Wednesday, June 29, 2011

Registration and Trouble with FINRA

Can I get registered as an IAR or RIA if I have gotten in trouble with FINRA in the past?

I get that question a lot. At, we're up to about 350 questions and comments from people who either have arrests and criminal charges or previous trouble with FINRA, a bank regulator, or an insurance commissioner, etc. As always, the answer is: depends. A felony charge has to be disclosed on Form U4 and U5, but it generally takes a conviction to get your license denied or revoked by the state securities Administrator. A misdemeanor conviction will get you in trouble if it's "investment-related." That means that a misdemeanor conviction for shoplifting would be "investment-related" because theft is relevant to ANY position in the financial services industry. On the other hand, if you pled guilty to misdemeanor DUI, that would not be disclosed on Form U4 or Form U5. It's a misdemeanor, and it's not a crime that involves money or deception.
We're talking about criminal disclosure here. There is also a section on Form U4 for regulatory disclosure. If you had been a securities agent 7 years ago and got suspended by FINRA (NASD at that point) for churning and unauthorized transactions, that has to be disclosed when registering as an IAR with your state securities Administrator. Forget to disclose it, and the state will have a hearing to officially deny you a license. Game-over kind of thing. Remember that IARs and RIAs don't register with FINRA; FINRA is for the brokerage side of the business only. IARs always register with the states; RIAs are either state-registered or federally registered. To register as an RIA, the firm uses Form ADV. For some reason, this form only asks about problems in the previous 10 years. But when the IAR associates with the firm, they submit a U4, and this form asks if the applicant has EVER been convicted of/pled guilty or no contest to/charged with any felony or any misdemeanor relevant to the industry. Ever. I know of a few agents who answered "no" to those uncomfortable questions, but when the IL Securities Dept found out they were lying, they revoked their licenses. Game over. Never lie on a form filed with any securities regulator, especially if there's a chance you'll get caught.
There's always a chance you'll get caught, too. A darned good chance, in fact. And, when you go through the Administrative hearing and end up getting your license revoked, the Administrator will be happy to publish the whole thing, complete with your name, address, and registration number.
To see what we mean, let's visit the "Administrator" for New Jersey at:


  1. Convicted of felony more than 10 years ago, was expunged. I have been asked to join an RIA as portfolio manager in a role that does not solicit clients. If I can answer no to the disclosure questions on form adv, would something show up in background check? Would I have to register as an IAR?

  2. always answer truthfully, as if the regulators WILL find out about every charge, conviction, arrest, etc. But, if you're asked about the previous 10 years, answer that way; if asked about "ever," answer accordingly.

  3. I have a pending dui misdemeanor, can I still get a series 65 license? Its the only thing on my record.

  4. that's not even reportable on U4, actually. FINRA will hassle you, but this is not grounds for statutory disqualification. Misdemeanors have to involve money/property crimes or dishonesty. Felonies are all deal breakers, but only specific misdemeanors really matter.

    1. I have a pending felony arrest, which will not be resolved by the time I feel out u4. I will not be charged by the Da for the felony. Hopefully will get resolved.