Investment Advisers not Associated with FINRA Can Use FINRA Arbitration Forum


The Financial Industry Regulatory Authority (FINRA) says it will open its arbitration forum to disputes involving investment advisers that are not broker-dealers or registered representatives of broker-dealers. FINRA arbitrations are now limited to cases involving a broker-dealer or registered representative. These cases include both intra-industry disputes and cases involving customers.

FINRA’s president, Linda Fienberg, said that FINRA is making this change to accommodate attorneys who requested this expansion of FINRA’s role, and not to stake out its turf in connection with its publicly stated aim of replacing the SEC as the regulator for registered investment advisors.

Investment advisors have voiced opposition to FINRA’s desire to become their regulator. However, the article notes that many of them may wish to test out FINRA’s dispute resolution services. Litigation involving investment advisors is usually filed in court or arbitrated through the American Arbitration Association (AAA) or JAMS, another dispute resolution organization. FINRA arbitration is widely regarded as comparatively less expensive and more expeditious. Once registered investment advisors try it, they will be more amendable to having FINRA as their regulator, some observers believe.

FINRA arbitration will be entirely voluntary for registered investment advisors in that all parties must agree to arbitrate after the dispute has arisen. While ultimately based on agreement, FINRA arbitration is effectively involuntary for customers, broker-dealers and registered representatives. That is because it is based on a pre-dispute arbitration agreement in which they are effectively “forced” to agree to arbitrate all disputes under FINRA rules as a condition to opening an account with a brokerage firm, or as a condition to operating as a broker-dealer or being associated with a broker-dealer.

FINRA says it will also open its mediation services to registered investment advisers. Settlement is entirely voluntary, but approximately 80% of all mediated cases result in a settlement agreement.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.