What Happens If You Are Terminated While Under Investigation as a Financial Advisor?

The short answer: Your firm files a Form U5 within 30 days and sends you a copy. If you were under internal review for fraud, wrongful taking of property or an investment-related rule violation when you left, it answers yes to Question 7B: BrokerCheck never shows that answer, but the next FINRA member firm reads it. A separation after allegations is a yes to 7F, which BrokerCheck shows. FINRA can still demand information under Rule 8210 for at least two years after you leave.

What is an internal review?

An internal review is the firm's own look at whether a person broke the rules. Question 7B of Form U5 asks whether the individual "currently is, or at termination was" under internal review for fraud or wrongful taking of property, or for violating investment-related statutes, regulations, rules or industry standards of conduct. FINRA's Form U5 instructions say the question generally covers "matters relating to compliance, not matters of a competitive nature," and that responses should not include employment-related disputes between the firm and the individual.

What is a FINRA Rule 8210 request?

A Rule 8210 request is FINRA's demand for information. The rule gives FINRA staff the right, for an investigation, complaint, examination or proceeding, to require a member, a person associated with a member, "or any other person subject to FINRA's jurisdiction" to provide information orally, in writing or electronically, and to testify under oath or affirmation at a location staff specify. FINRA describes the rule as a vital tool because FINRA "does not have subpoena power."

The rule's own terms are short. Paragraph (c) says no member or person shall fail to provide information or testimony. Paragraph (d) says a notice is deemed received when it is mailed or otherwise sent to the last known residential address in the Central Registration Depository (CRD), and that when staff know the person is represented by counsel on the matter, the notice goes to counsel instead.

The consequences are set out in two places. Under FINRA Rule 9552, staff can send a written notice that a failure to take corrective action within 21 days "will result in suspension," and a person who is suspended and does not request termination of the suspension within three months of the original notice of suspension "will automatically be expelled or barred." FINRA's Sanction Guidelines say that if a respondent "did not respond in any manner, a bar is standard," and that a partial response draws a bar unless the person shows it substantially complied with the request.

Does Rule 8210 still apply after you leave?

FINRA says so, for at least two years after registration ends. FINRA says individuals who were formerly registered "continue to be subject to its jurisdiction for at least two years after the registration is terminated" and are required to respond to FINRA requests for information about activities that occurred while they were registered. Its Regulatory Notice 25-11 says the persons subject to FINRA's jurisdiction under Rule 8210 include "former registered and associated persons."

Two provisions give that period its shape. FINRA's By-Laws, Article V, Section 4, keep a former associated person subject to a complaint based on conduct before the termination, or on a failure to provide requested information while still subject to FINRA's jurisdiction, if the complaint is filed within two years. That clock runs from when the termination takes effect, which the By-Laws hold back while a FINRA complaint or action is pending against the person. An amendment to the U5, filed within two years of the original, that discloses the person may have engaged in actionable conduct starts the two years again. The Form U5 instructions add a note to the individual: because of that continuing jurisdiction, address changes are to be sent to CRD for two years after the termination date or the last U5 amendment.

What does administrative leave mean for your registration?

FINRA's rules and the Form U5 do not define administrative leave, so its meaning comes from the firm's own policy and any agreement. What the rules key on is the end of the association. FINRA's By-Laws require the firm to file the Form U5 no later than 30 days "following the termination of the association," and the Form U5 defines the date terminated as the date the firm terminated the individual's association "in a capacity for which registration is required."

Rule 8210 reaches "a person associated with a member" until the association ends, and a person still under FINRA's jurisdiction after it ends.

How is Question 7B answered at termination?

