What is FINRA arbitration?

FINRA arbitration is a method of resolving disputes between investors and brokerage firms or financial advisors outside the court system. It involves a neutral third party, an arbitrator, who reviews the case and makes a binding decision.

Why choose arbitration over litigation?

Arbitration is typically faster, less formal, and more cost-effective than litigation. It also provides a final resolution to disputes, with limited grounds for appeal. Most relationships with financial advisors are formalized by entering into a contract which contains a dispute resolution clause. Nationally, most dispute resolution clauses provide for FINRA arbitration.

Who can file a FINRA arbitration claim?

Investors, brokerage firms, and financial advisors can file a FINRA arbitration claim if they have a dispute related to securities or investment activities. FINRA arbitration is normally the forum for disputes among registered persons, brokerage firms and the public customer clients of the firms.

How do I start the FINRA arbitration process?

To start the arbitration process, Bakhtiari & Harrison will file a Statement of Claim with FINRA, detailing the nature of the dispute, the parties involved, and the relief sought.

What is a Statement of Claim?

A Statement of Claim is a written document submitted by the claimant outlining the facts of the dispute, legal claims, and the desired outcome.

What happens after filing the Statement of Claim?

After filing, the respondent has 45 days to answer the Statement of Claim. The answer must address the claims and may include counterclaims or other relief sought.

What fees are involved in FINRA arbitration?

Fees include filing fees, hearing session fees, and possibly member surcharges or process fees, depending on the specifics of the case.

Can I represent myself in FINRA arbitration?

Yes, you can represent yourself, but many choose to hire an attorney with experience in securities arbitration due to the complexity of the process. Investors and industry professionals who choose to represent themselves do so at a substantial disadvantage, Wall Street firms typically retain experienced professional counsel to represent their interests.

How are arbitrators selected?

Arbitrators are selected through the Neutral List Selection System (NLSS), which provides a list of potential arbitrators. Both parties rank and strike names to agree on a panel.

What qualifications do FINRA arbitrators have?

FINRA arbitrators include attorneys, accountants, financial professionals, and public members who have undergone training and meet FINRA’s qualification standards.

How long does the arbitration process take?

The process typically takes 12-18 months from filing to the final award, but this can vary based on case complexity and scheduling. Preference may be given to investors that are seriously ill or elderly.

What is a prehearing conference?

A prehearing conference is a meeting between the parties and the arbitrators to discuss procedural issues, set a schedule, and address preliminary matters including final FINRA arbitration hearing dates.

What is discovery in arbitration?

Discovery is the exchange of documents and information between the parties to prepare for the hearing. It is more limited than in litigation.

What happens during the arbitration hearing?

During the hearing, both sides present evidence, call witnesses, and make arguments. The arbitrators then deliberate and render a decision.

Is the arbitration hearing open to the public?

No, arbitration hearings are private and confidential. Only the parties, their representatives, and the arbitrators may attend.

Can I settle my case before the hearing?

Yes, parties can settle at any time before the arbitrators render a decision, often through negotiation or mediation.

What is mediation in the context of FINRA arbitration?

Mediation is a voluntary process where a neutral mediator helps the parties negotiate a settlement. It is separate from arbitration and non-binding.

What happens if I lose in arbitration?

If you lose, the arbitrator’s decision is final and binding. There are limited grounds for challenging the award in court.

Can I appeal an arbitration decision?

Generally, you cannot appeal an arbitration decision. However, you can seek to vacate the award on very narrow grounds, such as arbitrator misconduct.

What types of disputes are resolved through FINRA arbitration?

Disputes include claims of fraud, breach of fiduciary duty, negligence, breach of contract, and other issues related to securities and investments.

How are damages determined in arbitration?

Damages are determined based on the evidence presented, including financial records, expert testimony, and the specifics of the case.

Can arbitrators award attorney’s fees?

Arbitrators can award attorney’s fees if provided for by law, contract, or if both parties request it.

How do I enforce an arbitration award?

