The following information was compiled in an effort to develop informal guidelines that should be considered when completing the Forms BD, U4, U5, and ADV.
This is not an exhaustive list of items and is not meant to supplant any formal guidance that has been promulgated by regulators. Rather, the purpose of this material is simply to alert you to some of the common issues that arise when completing and submitting registration forms.
I. General Points Applicable to Forms BD, U4, U5, and ADV
- The forms and the instructions have been adopted by regulators through statutory enactments or rules and are used by regulators in performing their statutory responsibilities. The information is filed with state regulators and is subject to state public records laws.
- The forms provide the structural basis for electronic filing in Web CRD/IARD.
- The forms are amended from time to time and these amendments are drafted by the users of the forms: SEC, FINRA, NASAA, States & ARM (Industry). These amendments to the uniform forms are adopted through a public process including the promulgation of a public notice and an opportunity to comment.
- The keys in completing the forms are truthfulness, accuracy, timeliness, completeness of disclosure, compliance with the instructions on the forms, and the instructions for the use of Web CRD/IARD.
- Registration and the disclosure information gathered through registration forms are a “first line of defense” for investors and regulators in their efforts to prevent dishonest/unethical business practices and fraud.
- Regulators act as professional skeptics, on behalf of the citizens of their states, when examining applications for registration and post registration amendment filings.
II. Form BD Specific Items
- As obvious as it may seem, be sure to confirm that you have funds in your daily account before submitting the registration forms.
- For newly formed firms, obtain broker-dealer registration in the state in which your firm’s main office is located. Other states will generally require home state registration prior to granting registration.
- Is the Clearing Firm registered in the state in which your firm is applying? Remember to make sure that you have put the Clearing Firm’s CRD number on your firm’s Form BD.
- Business Types
- Don’t check IAD unless your firm is a registered IA.
- Appropriate principals for business types – e.g. Options / Munis.
- Schedules A & B.
- Account for all direct and indirect owners. The respective ownership interests should equal 100%
- Be sure to list the firm’s Chief Compliance Officer (See NASD Rule 3013).
- List FINOP – 2 Principal Requirement.
- Firm determines who is a “control person” and this determines “control affiliate” for purposes of disclosure questions.
- Clear Web CRD Organization Deficiencies
- U4 Page 2 info.
- Open employment on unregistered Direct or Indirect Owners.
- Be prepared to provide electronic versions or hard copies of regulatory actions.
- File agent applications at same time BD filing submitted.
- Make sure affiliates and control affiliate disclosures match.
- Don’t open branches before achieving registration.
- Check your firm’s Web CRD Individual and Organization Notice Queues and clear any deficiencies related to Funds (filing fees to be collected from your Daily Account), Regulatory Disclosure, U4 Page 2 information for Direct or Indirect Owners, Qualification Examinations or Dual Registration.
- For states that require financial statements, be prepared to provide your firm’s most recent audited financial statements as submitted to FINRA and the SEC and/or recent FOCUS quarterly reports. If your firm has not yet completed its first annual audit, be prepared to provide a copy of the Designation of Accountant form provide to FINRA during the initial membership filing. The financial statements generally should contain a net capital computation demonstrating compliance with SEC Rule 15c3-1, should identify clearing broker-dealers (FOCUS) that are disclosed on Form BD, and should reflect revenue from investment advisory activities (FOCUS) if your firm has indicated IAD as a business type on Form BD.
III. Form U4 Specific Items
- Most U4 filings for broker-dealer agent registration will be approved automatically through Web CRD in most states if the form filing is complete, if FINRA registration has been obtained, if filing fees are available in you firm’s daily account, if no regulatory disclosure is present in the agent’s record, and if currently viable qualification examinations are present in the agent’s Web CRD record.
- Clear funds deficiencies.
- Clear FINRA Web CRD Disclosure Inquiries.
- Registration in state of employment.
- Submit fingerprint info pursuant to FINRA requirements.
- Check your queues for deficiencies: funds, exams, dual, SRR.
- Be prepared to provide full copies of customer complaints and regulatory actions as requested by a state.
- When describing allegations on DRP, don’t just cite Rule Numbers.
- Update U4 if a U6 is filed by a regulator or a U5 amendment by a prior firm.
- Don’t assume approval. Confirm by checking registration status in Web CRD.
- If a SEC IA, check with states before filing for RA registration.
- Generally RA’s associated with SEC IA’s are subject to RA registration only in the state where their place of business is located.
- Texas exception – “RA Notice Filings.”
- Applicable Federal Law: Sec. 203A(b)
- Advisers Subject to Commission Authority. —
- (1) In general. –No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser or supervised person of an investment adviser shall apply to any person —
- (A) that is registered under section 203 as an investment adviser, or that is a supervised person of such person, except that a State may license, register, or otherwise qualify any investment adviser representative who has a place of business located within that State; or
- (B) that is not registered under section 203 because that person is excepted from the definition of an investment adviser under section 202(a)(11).
- (2) Limitation. –Nothing in this subsection shall prohibit the securities commission (or any agency or office performing like functions) of any State from investigating and bringing enforcement actions with respect to fraud or deceit against an investment adviser or person associated with an investment adviser.
IV. Form U4 Reminders
- Be careful to completely disclose “Other Business”
- Read disclosure questions carefully. One regulatory incident may necessitate several “Yes” answers.
- Respond to regulator requests for additional information.
V. Form U5 Specific Items
- Timely filing – sooner the better.
- Reason for Discharge, Other Termination, Permitted To Resign:
- In Web CRD Release 9.0, the “Jurisdiction Termination for Cause Queue” was created for state users to identify individuals whose jurisdiction registration was terminated by a Full U5 with a Termination Reason of Discharged, Permitted to Resign.
- “Lack of Production”; Retired; “Corporate Restructuring”; “Position Eliminated; and “Talents best used elsewhere” are informative and explanatory Termination Comments.
- “Non-compliance”; “Non-securities”; and “Non-investment-related” are not informative or explanatory.
- When entering a Termination Comment tell us what the reason for discharge is, not what it isn’t.
- Be prepared for FINRA and State inquiry as the discharging firm or the new employing firm.
- Make certain that you have submitted the appropriate state registration and IARD system processing fees. Prior to submitting your application, confirm that those fees have been posted to your IARD daily account by viewing your account on IARD.
- Certain questions on Form ADV elicit information relating to the adviser while other questions elicit information relating to the adviser’s related persons or to both. When providing a response to a question, be certain to respond to the question from the perspective of the person to whom the question is addressed.
- Some questions contained on Part 1A of Form ADV are similar or identical to questions contained on Part II of Form ADV. Make certain that your responses to those similar/ identical questions are consistent with each other.
- In addition to filing Form ADV, make certain you have filed all other documents required by the jurisdiction(s) such as contractual agreements.
- Make sure you identify on Schedule A all persons owning 5% or more of the adviser, all executive officers, and all control persons.
- In responding to Form ADV disclosure questions, make sure you include all reportable disclosure events of your advisory affiliates.
- If you compensate persons for client referrals, check with the jurisdiction(s) in which you are applying for registration to determine if registration is required for those solicitors. 8. Make sure you have submitted investment adviser representative applications on behalf of all individuals providing investment advice in the state for which you are seeking registration.