Why Mediation May Be the Best Option in Securities Industry Disputes

Why Mediation May Be the Best Option in Securities Industry Disputes

NegotiationWhen an investor suffers losses because of the miscounduct or mistakes of his or her stock broker, they can attempt to recover money through arbitration. More expeditious and less expensive than tradional litigation, this type of alternative dispute resolution has grown increasingly common in the U.S.  It has become so popular, in fact, that arbitration has overshadowed another viable alternative dispute resolution option to litigation. 

What is Mediation?

As the largest regulator of securities firms in the U.S., the Financial Industry Regulatory Authority (FINRA) is reponsible for handling most alternative dispute resolution disputes. Their most popular option is arbitration, which is a less formal way of resolving perceived broker misconduct cases than court. Even more informal than arbitration, however, is mediation.

FINRA describes their mediation program as “an informal, voluntary, and non-binding approach in which an independent and trained neutral (a mediator) facilitates negotiations between disputing parties, helping them find their own mutually acceptable resolution.”  In other words, it is a way for both sides to meet in a familar setting and try to resolve their issues in a timely, civilized way. In addition, parties may decide to mediate disputes beyond FINRA’s own program.

Mediation vs. Arbitration

The key difference between the two dispute resolution options is that the mediation process does not deliver a legally-binding decision like arbitration does. In fact, there is no decision at all! The process is more a negotation than it is a hearing, with the mediator doing his or her best to facilitate an agreement between the two sides. If no agreement can be made, however, the negotiations will cease and both parties are free to explore other options.

The Pros

Because both sides are open to negotiation, the mediation process generally only lasts a fewdays at most. That fact alone can help all involved save beaucoup bucks on costs and legal fees. Just how much depends on the case and the jurisdiction.

While not exactly enjoyable, mediation is also less stressful than arbitration, since there is no decision to await with bated breath. Both sides simply negotiate with each other for as long as they see fit. There is absolutely no pressure put on either party to agree to an unfair deal, since the mediator is a disspationate participant.

The Cons

If mediation is such a painless process, why isn’t it more popular? Although it never hurts to try, people who are unwilling to negotiate would not benefit very much from mediation. In fact, it might make the abitration process even more unpleasant if both side go in feuding after an unpleasant mediation program. At the very least, it will be a terrible waste of time and money for those who refuse to compromise on anything. Also, without any form of discovery, mediation lacks the ability for parties to feel that they know their cases well enough to fully value them and participate in mediation.

The Bottom Line

As we mentioned, mediation is less popular than arbitration. According to FINRA, the agency only handles about 1,000 cases a year, which is a fraction of the arbitration cases it arranges. That said, mediation is a viable option when both parties are ready and willing to negotiate.

So if you would like to handle things as quickly and as quietly as possible, get in touch today to explore mediation as a possible option.


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