An arbitration award can be enforced in court through a confirmation process, making it a judgment that can be collected.

What is expungement in FINRA arbitration?

Expungement is the process of removing information from a broker’s record on the Central Registration Depository (CRD) system. It is only granted under specific conditions.

What are the grounds for vacating an arbitration award?

Grounds for vacating an award include arbitrator bias, fraud, corruption, or misconduct, as well as exceeding their powers.

Are arbitration awards public?

Yes, arbitration awards are published on FINRA’s website, providing transparency and access to past decisions.

What is the role of the Office of Dispute Resolution?

The Office of Dispute Resolution administers arbitration and mediation cases, ensuring that the process runs smoothly and efficiently.

What is a Simplified Arbitration?

Simplified Arbitration is for cases involving claims of $50,000 or less, allowing for a quicker and less expensive resolution without a hearing.

Can I request an expedited hearing?

Yes, in certain circumstances, such as elderly or seriously ill parties, you can request an expedited hearing.

What is the role of an arbitrator?

An arbitrator acts as a neutral decision-maker, reviewing evidence, hearing testimony, and issuing a binding decision on the dispute.

How do I prepare for an arbitration hearing?

Preparation involves gathering evidence, preparing witnesses, and developing a clear case strategy to present to the arbitrators.

What types of evidence are admissible in arbitration?

Evidence can include documents, emails, financial records, expert reports, and witness testimony, subject to the arbitrators’ discretion.

Can I request documents from the other party?

Yes, through the discovery process, you can request relevant documents and information from the other party to support your case.

How does FINRA handle conflicts of interest with arbitrators?

FINRA requires arbitrators to disclose any potential conflicts of interest, and parties can object to arbitrators they believe are biased.

What happens if a party does not comply with discovery?

If a party does not comply, the other party can file a motion to compel, asking the arbitrators to order compliance and possibly impose sanctions.

What is a motion in arbitration?

A motion is a formal request for the arbitrators to make a ruling on a specific issue, such as compelling discovery or dismissing a claim.

Can I request interim relief in arbitration?

Yes, you can request interim relief, such as temporary restraining orders or injunctions, to preserve the status quo pending the final decision.

How are hearing locations determined?

Hearing locations are typically determined by the location of the claimant unless both parties agree to a different venue.

What is a telephonic or virtual hearing?

Telephonic or virtual hearings are conducted via phone or video conference, allowing parties to participate remotely.

How are arbitration awards paid?

Awards are typically paid by the losing party within 30 days of the decision, unless otherwise specified by the arbitrators.

What if the losing party does not pay the award?

If the losing party does not pay, you can seek enforcement through the courts, turning the award into a legally enforceable judgment.

Are there any limits on the types of claims I can bring in arbitration?

FINRA arbitration covers a broad range of claims related to securities, but there are some statutory and regulatory limits on certain types of claims.

Can I bring a class action in FINRA arbitration?

No, class actions are not permitted in FINRA arbitration. However, you can join other claimants in a single arbitration if the claims are similar.

What is the role of expert witnesses in arbitration?

Expert witnesses can provide specialized knowledge and opinions to help explain complex financial issues to the arbitrators.

How are hearing dates scheduled?

Hearing dates are scheduled based on availability of the parties and arbitrators, with consideration for the complexity of the case.

Can I request a different arbitrator if I believe one is biased?

Yes, you can challenge an arbitrator if you believe they have a conflict of interest or bias that affects their impartiality.

What is a “chairperson” in a FINRA arbitration panel?

The chairperson is the lead arbitrator who manages the procedural aspects of the case and ensures the hearing runs smoothly.

How does FINRA ensure fairness in arbitration?

FINRA has rules and procedures in place to ensure a fair and impartial process, including arbitrator training and disclosure requirements.

How do I learn more about the FINRA arbitration process?

For more information, you can visit FINRA’s website, contact their Office of Dispute Resolution, or consult with experienced attorneys like those at Bakhtiari & Harrison.