The firm answers each disclosure question on its own. FINRA's Regulatory Notice 10-39 says "each question on Form U5 stands on its own," that the Section 3 reason does not replace the Section 7 answers, and that a firm "may not parse through the questions" to avoid a yes. Three questions matter most when an advisor leaves during a review:

• Question 7A, investigation. Asks whether the individual is, or at termination was, the subject of an investigation or proceeding by a regulator or self-regulatory organization. FINRA's definition of investigation includes a FINRA investigation after a Wells notice has been given, or after staff has advised the person that it intends to recommend formal disciplinary action. It "does not include subpoenas, preliminary or routine regulatory inquiries or requests for information," deficiency letters or examinations.
• Question 7B, internal review. A yes requires an Internal Review Disclosure Reporting Page: the firm that initiated the review, the date it began, the nature of the review, and whether it is pending. Part II of that page lets the advisor give a brief summary of up to 4,000 characters, verified under the form's individual acknowledgment. The firm cannot use the form's Disclosure Certification Checkbox when 7B or 7F is a yes.
• Question 7F, termination after allegations. Asks whether the individual voluntarily resigned, was discharged or was permitted to resign after allegations of violating investment-related rules, fraud or wrongful taking of property, or failure to supervise. FINRA defines "resign" to include any termination in which the allegations are a proximate cause, even if the individual initiated it.

The Section 3 reason (Voluntary, Permitted to Resign, Discharged, Deceased or Other) sits beside these answers. Our guide to what "Discharged" means on a Form U5 covers the five reasons and the explanation FINRA expects.

What does BrokerCheck show?

FINRA Rule 8312 withholds the Question 7B internal review answer and the Section 3 reason for termination from BrokerCheck. A yes to 7A or 7F shows three business days after FINRA processes the filing, and stays while you are associated with a FINRA member firm and for ten years after your last association. Our guide to how long a termination stays on your U5 covers the ten-year rule and what stays longer.

How does the next firm see it?

The next FINRA member firm reads the whole U5, including what BrokerCheck withholds. Rule 3110(e) requires a member firm to investigate an applicant's good character, business reputation, qualifications and experience before applying to register them, and to review the most recent Form U5, "including any amendments thereto," within 60 days of the filing date of the application, or show FINRA it made reasonable efforts to do so. FINRA says prospective employers must have your written consent to check your CRD record.

The new firm's Form U4 also asks the advisor about separations after allegations, in Question 14J, and about written notice of an investigation, in Question 14G. Our guide to what a new firm checks before it hires you covers the full review.

What changes when the review or investigation closes?

The firm amends the U5. The Form U5 instructions say firms "are under a continuing obligation to amend and update Section 7" until final disposition, and the Internal Review Disclosure Reporting Page has its own update route for a review "concluded without formal action." In Notice 10-39, FINRA says it expects the firm to report, "at a minimum, the date the internal review was concluded" and the findings of the review. An investigation page records how it was resolved, for example "Closed Without Further Action."

The timing follows the By-Laws: an amendment is due no later than 30 days after the firm learns of facts that make the U5 inaccurate or incomplete, with a copy to the person.

Questions to take to your own attorney

None of this tells an advisor what to do in their own case; that answer belongs with a securities or employment attorney. The questions below are the ones the rules raise:

1. Was anything I received a Rule 8210 request, what is its deadline, and to whom should any response go?
2. Has FINRA staff given a Wells notice or said it intends to recommend formal disciplinary action, and what would that change on my Forms U4 and U5?
3. Does the U5 as filed answer Questions 7A, 7B and 7F the way the facts and FINRA's definitions call for?
4. Should I submit a Part II summary on the Internal Review Disclosure Reporting Page, and what would it say?
5. What does any separation agreement say about cooperation with regulators, the U5 wording and a release of claims?
6. Is my residential address in CRD current for the two years after my termination date or the last U5 amendment?
7. When the review closes, what amendment should I expect, and by when?
8. How should my answers to Questions 14G and 14J read on a new firm's Form U4, and does anything change if I also hold an investment adviser representative registration?

Do you need a lawyer for a Form U5? covers when advisors call one, how to find one through a bar referral service and what to bring to the first meeting. Our guide to the first 72 hours after a termination puts the early steps in order.

Where does Winthrop fit?

Counsel handles the legal side. Winthrop & Co. handles the career side: where you can land next, with the whole record in view. If you do not have your own attorney, we can help you find one, and the legal work stays with them. Our free guide, What Are Your Options After a Termination?, lays out the paths, and Rapid Response is our service for advisors in the weeks after a termination, run alongside their counsel. The firm pays Winthrop & Co., and the advisor never pays.

Every situation is different, and the specific answer comes from a confidential conversation about where you can land: the best deal we can win through our relationships and our record of past deals, and how culture, technology, support and service compare at the firms that fit. Request an introduction.