The FINRA Arbitration Task Force: How Does it Affect Advisors?

Being sued by your client. FINRA-new-york

Not a desirable place to be, regardless of your industry.

For independent financial advisors, the FINRA Code of Arbitration Procedure is the bible that provides a set of guidelines for this sometimes difficult process and the responsibilities of all involved. In the past, arbitration panels were comprised of a mix of industry professionals and public arbitrators, so that at least some of the arbitrators would be versed in the issue(s) in dispute. As the rules evolved, FINRA codes changed to allow claimants to select panels composed entirely of  non-industry arbitrators to serve on the panels, reasoning that this would decrease the likelihood of bias in favor of the industry.

This prompted the question: how can people who aren’t versed in the responsibilities of advisors and the nuances of industry operations make informed decisions about the liability of those operating in that industry? It’s not a matter of ill intent – simply a question of dealing with unintended consequences that would be preventable with a mix of public arbitrators and industry professionals instead of a group made up of just one group.  In fact, on some panels made up of solely “public” arbitrators, nothing prevents attorneys who predominantly represent claimants from serving, while industry professionals are barred.

To this end, FSI is in the process of organizing a task force (including legal professionals inside and outside of the industry, compliance experts, and financial advisors who have previously served on arbitration panels or had arbitration claims filed against them) to address these concerns. With a wealth of diverse experience in the industry, the 18-person team will seek to propose change to the current rules in order to return the pendulum of FINRA arbitration back to equilibrium.

Feel free to share your thoughts about this topic in the comments section – and stay tuned for more on this issue!


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