How can Bakhtiari & Harrison help with FINRA arbitration?

Bakhtiari & Harrison can assist with filing claims, responding, selecting arbitrators, discovery, hearings, and ensuring the best possible outcome through skilled representation and strategic advice.

Navigating a Smooth Transition: How Bakhtiari & Harrison Assist FINRA Registered Representatives

At Bakhtiari & Harrison, we understand that transitioning to a new broker-dealer can be a significant career decision for FINRA registered representatives. It involves meticulous planning, legal considerations, and strategic execution. Our firm is committed to guiding you through this complex process, ensuring a seamless transition that maximizes client retention and minimizes legal entanglements.

Understanding the Complexities of Transitioning A Book of Business

Transitioning from one FINRA member broker-dealer to another is a multifaceted process that requires careful navigation of various legal and professional pitfalls. Here are some key considerations:

Employment Agreements and Duties of Loyalty

One of the primary concerns when transitioning is the employment agreement with the departing firm. These agreements often contain clauses related to non-compete, non-solicitation, and confidentiality. Understanding these clauses is crucial to avoid potential legal disputes.

Duties of Loyalty: As a registered representative, you owe a duty of loyalty to your current employer. This means you cannot engage in activities that harm your employer’s business, such as soliciting clients or employees while still employed.

Trade Secrets and Confidential Information

Handling trade secrets and confidential information with care is paramount. Misusing this information can lead to serious legal consequences, including lawsuits and injunctions.

Best Practices:

Do not take proprietary information from your current employer.
Avoid downloading or copying client lists, financial data, or any other confidential materials.

Non-Compete and Non-Solicitation Covenants

Non-compete and non-solicitation clauses are common in employment agreements. These clauses restrict your ability to work with competitors or solicit clients from your former employer for a specified period.

Key Considerations:

Legality: The enforceability of non-compete clauses varies by state. Some states, like California, have strict limitations on these agreements.
Scope and Duration: Ensure you understand the geographical scope and duration of these restrictions.

The Broker Protocol

The Broker Protocol is an agreement among several brokerage firms that allows registered representatives to take certain client information when moving between signatory firms without fear of litigation. Familiarity with the Broker Protocol can significantly ease the transition process.

Broker Protocol Basics:

Allows for the transfer of basic client contact information.
Requires the departing representative to follow specific procedures to qualify for protection.

Legal and Regulatory Considerations

Transitioning to a new broker-dealer involves compliance with FINRA regulations and other legal requirements. This includes updating your registration and ensuring all disclosures are accurately reported.

Best Practices:

Work with legal counsel to review all regulatory requirements.
Ensure all necessary forms and disclosures are filed promptly and accurately.

Best Practices for a Non-Confrontational Transition

A non-confrontational transition is essential for maintaining professional relationships and client trust. Here are some best practices:

Plan Ahead

Advance planning is critical. Start by reviewing your current employment agreement and understanding any restrictive covenants.

Steps to Take:

Consult with legal counsel to evaluate your agreement.
Develop a timeline for your transition.

Communicate Transparently

Clear and honest communication with your current employer is vital. While it may be uncomfortable, transparency can prevent misunderstandings and reduce the risk of legal disputes.

Tips:

Provide notice in accordance with your employment agreement.
Be respectful and professional in all communications.

Protect Client Relationships

Maintaining client relationships during the transition is crucial for your continued success. Clients value trust and reliability, so it’s important to manage their transition smoothly.

Strategies:

Inform clients about the transition in a timely and professional manner.
Reassure them about the continuity of service and address any concerns they may have.

Leverage the Broker Protocol

If both your current and prospective firms are signatories to the Broker Protocol, ensure you adhere to its guidelines. This can significantly reduce legal risks and facilitate a smoother transition.

Steps:

Follow the Broker Protocol’s procedures for transferring client information.
Work closely with your new firm’s compliance department to ensure all protocols are followed.

