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.

Failure to Disclose Risks – When Brokers Hide the Truth from Investors

Disclosure is one of the most important duties a financial advisor owes to a client. Investors rely on their brokers to provide honest, complete, and accurate information about the risks associated with any investment recommendation. When a broker fails to disclose material risks—or intentionally minimizes or hides them—the investor cannot make an informed decision. This misconduct often leads to devastating financial losses and constitutes a violation of industry regulations, including the rules of the Financial Industry Regulatory Authority, known as FINRA.

Risk disclosure is not optional. Brokers must fully and fairly explain all risks relevant to an investment, including volatility, liquidity constraints, fees, conflicts of interest, and the potential for loss. When they fail to do so, investors have strong grounds for legal action and may recover losses through arbitration.

What Does “Failure to Disclose Risks” Mean?

Failure to disclose risks occurs when a financial advisor:

Leaves out important risk factors
Downplays the likelihood of losses
Mischaracterizes the investment as safer than it is
Fails to provide written documentation about risks
Focuses solely on potential returns
Hides liquidity restrictions, commissions, or fees

In every case, the issue is the same: the broker gave the investor an incomplete or misleading picture of the investment’s true nature.

Why Full Risk Disclosure Matters

Risk disclosure is essential because it allows investors to:

Understand potential downsides
Compare investments accurately
Decide whether the risk profile matches their goals
Protect long-term financial plans
Avoid unsuitable and unexpected losses

Without this information, even sophisticated investors cannot evaluate whether an investment is appropriate.

How Brokers Commonly Fail to Disclose Risks

Failure to disclose risks can occur intentionally or negligently. Common examples include:

1. Downplaying Volatility
Brokers sometimes describe volatile or speculative investments as “stable,” “conservative,” or “low risk.” Such mischaracterization is misleading and violates regulatory standards.

2. Hiding Liquidity Restrictions
Illiquid investments—such as non-traded REITs, private placements, and certain annuities—often lock investors into long holding periods. Failing to disclose this makes it impossible for investors to understand how long their money will be inaccessible.

3. Misrepresenting Complex Products
Structured notes, leveraged ETFs, options strategies, and alternative investments often contain hidden risks. Brokers must explain them clearly, which many fail to do.

4. Omitting Fee and Commission Details
High commissions, surrender charges, and ongoing fees significantly impact returns. Brokers sometimes hide these costs to make an investment appear more attractive.

5. Ignoring Tax Consequences
Some investments carry substantial tax risks. Advisors must disclose this information so investors are not blindsided.

6. Failing to Explain Market Risk
Even traditional investments like mutual funds, bonds, and ETFs carry risk. If an advisor suggests that any investment is “guaranteed” or immune to loss, that is a serious red flag.

Why Brokers Fail to Disclose Risks

There are several motivations behind this type of misconduct:

Financial Incentives
Products with high commissions, bonuses, or sales incentives may tempt brokers to obscure risks to close the sale.

Pressure from the Firm
Brokerage firms sometimes push advisors to sell specific products to meet internal quotas. Advisors may downplay risks to meet these expectations.

Ignorance or Lack of Training
Some advisors fail to understand the products they recommend. Selling investments without full knowledge is itself a form of negligence.

Fear of Losing the Client
During market downturns, some brokers avoid discussing risks to prevent client panic or withdrawal.

Regardless of motive, failure to disclose risks is a violation of regulatory rules and gives investors grounds for legal action.

How Failure to Disclose Leads to Investor Losses

When brokers hide or minimize risks, investors may:

Enter inappropriate or unsuitable investments
Experience unexpected losses
Lose access to funds due to liquidity restrictions
Pay excessive fees or commissions
Take on unwanted market exposure
Miss out on safer, more appropriate alternatives

For retirees and conservative investors, these consequences can be especially damaging.

Warning Signs That Risks Were Not Properly Disclosed

Investors should look for:

Confusion about how the investment works
Surprising or unexplained losses
Inability to withdraw funds
Fees or penalties that were never discussed
Lack of written documentation or prospectuses
Broker evasiveness or inconsistent explanations
High-risk products recommended to conservative investors

If any of these symptoms appear, the investment may have been presented deceptively.

What to Do If You Suspect Your Broker Failed to Disclose Risks

1. Gather Documentation
Collect statements, emails, text messages, marketing materials, and notes from discussions.

2. Review the Investment’s Official Documents
Compare what your broker said with what is actually written in:

Offering memoranda
Prospectuses
Risk disclosures
Account agreements

Discrepancies are powerful evidence.

3. Contact the Brokerage Firm
Report the issue to the firm’s compliance department. Their response may reveal whether the broker acted improperly.

4. Check the Broker’s Record
Use FINRA BrokerCheck to see whether other investors have made similar complaints. A pattern of misconduct strengthens your case.

5. Consult an Investment Fraud Lawyer
Failures to disclose risk are complex, fact-specific, and often involve multiple parties. A lawyer can determine whether a regulatory violation occurred and whether you have a claim.

How an Investment Fraud Lawyer Proves Failure to Disclose

To prove misconduct, an attorney:

Examines communication between investor and advisor
Analyzes the investment’s risk profile
Reviews written disclosures and offering documents
Evaluates the investor’s financial goals and suitability
Investigates firm supervision practices
Identifies material differences between what was said and what was true

Lawyers also work with financial experts to demonstrate how the undisclosed risks caused the investor’s losses.

Damages Investors Can Recover

Investors harmed by failure to disclose risks may recover:

Out-of-pocket losses
Interest
Commissions and fees
Lost opportunity damages
Attorney fees in certain cases
Punitive damages for egregious misconduct

FINRA arbitration panels take nondisclosure seriously, especially when investors were misled about risk.

Brokerage Firm Liability

Even if the broker acted alone, firms are responsible for supervising their advisors. If the firm failed to monitor sales practices, ignored red flags, or neglected training, it may be liable for failure to supervise.

FINRA Arbitration as the Path to Recovery

Nearly all customer agreements require disputes to be resolved through FINRA arbitration. Compared to traditional litigation, arbitration is:

Faster
Less expensive
Decided by industry-trained arbitrators
Binding and enforceable

A lawyer handles every step, from filing the Statement of Claim to presenting evidence at the final hearing.

Preventing Nondisclosure in the Future

Investors can protect themselves by:

Requesting written explanations of risks
Asking for full disclosure of fees
Avoiding products they do not fully understand
Monitoring account statements regularly
Verifying a broker’s background
Seeking independent second opinions

Informed investors are much harder for dishonest advisors to exploit.

Failure to disclose risk is a serious violation that undermines investor trust and can result in substantial financial losses. When brokers mislead clients—whether through omission or misrepresentation—they violate FINRA rules and can be held accountable. Investors have powerful legal protections and may recover losses through arbitration with the help of an experienced investment fraud lawyer.

If you believe your advisor hid or downplayed important risks, taking action quickly is essential to protect your rights. To discuss your case or begin a recovery claim, contact Bakhtiari & Harrison.