the customer, citing relevant facts and clearly stating the reasons supporting that conclusion. Prompt responses to customer complaints can be an important risk management strategy that can result in a reduction of the number of arbitration and litigation claims filed against an investment adviser representative and the registered investment adviser.

Finally, in addition to assessing whether or not the customer complaint has merit, the chief compliance officer will need to make a determination about whether the complaint and its resolution will be reportable on the Form U4 for the investment adviser representative and/or on the registered investment adviser’s Form ADV. Similarly, if you are affiliated with a broker-dealer as a registered representative, the broker-dealer will have reporting requirements, including Form U4 updates. An investment adviser representative who fails to promptly report a complaint may face disciplinary action from the investment adviser representative’s affiliated registered investment adviser, broker-dealer firm, if applicable, as well as regulatory authorities. Likewise, a registered investment adviser’s failure to comply with the applicable state or SEC regulatory reporting requirements can lead to disciplinary action of the firm.