Fewer brokerage customers are filing arbitration claims, but that trend may reverse later this year thanks to the steep market downturn.
The number of customer claims declined to 369 cases in the first quarter of this year compared to 523 in the same period last year, a 29% drop, according to Financial Industry Regulatory Authority Inc. statistics through March. Finra runs the dispute resolution system for the brokerage industry.
Overall arbitration cases — customer as well as intra-industry disputes between brokers and financial firms — totaled 632 in the first quarter compared to 776 in the first quarter of 2021, a 19% drop.
“If the trend holds, the 632 arbitrations filed for the quarter straight-lines to about 2,500 yearly arbitration filings, a weak year by any measure,” George Friedman, editor in chief of the Securities Arbitration Alert, wrote in a recent blog post. “Time will tell.”
As the year goes on, the number of arbitration cases is likely to spike as a result of current market volatility. The market turmoil didn’t cause a surge of arbitration filings in the first quarter because it typically takes a while for market events to result in arbitration filings, Friedman said.
“Cases don’t materialize for months,” said Friedman, a former director of Finra arbitration. “Over the course of the year, customer filings will go up. People tend to fight when they’re losing money, not so much when they’re making money.”
An arbitration lawyer is also anticipating an upward trajectory in arbitration cases.
“It’s the calm before the storm,” Adam Gana, a partner at Gana Weinstein, said of the first-quarter arbitration statistics. “There will be an influx of filings, and I believe case numbers will go back up by year-end.”
Gana said he was surprised by the decline in arbitration cases so far this year because his firm, which represents customers in disputes with brokerages, “is busier than ever.” He attributes the increase in business to an uptick in risky investment products that harm investors.
“Even in up markets, terrible products are sold to clients,” Gana said.
One area where arbitration claims are climbing is cases involving disputes between registered representatives and brokerages, and between brokerages, or intra-industry cases. Those disputes totaled 263 in the first quarter compared to 253 last year.
That increase is likely due to the shrinking number of brokerages and reps, which has been captured in Finra’s recent Industry Snapshot survey. When reps are fired or jump to new firms, it can be fertile ground for an arbitration claim.
“Those are going up because of industry upheaval,” Friedman said.
IRAs now hold nearly twice the assets of 401(k) plans — and most of that money didn't arrive through annual contributions.
A new survey finds that many women prioritize financial security but continue to leave savings in accounts that may not keep pace with inflation.
Roundhill, Bitwise and GraniteShares funds remain on hold while the agency weighs how novel ETFs should be regulated.
"Shares of alternative assets managers have lagged this year as investors grow wary of private-credit exposure."
The fintech platform is touting a new AI-free Planning Observations feature, which draws on IRS tax records to uncover opportunities for advisors.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
