Finra task force calls for higher arbitrator pay, greater transparency

Group also suggested a pool of arbitrators be trained to conduct expungement hearings, but didn't touch the mandatory aspect of arbitration

Dec 16, 2015 @ 5:31 pm

By Mark Schoeff Jr.

Finra should pay arbitrators more, require explanations for arbitration decisions, and implement an automatic mediation process to improve its ability to address customer and broker complaints against brokerage firms, a task force said Wednesday.

Those were among 51 recommendations made by a 13-member panel formed in June 2014 to analyze the arbitration system sponsored by the Financial Industry Regulatory Authority Inc.

Finra operates dispute-resolution forums that draw from a pool of more than 6,400 arbitrators, some of whom come from the financial industry and others who are deemed “public” arbitrators. More than 3,000 arbitration cases — each heard by three arbitrators – have been tried in each of the previous two years.

The primary way to improve the system is to increase arbitrator pay per hearing session from $300 to $500, the task force said.

“It is the unanimous, strongly held opinion of the task force that the most important investment in the future of the Finra forum is in the arbitrators,” the task force report stated. “The task force has concerns that the below-market-rate arbitrators' compensation acts as a disincentive in the recruitment of arbitrators and in the commitment of substantial time by arbitrators in executing their responsibilities accordingly.”

Finra arbitration awards, although posted publicly, are often opaque. The task force recommended Finra require arbitrators to explain why they made their decisions, unless one of the parties in the dispute opts out.

“The task force believes that … the availability of explained decisions would improve the transparency of the forum,” the report stated.

The task force addressed the controversial issue of expungement, or the process by which brokers can remove disciplinary actions from their profiles on the public BrokerCheck database. The group said Finra should create a pool of arbitrators specifically trained to conduct expungement hearings.

The task force also recommended automatic mediation for arbitration cases unless one of the parties declines.

The arbitration system has been criticized for being biased toward the industry. Finra has made several reforms over the past few years and formed the arbitration task force to examine what other changes are required.

Hugh Berkson, president of the Public Investors Arbitration Bar Association, said the report was balanced.

“They clearly addressed issues that are important to both sides,” he said.

The report offers a starting point for improving the expungement process, according to Mr. Berkson.

“Standing on their own, I don't think they go all the way forward in fixing the expungement problem,” he said. “Let's at least start with this.”

The task force did not reach a conclusion about the most controversial arbitration issue: the fact that it is mandatory in almost all brokerage customer contracts.

“Given the diverse nature of the task force, it's to their credit that the group reached consensus on so many issues that, if implemented, will significantly improve the Finra arbitration forum,” George Friedman, a former director of Finra arbitration, wrote in an email. “I'm not surprised they could not reach a consensus on mandatory arbitration. That ball is squarely in the SEC's court.”

The Dodd-Frank financial reform law gave the Securities and Exchange Commission the authority to prohibit mandatory arbitration clauses. The agency has not yet acted.

0
Comments

What do you think?

View comments

Upcoming event

Sep 24

Conference

Diversity & Inclusion Awards

Attend an event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate and inspire an... Learn more

Most watched

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print