Proposed amendments to FINRA’s arbitration rules would allow consumers to withdraw arbitration claims, change pleadings, postpone hearings, and receive filing fee refunds. Although laws and regulations are in place to protect investors, many brokers and financial advisors continue to violate them to promote self-gain and higher fees and commissions. In 2013, approximately one-third of investors who won arbitration awards for damages were unable to collect their awards. That translates to $62 million in award money owed to investors for damages during that year.
Changes to FINRA Rules
The Financial Industry Regulatory Authority (FINRA) proposes changes to two rules related to arbitration. The first change expands available options to investors who file arbitration claims. The second change relates to compensation that is paid to any non-attorney representative. With changes to FINRA rules, FINRA hopes to address the problem of unpaid investor arbitration awards. In our view, these changes are not anywhere near sufficient to address the problem.
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Under the first planned change, FINRA proposes to expand available options to investors who are involved in disputes with firms or associated brokers or advisors who are no longer in business either at the time the claim is filed or during a pending arbitration. Under current FINRA rules, investors are allowed to bypass mandatory arbitration, standard in brokerage contracts, if a firm goes out of business before proceedings begin. Proposed changes to current rules and procedures would allow investors to evaluate the likelihood of collecting on an award and make an informed decision about whether to proceed in arbitration with a FINRA arbitration attorney or file a claim in court.
Under the second planned change, FINRA will address concerns and problems that arise from allowing compensation for non-attorney representatives (NAR firms) to represent investors in arbitration disputes. FINRA raises major concerns about inappropriate business practices by many of these firms who handle disputes between investors and broker-dealers.
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Broker-dealers and financial advisors are generally required to act in the best interest of their customers. They must give advice that benefits the client, avoid misleading or inaccurate statements, and charge reasonable fees and commissions for services. Clients who suffer damages can file investor claims or lawsuits through a FINRA arbitration attorney to recover investment losses caused by broker or advisor misconduct.
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