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.

10 Ways to Spot a Fraudulent California Securities Advisor

Financial scams are becoming increasingly sophisticated, making it essential to safeguard your investments. Whether you’re a prospective investor, a seasoned one, or a financial advisor looking to protect your clients, you need to understand how to identify fraudulent securities advisors in California. This guide provides ten key indicators to help you recognize red flags and ensure your assets remain in trustworthy hands.

Understanding Securities Advisors

Definition and Roles

A securities advisor offers investment advice, manages investment portfolios, and provides financial planning services. Their primary role involves guiding you through your investment journey to ensure you meet your financial goals. Trust between an investor and their advisor forms the foundation of a successful financial relationship.

Types of Securities Advisors in California

In California, you will encounter various types of securities advisors, including registered investment advisors (RIAs), brokers, and financial planners. Each type carries different responsibilities and operates under distinct regulatory frameworks. Compliance with regulations is crucial to maintain the integrity of these roles.

Licensing and Registration Requirements

California mandates that securities advisors register with the Securities and Exchange Commission (SEC) or the California Department of Financial Protection and Innovation (DFPI). Advisors must pass exams, such as the Series 65, and adhere to strict compliance and regulatory standards. Licensing ensures that securities advisors are qualified to offer investment advice and manage client portfolios.

Potential Risks of Trusting a Securities Advisor

Common Scams and Frauds

Fraudulent securities advisors often engage in Ponzi schemes, unauthorized trading, and misrepresentation of investment opportunities. These activities can result in significant financial losses and legal troubles. Ensuring compliance with regulations is essential for client protection and maintaining trust.

Red Flags to Watch Out For

Unrealistic Promises: Advisors who guarantee high returns with little or no risk are often fraudulent. Remember, all investments come with some level of risk.
Lack of Transparency: If an advisor hesitates to disclose information about their compensation, past performance, or investment strategies, consider it a red flag.
Pressure to Invest Quickly: Reputable advisors give you time to make informed decisions. High-pressure tactics often indicate fraudulent investments.
Unregistered Advisors: Always verify your advisor’s licensing and registration status through official channels like the SEC or DFPI. Licensing ensures an advisor’s legitimacy.

Consequences of Working with an Untrustworthy Advisor

Trusting a fraudulent advisor can lead to financial losses, legal battles, and a tarnished investment portfolio. You may also experience emotional stress and a loss of trust in financial institutions. Compliance with fiduciary duty and maintaining transparency are key to preventing fraud.

Researching a Securities Advisor

Background and Credentials

Thoroughly research an advisor’s background. Check their educational qualifications, professional certifications, and work history. Licensing and registration are crucial components of this due diligence.

Resources for Checking Registration and Disciplinary History

Use resources like the SEC’s Investment Adviser Public Disclosure (IAPD) database or FINRA’s BrokerCheck to verify an advisor’s registration and disciplinary records. This step ensures the advisor’s credibility and compliance with regulatory standards. Proper disclosure of past misconduct, if any, is vital for maintaining trust.

Interviewing a Securities Advisor

Before deciding, interview potential advisors. Prepare a list of questions to understand their experience, investment philosophy, and fee structure. This process will help you gauge their suitability for your financial needs and ensure they follow proper compliance protocols. Understanding their approach to portfolio management can also provide insights into their risk management strategies.

Questions to Ask a Potential Securities Advisor

Experience and Qualifications: What is your educational background and professional experience in securities advising? Ensure they have the necessary credentials and licensing.
Investment Philosophy and Strategies: How do you approach investment planning, and what strategies do you typically use? Understanding their investment philosophy is crucial for alignment with your goals.
Fees and Compensation Structure: How do you get compensated for your services? Are there any hidden fees? Transparency in fees ensures no conflicts of interest.
Client References: Can you provide references from current or past clients? Speaking to references can give you insights into the advisor’s trustworthiness and past performance.
Potential Conflicts of Interest: Are there any conflicts of interest that I should be aware of? Disclosure of conflicts of interest is crucial for maintaining trust and compliance.

Key Questions

How do I determine if my California securities advisor is trustworthy?

To determine if your California securities advisor is trustworthy, verify their licensing and registration through the SEC or DFPI. Conduct a thorough background check, including their educational qualifications, professional certifications, and work history. Review their disciplinary records using resources like the SEC’s Investment Adviser Public Disclosure (IAPD) database or FINRA’s BrokerCheck. Additionally, assess their transparency regarding fees, compensation structure, and potential conflicts of interest.

What are the red flags to watch out for when choosing a securities advisor?

Red flags include unrealistic promises of high returns with little or no risk, lack of transparency about compensation and investment strategies, high-pressure tactics to invest quickly, and unregistered advisors. Be cautious if an advisor is unwilling to disclose their past performance or if they exhibit evasive behavior when questioned about their credentials and regulatory compliance.

Are there any regulatory bodies or organizations that oversee securities advisors in California?

Yes, securities advisors in California are overseen by the Securities and Exchange Commission (SEC) and the California Department of Financial Protection and Innovation (DFPI). These regulatory bodies ensure that advisors adhere to strict compliance and regulatory standards, protecting investors from fraudulent activities.

