August 29, 2022
Louis Diamond Quoted
by Miriam Rozen
Firms have a wide latitude in reporting to regulators why they have parted ways with a broker. They can select that a broker was “discharged,” “permitted to resign,” or potentially, a more benign “other.”
But the choice, and what firms offer in an accompanying explanation, has become high stakes as firms have been more reticent to hire brokers in light of increasing regulatory pressure and reputational risk. The U5 notices, which are crafted and negotiated over a 30-day period following a broker’s departure, can also attract regulatory scrutiny and make brokers potentially damaged goods, recruiters said.
“Firms have gotten so much harder about hiring advisors who have been terminated regardless of the reason,” said Louis Diamond, an industry recruiter in New Jersey. “There are multiple firms who just won’t even consider an advisor who has been terminated.”
The U5 language and explanation, which is filed with the Financial Industry Regulatory Authority and state regulators, is also made publicly available to customers through BrokerCheck if it involves an investor protection issue.
One firm known for aggressive recruiting, Raymond James Financial, has been turning away anyone who has been marked with a “discharged” notice on their U5, two recruiters said. A spokesperson for the St. Petersburg, Florida-based regional brokerage, which has around 8,600 brokers, did not return a request for comment.
When firms do open their doors, upfront money is rare for fired brokers and offers are usually tied to back-end bonuses dependent on brokers’ ability to bring over clients, Diamond said.
Even so, brokers have a fairly limited tool set for negotiating and are often unable to make wholesale changes even after seeing the language the firm intends to submit to regulators, said Tom Lewis, a lawyer in New Jersey, who represents brokers and brokerages.
“Firms are pretty steadfast,” said Lewis, “They come up with what they think is appropriate language,” and stick to it.