FINRA Arbitration: Explosive Study Reveals Lack of Diversity Among Arbitrators and Lack of Transparency on Arbitrator Bias and Conflicts

The Public Investors Arbitration Bar Association (PIABA) today released an important study exposing some very troubling facts about arbitration at the Financial Industry Regulatory Authority (FINRA).

Despite FINRA’s public claims to provide a diverse pool from which its arbitrators are drawn, in truth 80% of the arbitrators are men, and the average age of those arbitrators is 69. In fact, 40% are 70 or older and 17% are aged 80 or older. And in two documented cases, FINRA actually provided the names of deceased arbitrators to parties undertaking the arbitrator-selection process.

Obviously, simply because an arbitrator is elderly does not mean that he or she cannot render a fair decision. That said, an arbitrator pool that is so heavily skewed toward arbitrators in their 70s and 80s is not representative of the general investing public whose disputes are nearly always settled by FINRA panels.

And the same thing goes for the lack of gender balance among FINRA arbitrators. This study does not argue that any individual male arbitrator will be incapable of reaching a fair decision in a case brought by a female investor. But as the rest of society takes affirmative steps to move toward gender balance, FINRA lags. Investors deserve better.

In the press release accompanying the publication of this study, PIABA President-Elect Joseph Peiffer, a New Orleans attorney, said: “As basically the only remaining game in town, FINRA owes the public a duty to ensure a level playing field in arbitration, which includes providing parties with neutral and impartial arbitrators as well as a transparent arbitrator disclosure process. Because FINRA has failed to provide this the need for independent oversight over FINRA’s arbitration forum is even greater today.”

The study also points out significant problems with the arbitrator disclosure process, including a failure to ensure that arbitrators disclose their potential conflicts or biases.

And the study goes on to recommend nine concrete reforms, including the adoption of the Investor Choice Act of 2013, making securities arbitration optional for investors and giving them the right to go to court instead.

These are important issues that investors should be aware of, and that our elected leaders should address.

At The Galbraith Law Firm, we work to protect investors and assert their legal rights if they have suffered investment losses as a result of their brokerage firms’ misconduct. If you have questions regarding investment losses, the conduct of your brokerage firm or the FINRA arbitration process, please contact a securities attorney at 212.203.1249 or kevin@galbraithlawfirm.com for a free confidential consultation regarding your legal rights.