Finra fee hike not a terrible idea

Jun 22, 2014 @ 12:01 am

There are few times in life — very few — when paying more for something is good. Paying a little extra for additional safety and security comes to mind.

For brokers, the idea of the Financial Industry Regulatory Authority Inc. raising fees or tacking on yet another fee is anathema, and for good reason. Wall Street's industry-funded watchdog has a knack for charging a lot but ringing up big losses year after year.

That said, its latest proposal to initiate a new set of fees, which would go toward raising the compensation of its roughly 6,300 arbitrators, is not unreasonable. In a recent proposal sent to the Securities and Exchange Commission, Finra asked to raise filing fees, member surcharges, processing fees and hearing session fees on claims larger than $250,000. Depending on the exact size of the claim, the increases could add $100 to $400 to a case.

As reporter Mark Schoeff Jr. explained, for a claim between $500,000 and $1 million, a hearing session in which arbitrators and parties meet to discuss the case would cost $1,300 rather than $1,200.


In its filing with the SEC, Finra said the fee hikes would be the first since 1999 and would go toward increasing arbitrator pay, a subject, the self-regulator says, of much contention. Finra claims to have received “numerous complaints” from arbitrators over the amount they were paid, with some forgoing a Finra case when it conflicted with a higher-paying gig.

Many of those other, higher-paying assignments were probably in other fields such as law, where arbitrators are paid better than they are for broker claims.

One thing is clear: Something has to be done. Finra's arbitration system has come under legitimate fire this year after high-profile cases involving arbitrators who were arguably unfit to serve — including one who was struck from the roster after allegedly lying about being a lawyer — came to light.

Now, a few extra hundred bucks in one's pocket is not going to prevent someone from lying about their credentials to get a job, but overall, it could do a lot to lift the level of professionals signing up to be arbitrators. Indeed, the Securities Industry and Financial Markets Association and other industry groups have by and large supported the effort as a way to help improve the quality of Finra's arbitration process.

If the SEC backs the fee-hike plan, the proposal will go out for public comment and then final SEC review before any new fee schedule is put in place.

One thing to watch closely and ask about: Finra said the fee increases would give it an additional $4 million to $5.6 million per year, but that the pay raise would cost $3.5 million to $4.2 million. So where's the extra half-million going?


What do you think?

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