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To: All NAIFA Members
From: Cliff F. Wilson, CLU, ChFC, LUTCF, CLF, NAIFA President
Date: April 15, 2009
Subject: Submit Comments to the SEC Opposing FINRA’s Requested Changes to Forms U4 and U5

Background: FINRA recently filed with the SEC a proposed rule change to amend the Uniform Application for Securities Industry Registration or Transfer (Form U4) and the Uniform Termination Notice for Securities Industry Registration (Form U5) as well as FINRA Rule 8312 (FINRA BrokerCheck Disclosure). (Broker-dealer and investment adviser representatives must use Form U4 to become registered in the appropriate jurisdictions and with self-regulatory organizations, and broker-dealers and investment advisers must use Form U5 to terminate registration of an individual). Forms U4 and Form U5 are filed electronically using the Central Registration Depository, and the Form U4 is made publicly available through the BrokerCheck program. Representatives have an obligation to update a previously filed Form U4 with new information.

If adopted, the proposal would modify the scope of certain information required by these forms, and make other significant changes in the reporting of certain disclosure items. Of particular concern to NAIFA members, the proposed rule change would revise questions on the forms regarding disclosure of arbitration proceedings or civil litigation to require the reporting of allegations of sales practice violations made against a registered person in the body of an arbitration claim or lawsuit in which that person is not named as a party. In other words, a person would have to report allegations of sales practice complaints made against that person as long as the person was either named in or could be identified from the body of the claim, even if the person is not a party to the lawsuit or arbitration claim. Under the current reporting requirements, a registered person is not required to report that a customer has alleged a sales practice violation against such person in the body of a lawsuit or arbitration claim, unless the registered person also has been named as a defendant or a respondent in the action.

Proposed changes to FINRA rules must be approved by the SEC before taking effect, but FINRA has indicated that if approved, the changes to Forms U4 and U5 could be rolled out by May 2009.

NAIFA Position: NAIFA opposes the changes to FINRA Forms U4 and U5 which would require expanded disclosures of arbitration proceedings and civil litigation. While NAIFA strongly believes that people who engage in unscrupulous or misleading sales practices should be aggressively prosecuted and subject to appropriate and meaningful sanctions, the SEC should not allow the reputations of broker-dealer and investment advisor representatives to be irreparably damaged by unproven claims or allegations made in a lawsuit or arbitration proceeding in which the representative has not been named as a party. Furthermore, a named party in a lawsuit or arbitration has an opportunity to refute the allegations against him and “clear his name”. Someone who has not been named as a party in a lawsuit or arbitration does not have this same opportunity or ability, and any allegations made against him will likely go unanswered and unchallenged.

What You Can Do: Go to NAIFA’s Legislative Action Center at http://capwiz.com/naifa and electronically submit comments to the SEC opposing FINRA’s requested changes to Forms U4 and U5 regarding disclosures in connection with arbitration proceedings and lawsuits. Once at the Action Center you will find a pre-written comment letter ready for you to send to the SEC. However, the Action Center does allow you to change and revise your comments before they are submitted—and we strongly urge you to do this. It always has a greater impact if you use your own words when submitting comments to regulators or lawmakers—so please take a few minutes and “personalize” your comment letter. The SEC comment period ends on Friday, April 17, so PLEASE visit NAIFA’s Legislative Action Center and submit your comments by no later than Friday, April 17, 2009.

Technical Assistance? If you have technical questions about using NAIFA’s Legislative Action Center, please contact Vicky Dobbin at 703-770-8113, or communications@naifa.org. If you have questions about the FINRA proposal, please contact Gary Sanders at 703-770-8192 or gsanders@naifa.org.

National Association of Insurance and Financial Advisors
2901 Telestar Court, Falls Church, VA 22042; 1-877-TO-NAIFA

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