Legal Support

Engaging legal support throughout the transition process can help mitigate risks and ensure compliance with all legal and regulatory requirements.

Role of Legal Counsel:

Review and interpret employment agreements.
Advise on the enforceability of non-compete and non-solicitation clauses.
Assist with regulatory filings and disclosures.

How Bakhtiari & Harrison Can Help

At Bakhtiari & Harrison, we provide comprehensive support to FINRA registered representatives transitioning to new broker-dealers. Our services include:

Legal Review and Consultation

Our experienced attorneys will review your employment agreement and provide personalized advice on navigating restrictive covenants and other contractual obligations.

Services:

Detailed analysis of non-compete, non-solicitation, and confidentiality clauses.
Strategic advice on mitigating risks associated with these clauses.

Regulatory Compliance

We assist with all regulatory aspects of the transition, ensuring you meet FINRA requirements and maintain compliance throughout the process.

Support Includes:

Guidance on updating your registration.
Assistance with filing necessary disclosures and forms.

Transition Planning

We help you develop a comprehensive transition plan that addresses all aspects of the move, from legal considerations to client communication strategies.

Planning Services:

Customized transition timelines.
Best practices for client retention and communication.

Broker Protocol Guidance

If applicable, we provide detailed guidance on adhering to the Broker Protocol, ensuring you can transfer client information without legal repercussions.

Protocol Services:

Explanation of Broker Protocol procedures.
Support in complying with all requirements.

Dispute Resolution

In the event of disputes with your former employer, we offer robust representation to protect your rights and interests.

Dispute Services:

Negotiation and mediation to resolve conflicts amicably.
Litigation support if necessary.

Avoiding Common Pitfalls

Transitioning to a new broker-dealer can be fraught with challenges. By understanding and avoiding common pitfalls, you can ensure a smoother and more successful transition.

Ignoring Employment Agreement Clauses

Failing to understand and adhere to your employment agreement’s restrictive covenants can lead to legal disputes and potential career setbacks.

Avoidance Strategies:

Review your agreement thoroughly with legal counsel.
Develop a strategy that respects these covenants while planning your transition.

Mishandling Confidential Information

Taking or using confidential information from your current employer can result in serious legal consequences. Always handle such information with care and integrity.

Best Practices:

Do not download or copy client lists or other proprietary information.
Use only the information allowed under the Broker Protocol, if applicable.

Inadequate Communication with Clients

Clients are the backbone of your business. Failing to communicate effectively with them during the transition can lead to loss of trust and business.

Communication Tips:

Inform clients about the transition well in advance.
Address their concerns and reassure them about the continuity of service.

Non-Compliance with Regulatory Requirements

Neglecting regulatory requirements can lead to fines, penalties, and delays in your transition. Ensure you are fully compliant with all FINRA regulations.

Compliance Tips:

Stay informed about FINRA requirements and updates.
Work closely with legal counsel to ensure all filings and disclosures are correct.

Engaging in Unethical Practices

Ethical conduct is paramount in the financial services industry. Engaging in unethical practices during the transition can damage your reputation and career.

Ethical Practices:

Avoid soliciting clients or employees while still employed with your current firm.
Follow all legal and ethical guidelines during the transition.

Transitioning to a new broker-dealer is a significant step in your career as a FINRA registered representative. At Bakhtiari & Harrison, we are dedicated to helping you navigate this process smoothly and successfully. Our comprehensive support, from legal review and regulatory compliance to transition planning and dispute resolution, ensures you can focus on what matters most: building and maintaining strong client relationships.

By understanding the complexities and potential pitfalls of transitioning, you can make informed decisions that protect your career and your clients. Whether it’s reviewing your employment agreement, adhering to the Broker Protocol, or ensuring regulatory compliance, we are here to guide you every step of the way.

For more information on how Bakhtiari & Harrison can assist you in your transition, please visit our website. Our team of experienced attorneys is ready to provide the personalized support and guidance you need to achieve a successful and non-confrontational transition.