What is FINRA arbitration?
In a previous blog post, we gave a brief overview of how securities arbitration works in this country. Since virtually all brokerage firms now compel investors to sign binding arbitration agreements as part of their account opening documents, when a dispute arises between an investor and his or her brokerage/broker, it will almost inevitably find its way into the arbitration forum administered by the Financial Industry Regulatory Authority (FINRA).
As we also mentioned in that post, the arbitration forum, along with FINRA itself, is funded by the securities industry. And arbitrators are typically drawn from a pool of former securities industry professionals (instead of peers of the aggrieved investor). Because of these factors, FINRA arbitration tends to favor brokerage firms over investors.
Any investor who wishes to pursue litigation against their broker or investment advisor must be aware of this. Another thing to be aware of that, even if you do succeed in beating the odds and winning at arbitration, there is no guarantee that your arbitration award is collectible.
Investor Group Demands Victims Fund for When Brokers Don't Pay
As investor advocacy group, the Public Investors Arbitration Bar Association (PIABA), announced this week, FINRA and the securities industry does not enforce payment of arbitration awards nearly. Far too many awards go unpaid, while disciplined brokers simply drop out of the industry.
According to PIABA, in 2016, approximately $14 million in hard-won awards went unpaid, with the average unpaid award eclipsing $200,000. While this sum is a drop in the bucket compared to the amount of funds under management within the securities industry, it can mean a lot to an individual investor and his or her family.
Banning brokers from the industry and creating a victims’ fund
In order to remedy the problem, PIABA asked that legislators consider barring brokers who fail to pay damages to investors from working in any sector of the financial industry. Currently, while deadbeat brokers will typically be barred from working as financial advisors permanently, they can take other jobs in financial services, banking, even compliance.
PIABA also called for the creation of a victims’ fund for investors whose awards go unpaid. Since many broker-dealers in FINRA are multi-billion companies, it would not be unreasonable to ask that they set aside funds for investors who have lost their assets — and sometimes their life-savings — to unscrupulous brokers.
Whatever comes of PIABA’s lobbying efforts, it is obvious that the financial industry is in need of more investor-friendly reform. As things stand, it can be a great challenge for investors to find justice within the current system.
The best thing an investor can do is practice financial self-defense in order to avoid being taken in by a bad broker in the first place. The second best thing, once they do lose money, is to consult with an attorney who is experienced in securities litigation.
Pennsylvania & New Jersey Securities Litigation Law Firm
If you or someone you know has been the victim of financial abuse or broker misconduct, please contact us immediately for a free consultation at 215 462 3330 or by using our online contact form.