If your advisor’s monitoring report shows a new regulatory disclosure such as a complaint, investigation, or disciplinary action, it’s crucial to know what it means and how to protect yourself.
Disclosures can range from customer complaints and legal settlements to serious sanctions and termination for cause. While some events are minor, others signal important risks to your finances.
Customer complaints alleging fraud, misrepresentation, or unsuitable investments
Regulatory actions or sanctions by the SEC, FINRA, or state regulators
Criminal charges or convictions
Civil litigation related to advisory activities
Bankruptcy filings or financial judgments
Employment terminations for cause
Financial advisors must report these disclosures on their Form U4 (for brokers) or Form ADV (for investment advisors), which are publicly available.
Regulatory disclosures provide critical information about your advisor's professional conduct and trustworthiness. While not every disclosure indicates wrongdoing, they deserve your careful attention:
Customer complaints may reveal patterns of dissatisfied clients or problematic practices
Regulatory sanctions indicate the advisor or firm failed to comply with industry rules
Multiple similar complaints can suggest a track record of misconduct
Recent disclosures may indicate ongoing or unresolved issues
Criminal charges related to financial matters are serious red flags
The severity and frequency of disclosures matter significantly. One customer complaint that was denied may not be concerning, but multiple upheld complaints with similar allegations could indicate a serious problem.
When you receive a disclosure alert, gather complete information:
Access your advisor's profile page and review their Red Flags tab for already reported disclosures and changes noted in your update
Read the complete details of the disclosure, not just the summary
Note the date of the incident and when it was reported
Identify whether the disclosure was resolved and how
Assess what type of disclosure occurred:
Denied complaints - The advisor contested the allegation and it was found to be without merit
Settled complaints - The advisor or firm paid a settlement (which doesn't admit wrongdoing but may indicate concern)
Arbitration awards - A FINRA arbitration panel ruled against the advisor and ordered compensation
Regulatory sanctions - The SEC, FINRA, or state regulator took action (fines, suspensions, etc.)
Criminal matters - Charges or convictions related to financial or other crimes
Review your advisor's entire disclosure history:
How many total disclosures do they have?
Are the allegations similar in nature?
Have disclosures occurred recently or only in the distant past?
Has the frequency of complaints increased over time?
A pattern of similar complaints is more concerning than isolated incidents.
Stay ahead of firm-wide issues: Activate Firm Stability Insights to receive alerts when regulatory disclosures appear for your advisor’s firm. You’ll be able to see if patterns exist across the firm, signaling deeper issues with firm culture or compliance.
Contact your advisor to discuss the disclosure. Ask:
What happened that led to this disclosure?
What was their involvement and responsibility?
How was the matter resolved?
What have they done to prevent similar issues?
Why should you continue trusting them with your money?
Pay attention to how they respond. Are they transparent and forthcoming, or evasive and defensive?
Consider these factors:
The nature and severity of the disclosure
How long you've worked with this advisor
Your overall satisfaction with their service
Whether you've personally experienced any issues
Your comfort level continuing the relationship
For serious disclosures, consider consulting:
Another financial advisor for their perspective
An attorney specializing in securities law
Your state securities regulator or FINRA
Organizations like the Public Investors Advocate Bar Association (PIABA)
How you respond to a disclosure alert may depend on its seriousness and your comfort level. For minor issues, some choose to continue monitoring while maintaining the relationship. Moderate to more serious red flags, such as repeated complaints, disciplinary actions, or criminal convictions, are often the point where investors consult with experts, and consider switching to another advisor. If you feel your interests have been affected by your advisor, file a complaint with FINRA and your state securities regulator and evaluate your need for a securities attorney.
If you have questions or feel uncertain, reach out to us anytime at [email protected].
