There are a number of different federal and state regulatory agencies that oversee the financial sector, but there are also number Self-Regulatory Organizations, known as SROs. These organizations are non-government agencies with the power to enforce and create industry regulations. The mission of these organizations is to protect investors by establishing rules of ethics and equality.
The largest and perhaps most powerful of these organization is the Financial Industry Regulatory Authority (FINRA). FINRA, like other SROs, is not connected to federal or state governments. It is an independent non-profit organization, and its mission is to protect investors from fraudulent or dishonest practices on the part of finance professionals and promote integrity throughout the market.
Many financial advisor agreements contain a clause that requires investors to use FINRA arbitration proceedings to resolve any disputes. While the arbitration process is not the same as a lawsuit, individuals often seek out the advice and representation of investment attorneys who specialize in FINRA arbitration.
What is FINRA Arbitration?
Arbitration enables two parties to reach a resolution without formal mediation. The process typically includes up to three arbitrators who the investors and advisors in the dispute choose. An arbitrator’s role is to read each side of the case, listen to arguments, explore the evidence, and offer an award or outcome. In FINRA arbitration proceedings, and most other arbitration proceedings, the award is a legally binding and final decision.
The parties can choose to take the decision to court to appeal it if: the arbitrator(s) failed to uphold legal duties; if the arbitrators made the decision because of duress, fraud, or corruption; or if the decision was completely irrational.
Why FINRA Matters
Like most individual investors, you likely depend upon information and advice from your broker or advisor to make sound, informed choices when it comes to managing your investments. To be successful, you need to know that you can trust your broker, as well as the larger firm he or she works for, and you also need to be able to trust the companies that offer investments and securities to individuals.
FINRA understands how important the trust among individual investors, financial professionals, and larger firms, companies, and banks is to the financial industry. They utilize a variety of tools to protect investors from unethical practices by brokers, financial advisors, and firms. In its work, FINRA protects not only individual investors but also the integrity of the market as a whole.
What FINRA Does
FINRA works to achieve its goals in several ways. It sets rules that require brokers to be licensed and undergo testing, and it requires truth in advertising for investments. FINRA also helps to ensure that the securities sold on the market are suitable for individual investors, which is important, as some investors’ situations allow them to take on risky ventures, while other investors have lower thresholds for risk. FINRA also works to make certain that investors have ready access to all the information about the market they need to make an informed decision before they invest.
FINRA’s current oversight encompasses over 600,000 brokers and almost 4,000 firms nationwide. The organization assessed over $95 million in fines last year and secured payment to harmed investors in the amount of almost $100 million.
What FINRA Can Do for You
FINRA’s requirements for registration and licensing are essential to the industry. They ensure those who work in the financial marketplace have the proper qualifications, and that a broker or firm who engages in fraudulent or untrustworthy behavior can be tracked down and held responsible. Your broker should be registered with FINRA – if he or she isn’t, that should set off a red flag. The law requires firms to register with FINRA as well as individual brokers and advisors.
To find out whether or not your financial advisor is registered or licensed, FINRA offers a free service for investors called BrokerCheck. In addition to telling you whether or not a broker is registered, the service provides investors with background information on brokers and indicates if FINRA has received reports of misconduct or criminal activities.
The FINRA Arbitration Process
Average FINRA arbitration proceedings can take around a year to resolve. Investors must pursue arbitration proceedings through FINRA if their investor arrangement includes a written agreement, if the advisor is a member of FINRA, and if the dispute involves an advisor’s or brokerage firm’s securities business.
The FINRA arbitration process typically includes:
- Filing the claim. To initiate the arbitration, an investor must file a “Statement of Claim” and a “Submission Agreement” with FINRA. The statement should include details of the claim including the names of those involved, dates, and a request for compensation or relief. Investors may file the claim online or mail it to the New York FINRA office. When FINRA receives the appropriate documentation, the organization will serve the claim information to the respondents named in the claim. Respondents then must respond to the claim within 45 days of receipt.
- Arbitrator selection. Depending on the facts of the claim, FINRA will offer a list of available and qualified arbitrators to each party. Both parties must agree on the selection of arbitrators to move the case forward. FINRA handles claims that require single arbitrator decisions and those that require a panel of arbitrators (claims in excess of $100,000).
- Before the hearing, each side of the dispute may hold conferences, resolve preliminary issues, and request documentation and information from the other. Both parties will use this time before the hearing to build a case and clarify information.
- During the hearing, arbitrators will listen to both sides of the case and review both verbal testimony and written/recorded evidence. Witnesses may participate and deliver testimony under oath during the hearing process.
- The arbitrator or panel of arbitrators will deliver its award decision within 30 days of the hearing. FINRA does not require arbitrators to provide explanations for their decisions, but both parties may (as of January 3, 2017) request an explanation at no additional cost.
If the claimant receives an award decision from the arbitration proceedings, the respondent must pay or challenge the award within 30 days of receiving the decision. Those who fail to pay an award may face FINRA sanctions. Learn more about what to expect during FINRA arbitration here.
Other Ways FINRA Helps
BrokerCheck isn’t the only service that FINRA offers investors. The agency provides quite a few other free tools aimed at helping individual investors select a qualified, licensed, and trustworthy broker or advisor.
Some of the other resources that FINRA offers to aid investors in their decision-making are:
- The Market Data Center, which provides investors with investment research based on current market data.
- The Fund Analyzer offers comparisons of different mutual fund investment options and allows you to compare their fees and costs.
- The Scam Meter, which lets investors know if a particular investment opportunity shows the traits of a fraudulent scheme.
How Your Attorney Can Help
The FINRA arbitration process requires precise communication, timeframes, and investigations. Most investors who file a claim against an advisor or advisement firm are not prepared to handle the legal considerations of the claim. An attorney can help claimants identify additional acts of misconduct or fraud, meet documentation submission timeframes, and protect a claimant from defenses against misconduct. Most respondents will hire an attorney to protect their professional interests. Claimants may increase their ability to secure a successful resolution if they retain legal counsel.
Arbitration claims commonly involve negligence, risk misrepresentation, breach of fiduciary or contractual duties, unsuitability, churning, and unauthorized trading. A FINRA attorney at Erez Law who specializes in securities arbitration will protect your rights to relief under FINRA standards.
As an investor, FINRA’s services are there as an oversight to protect investors, but during arbitration, they act as a neutral venue for investment disputes. Though arbitration is through FINRA, you should have a skilled attorney who understands investment law to guide you through the arbitration proceeding.
Trust Erez Law to help you file a FINRA arbitration claim. We recognize signs of unauthorized trading and other forms of misconduct, and we offer professional legal advice moving forward. Erez Law has a long track record of successful arbitration. Contract our office today to discuss your arbitration claim.