Can I check the background and credentials of my securities advisor?

Yes, you can check the background and credentials of your securities advisor through resources like the SEC’s Investment Adviser Public Disclosure (IAPD) database and FINRA’s BrokerCheck. These tools provide information on an advisor’s registration, licensing status, and any disciplinary actions or complaints filed against them.

How can I verify the performance of my securities advisor’s recommendations?

To verify the performance of your securities advisor’s recommendations, request detailed reports on your investment portfolio and compare them with market benchmarks. Regularly review your account statements and assess whether the advisor’s strategies align with your financial goals. Transparency in reporting and ongoing communication with your advisor are essential for evaluating their performance.

What are the potential risks associated with trusting a securities advisor?

The potential risks include financial losses due to fraudulent schemes, unauthorized trading, misrepresentation of investment opportunities, and conflicts of interest. Trusting an unregistered or unlicensed advisor can also lead to legal troubles and emotional stress. Ensuring compliance with fiduciary duty and maintaining transparency are key to mitigating these risks.

Are there any specific laws or regulations in California that govern securities advisors?

Yes, California has specific laws and regulations that govern securities advisors, including requirements for licensing and registration with the SEC or DFPI. Advisors must adhere to compliance standards set by these regulatory bodies, ensuring that they operate within the legal framework designed to protect investors.

How can I protect myself from fraud or misconduct by a securities advisor?

Protect yourself by conducting thorough due diligence, verifying the advisor’s credentials and disciplinary history, and ensuring they are properly licensed and registered. Regularly monitor your investment accounts, review your advisor’s performance, and maintain open communication. Be cautious of red flags and report any suspicious activities to the relevant regulatory bodies.

What should I look for in a written agreement or contract with a securities advisor?

In a written agreement or contract, look for clear terms regarding the advisor’s compensation structure, fees, investment strategies, fiduciary duty, and potential conflicts of interest. Ensure that the agreement includes details on how the advisor will manage your portfolio and the level of transparency and disclosure they will provide. This documentation is crucial for maintaining trust and compliance.

How often should I review and evaluate my securities advisor’s performance?

You should review and evaluate your securities advisor’s performance regularly, at least quarterly. Regular reviews help ensure that your investment goals are being met and that the advisor’s strategies align with your financial objectives. Ongoing assessment is essential for effective risk management and client protection.

What types of investments should I expect a securities advisor to recommend?

A securities advisor may recommend a variety of investments, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other financial instruments. The recommendations should align with your risk tolerance, financial goals, and investment horizon. Transparency in investment strategies is key to maintaining trust.

Is there a minimum or maximum amount of money I should have to work with a securities advisor?

There is no universal minimum or maximum amount of money required to work with a securities advisor, as it varies by advisor and firm. Some advisors cater to high-net-worth individuals, while others may work with clients of varying asset levels. It is essential to understand the advisor’s requirements and ensure they align with your financial situation.

What are the fees and expenses associated with using a securities advisor?

Fees and expenses can vary significantly, including management fees, performance fees, transaction fees, and other charges. Transparency in fee structure is crucial, and you should ensure that you fully understand how your advisor is compensated. This understanding helps avoid potential conflicts of interest and ensures fair dealings.

Can I terminate my relationship with a securities advisor at any time?

Yes, you can terminate your relationship with a securities advisor at any time. It is important to understand the terms of your agreement, including any potential penalties or fees for early termination. Maintaining flexibility in your advisor relationship is crucial for client protection and effective risk management.

How can I find a reputable and trustworthy securities advisor in California?

To find a reputable and trustworthy securities advisor in California, seek recommendations from trusted sources, conduct thorough research, and verify credentials through regulatory databases like the SEC’s IAPD and FINRA’s BrokerCheck. Interview potential advisors to assess their qualifications, investment philosophy, and alignment with your financial goals. Ensuring compliance with regulatory standards and maintaining transparency are key factors in selecting a reliable advisor.

Choosing a trustworthy securities advisor is vital for safeguarding your investments and ensuring financial growth. By understanding the key indicators of fraud and performing due diligence, you can protect yourself from fraudulent activities. Regularly monitor your advisor’s performance and stay informed about the latest regulations and compliance requirements in California.

If you suspect fraud, take immediate action to protect your assets. Remember, your financial security is in your hands, and being vigilant is your best defense. Maintaining a strong fiduciary duty and commitment to client protection will ensure a lasting, trust-based relationship with your securities advisor. Trust forms the foundation of any relationship with a securities advisor, and the importance of due diligence cannot be overstated. You can ensure that your investments are managed effectively and safely through consistent monitoring and staying educated on regulatory changes. Moreover, prioritizing investor education can empower you to make informed decisions and protect your financial future.

Contact Bakhtiari & Harrison if you believe you are a victim of securities investment fraud. Bakhtiari & Harrison is an “AV” rated law firm focused on the worldwide representation of clients in complex arbitration, litigation, and related legal services in securities industry matters. The firm’s partners have extensive experience in securities, employment and regulatory matters. Our focus is on delivering strategic and creative client-centric solutions.