Saturday, March 28, 2009

Registration Forms

Investment advisers register electronically through IARD, which is the Investment Adviser Registration Depository. Although FINRA (formerly NASD) does not have authority over advisers, they are really good at administering a big, ever-changing database like this one. FINRA also maintains a registration system for broker-dealers and their associated persons, called the CRD, which is short for Central Registration Depository. An agent of a broker-dealer remains in the system for two years after leaving the business, so arbitration decisions and disciplinary actions will be viewable during his career, and for two years after it ends. This is why the "broker check" feature at is the first stop for many investors. If they see that the name on the business card is associated with all sorts of industry violations and arbitration awards to upset customers, it could be tough for that name to get his foot inside the door.
Investment advisers file a "form" called Form ADV. ADV Part 1 is filed with the regulators, and it provides the essential information about the adviser: how it does business, who its clients are, whether it has custody and/or discretion over client assets, information on the officers and directors, etc. ADV Part 2 is the adviser's disclosure brochure, which is delivered to prospects before they sign the advisory agreement. ADV Part 2 gives the prospect enough material information to decide whether to use the adviser. This is where the potential conflicts of interest are disclosed, and if there is any disciplinary activity in the past 10 years, the adviser has to add disclosure pages about that. In other words, ADV Part 2 can end up scaring some prospects away. But, that's okay. Acting as somebody's investment adviser is a very big responsibility--investors must be able to trust their adviser, or keep looking.
The adviser (the firm) registers with Form ADV. They register their investment adviser representatives through Form U-4. Form U-4 is also used by broker-dealers to register principals and agents. The firm itself registers with Form BD. When an "associated person" of a broker-dealer leaves the firm, a Form U-5 is filed. That means that a U-5 is also used when an investment adviser representative leaves the adviser. Sometimes the termination is on good terms--sometimes the individual is being fired for cause. If the agent's license is suspended over a rule violation, that must be indicated on the U-5, which means that the public can find out about it through FINRA's broker-check at
If you would like more information on these testable registration forms, use the NASAA website at the following link:

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