Lawyer and client at a meeting

What is the FINRA Arbitration Process?

When making investments, you expect that your money will be handled with care and fairness. Unfortunately, that’s not always the case. If you feel your money is being mishandled, that’s when you need an experienced lawyer to help.

At Weltz Law, our lawyers understand the laws and will fight for your investments.

What is FINRA?

FINRA stands for the Financial Industry Regulatory Authority, Inc. The organization is a not-for-profit government-authorized group that protects investors and oversees U.S. broker-dealers. According to the FINRA website, they also make sure:

  • “every investor receives the basic protections they deserve;
  • anyone who sells a securities product has been tested, qualified, and licensed;
  • every securities product advertisement used is truthful and not misleading;
  • any securities product sold to an investor is suitable for that investor's needs; and
  • investors receive complete disclosure about the investment product before purchase.”

What is a FINRA Arbitration Claim?

If an investor feels there has been mishandling of their money, they can file an arbitration claim with FINRA. A claim is only valid if the alleged act happened within the past six years. Once the arbitration concludes, it is considered final and binding and will be upheld in court. It is rare for the arbitration to be reviewed by a court afterward.

What Types of Arbitration Claims Can be Filed?

Investors can file various arbitration claims with the FINRA. Those include:

  • Breach of Contract - investors and brokers typically have a customer agreement that requires the broker to abide by the rules of exchanges by which the broker trades. If an investor has a breach of contract claim, it means that you suffered losses because of your broker violating exchange rules.
  • Negligence - if your broker does not comply with the industry standards or fails to act rightfully with your investments, then you could claim negligence.
  • Failure to Supervise - most brokers are in a brokerage firm, and that firm has the responsibility to watch over its brokers. This is especially true if the broker has a history of misconduct. You may have a claim if you suffered losses and feel your broker’s firm did not properly supervise the broker. (Pro tip: check out your broker’s professional history on the FINRA website).
  • Fraud/Misrepresentation - Where an investor chooses to put your money shouldn’t be based upon a gut intuition - you want them to have grounds to believe your investment is going in the right spot at the right time. If you feel that your investor was gambling with your money without any basis on where it should really be going, you could have grounds for fraud or misrepresentation.
  • Unauthorized Trading - You have the right to know where your investments are going at all times. If your investor makes a trade without your permission or forces you to accept a transaction that you did not actually agree to, you would have grounds for an unauthorized trading claim.
  • Churning/Excessive Trading - This is when the investor is purposely excessively trading on your behalf and is usually generated by their intent to earn more commission.
  • Unsuitable Transactions - This is a general term used when your investor is making transactions that are not consistent with your investment objectives. Examples of this include high-risk investments when you have a low-risk tolerance or putting a majority of your funds into one stock or security.

When you’re ready to go to arbitration, expect there to be your representation, the investor’s representation, and a neutral third party - the arbitrator. Once a decision is made, it is final and binding.

You don’t want to go to arbitration alone. That’s where our team at Weltz Law is here to help. With our more than 30 years of collective experience, we’ve helped clients in all aspects of protecting their money. Contact our office today for a free consultation - (877) 905-7671.