The Pros and Cons of FINRA Arbitration

The Pros and Cons of FINRA Arbitration

Brokerage FirmIf every dispute between an investor and his stockbroker had to be handled in court, the backlog of cases would be overwhelming. That is why most of these cases are decided through a process called FINRA arbitration. The largest regulator of securities firms in the U.S., the Financial Industry Regulatory Authority (“FINRA”) is responsible for running an arbitration forum for aggrieved investors.

What You Need to Know

Whether you are the accused stockbroker or firm or the disgruntled investor, arbitration is often the only option. Why? Because most investors signed a customer agreement that contained a mandatory arbitration clause before they open an account with a brokerage house. It would behoove both parties then to learn about the strengths and weaknesses of this dispute resolution method. With that in mind, here they are.


Time –   Complicated cases often take years to wind their way through the courts. By comparison, the average FINRA arbitration case is decided in twelve (12) to eighteen (18) months. Moreover, most of these cases (about 60%) (seems low) are settled before the arbitrators render an award. So what might have taken years of litigation can often be resolved in a matter of months.

Money – In addition to taking less time on average than a trial, arbitration hearings are also far less formal. In other words, they do not require jury selection, evidentiary motions, etc. As as a result, they need not put in nearly as many billable hours on FINRA arbitration cases.

Stress – Unlike court proceedings that pit one side against the other on opposite sides of a room, arbitration brings both parties and arbitrators to the table — literally and figurately. While sitting at the same table in a meeting or conference room, it is less taxing on participants.

Privacy – More often than not, both parties want to handle the case quickly and quietly. They do not want nosey reporters or neigbors asking them about an ongoing dispute. No matter the participants, most arbitration proceedings are held in private. Most parties also agree to keep the settlement confidential. In contrast, litigation court files are “matters of public record” and can be reviewed by anyone.


Finality – Unlike court verdicts that can often be appealed, the grounds for reversing the decision of the arbitrators is nearly impossible to meet. This leaves an aggreived investor, stockbroker or brokerage firms without recourse should they disagree with the decison.

No Jury – While not always the case, most plaintiffs believe that juries are more sympathetic to the little guy than they are to large companies or employers. But because they are professionals who hear cases for a living, arbitrators tend to be less emotional than ordinary jurors. That does not mean that the underdog cannot get a fair shake with them, but simply that they will not have that traditional advantage during an arbitration hearing.

No Findings – Unkike courts, arbitrators do not give written decisions on why they rules the way they did. Thus, the participants do not know what facts the arbitrators found or what law they utilized in rendering an award.

No matter which side of the table you are on, both parties can clearly benefit from FINRA arbitration. Though the process does have its disadvantages, it has proven effective at settling complicated financial disputes efficently.



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