FINRA’s Securities Arbitration Program to be More Available to Investment Advisors

The Financial Industry Regulatory Authority (“FINRA”) is taking steps to broaden the scope of their securities arbitration program to include more investment advisors. FINRA administers the single largest dispute resolution program for investors and securities firms. In 2011, there were 4,729 securities arbitration cases filed with FINRA. However, not all financial advisors are alike. FINRA’s arbitration program is mandatory, but only for stockbrokers and their customers. Investment advisors are not FINRA members–at least not yet. If a customer has a dispute with their investment advisor, they will need to pursue a lawsuit in court, unless the investment advisor included an arbitration clause in their advisory agreement. Many advisory agreements obligate customers to resolve disputes through the American Arbitration Association (“AAA”), which can be a costlier alternative to FINRA’s arbitration forum.

Voluntary Arbitration Program: FINRA has always offered up their arbitration program to investment advisors on a voluntary basis. FINRA has not established any new rules or procedures for arbitrating investment advisors disputes. FINRA did, however, recently issue “guidance” discussing the availability of their program. I am happy to see FINRA offer more competition in the arbitration field, especially because participation in the arbitration program is totally voluntary. In my opinion, FINRA’s entire arbitration program should be non-mandatory. Granting any one organization a monopoly over investor disputes is fundamentally unfair. Competition will help insure that the rights of financial services consumers are not diminished. Investors should be allowed to freely choose between arbitration and litigation.

Court vs. Arbitration:
For the time being, only investment advisor customers have the opportunity to choose between going to court or arbitration. Each alternative has its benefits and drawbacks. When weighing which course of action to take, it is best to consult with a knowledgeable securities attorney who can thoroughly explore and discuss all available options.

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Frequently Asked Questions About Securities Arbitration

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