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.

Understanding the Concerns of Investors Purchasing Variable Annuities

Variable annuities are a popular investment product that combines the potential for market-based returns with the security of an insurance policy. While they can offer significant benefits for retirement planning, they also come with a range of costs, fees, and risks that investors need to be aware of. This blog aims to provide a comprehensive overview of the key concerns when purchasing variable annuities, including the associated costs and fees, surrender value considerations, different types of risks, and relevant FINRA regulations. We will also discuss how Bakhtiari & Harrison fight for the rights of investors.

Costs and Fees

Variable annuities are often criticized for their complex and high fee structures, which can erode investment returns over time. The primary costs associated with variable annuities include:

Mortality and Expense Risk Charges: These fees compensate the insurance company for the risks they take on under the annuity contract. They typically range from 1% to 1.25% of the account value per year.
Administrative Fees: These fees cover the administrative costs of issuing and maintaining the annuity. They can vary but are usually between 0.10% and 0.30% per year.
Investment Management Fees: These fees are associated with the underlying investment options, which are similar to mutual funds. These fees can range from 0.50% to 2% annually.
Surrender Charges: If an investor withdraws money from the annuity within a specified period, usually 6 to 10 years, they may incur surrender charges. These charges can be as high as 7% initially and gradually decrease over time.
Rider Fees: Many variable annuities offer optional riders for additional benefits such as guaranteed minimum income or death benefits. These riders come with extra costs, often ranging from 0.25% to 1% per year.

These fees can significantly impact the overall returns of a variable annuity, making it essential for investors to fully understand and consider them before investing.

Surrender Value

The surrender value of a variable annuity is the amount an investor would receive if they decide to cash out the annuity before the end of the surrender period. This value is reduced by any surrender charges and outstanding loan amounts against the annuity. Therefore, investors must be prepared for the possibility that they may not recover their initial investment if they need to access their funds early. Understanding the surrender value is crucial for investors who might require liquidity.

Types of Risk

Investing in variable annuities involves various types of risks, which can be broadly categorized into macro and micro risks.

Macro Risks

Market Risk: The value of a variable annuity is tied to the performance of the underlying investment options, which means it can fluctuate based on market conditions. Poor market performance can lead to significant losses.
Interest Rate Risk: Changes in interest rates can affect the performance of the underlying investments, particularly bond funds within the annuity. Rising interest rates can negatively impact bond prices.
Inflation Risk: Inflation can erode the purchasing power of the future income generated by a variable annuity. Some annuities offer inflation protection riders, but these come at an additional cost.

Micro Risks

Company Risk: The financial health of the insurance company issuing the annuity is critical. If the company faces financial difficulties or insolvency, it may not fulfill its obligations to the annuity holders.
Liquidity Risk: Variable annuities are less liquid than other investment options. Investors may face penalties and surrender charges if they need to access their funds before the end of the surrender period.
Complexity Risk: The complexity of variable annuities can make them difficult to understand fully. This complexity can lead to poor decision-making and unexpected outcomes for investors.

FINRA Rules and Regulatory Notices

The Financial Industry Regulatory Authority (FINRA) provides guidance and regulations to ensure that variable annuities are sold fairly and transparently. Key FINRA rules and notices relevant to variable annuities include:

FINRA Rule 2330: This rule establishes standards for members and associated persons in recommending the purchase or exchange of deferred variable annuities. It requires firms to conduct a thorough suitability analysis and ensure that the annuity meets the investor’s needs and financial objectives.
FINRA Notice to Members 99-35: This notice emphasizes the importance of ensuring that the sale of variable annuities is suitable for the investor and that all material information is disclosed. It highlights the need for firms to have written supervisory procedures to oversee the sale of variable annuities.
FINRA Regulatory Notice 12-03: This notice provides guidance on the supervision of recommendations involving complex products, including variable annuities. It stresses the importance of training, oversight, and the need for firms to understand the features and risks of these products.

These regulations and notices are designed to protect investors by ensuring that they receive suitable recommendations and full disclosure of all relevant information when purchasing variable annuities.

How Bakhtiari & Harrison Fight for Investors

At Bakhtiari & Harrison, we are committed to protecting investors and ensuring they are treated fairly by financial institutions and advisors. Our firm offers a range of services to support investors, including:

Legal Representation: We represent investors in disputes with insurance companies and financial advisors, ensuring their rights are protected and they receive the compensation they deserve.
Compliance and Regulatory Support: We assist investors in navigating the complex regulatory landscape, ensuring their investments comply with all applicable laws and regulations.
Education and Advocacy: We provide educational resources and advocacy to help investors make informed decisions about their investments. Our goal is to empower investors with the knowledge they need to protect their financial future.

Bakhtiari & Harrison has a proven track record of successfully representing investors in claims against firms that fail to properly supervise their financial advisors or engage in deceptive practices. We are committed to fighting for justice on behalf of investors and holding financial institutions accountable.

For more information about how we can assist you, please visit our website at www.bhseclaw.com. Our team of experienced attorneys is here to help you navigate the complexities of variable annuities and ensure your investments are protected.

Conclusion

Variable annuities can be a valuable component of a diversified investment portfolio, offering potential growth and retirement income. However, they come with a range of costs, fees, and risks that investors must carefully consider. By understanding these factors, adhering to FINRA regulations, and seeking the support of experienced legal professionals like Bakhtiari & Harrison, investors can make informed decisions and protect their financial future.