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.

What is the Broker Recruiting Protocol?

The financial services industry is highly competitive, and when brokers move from one firm to another, the transition can raise complex legal and regulatory issues. To facilitate smoother transitions while balancing the interests of firms, brokers, and clients, the Broker Recruiting Protocol was established. Understanding this protocol is essential for financial advisors considering a move and for firms managing departures and new hires.

Understanding the Broker Recruiting Protocol

The Broker Recruiting Protocol is an agreement originally established in 2004 by three major firms—Citigroup, Merrill Lynch, and UBS—to create a standardized framework governing broker transitions. Since its inception, many firms have joined, while others have withdrawn or modified their approach to broker recruitment.

The protocol is designed to allow registered representatives to switch firms without facing immediate legal action over client solicitation, provided they follow specific guidelines. Its primary goal is to protect client interests by ensuring that transitions occur with minimal disruption and that clients retain access to their financial advisors.

Key Provisions of the Broker Recruiting Protocol

The protocol outlines specific rules regarding the information brokers can take with them when transitioning to a new firm. These include:

Permissible Client Information – Brokers may take limited client data, including names, phone numbers, addresses, email addresses, and account titles. However, they cannot take sensitive details such as account numbers, Social Security numbers, or financial holdings.
Non-Solicitation Protections – Brokers who follow the protocol may solicit their former clients after moving to a new firm without facing legal repercussions from their previous employer.
Firm Participation – Only firms that are signatories to the protocol are bound by its terms. If a firm is not a participant, transitioning brokers may be subject to restrictive covenants, non-compete clauses, or legal action.
Immediate Resignation Process – The protocol requires brokers to submit a resignation letter to their current firm at the time they leave and simultaneously provide a list of client accounts they are taking with them.
Restrictions on Use of Information – Brokers can only use client information for solicitation purposes after they have joined the new firm. Using client data before leaving could result in legal disputes and potential violations of employment agreements.

Why Was the Broker Recruiting Protocol Created?

Before the protocol, FINRA broker transitions were often accompanied by lawsuits alleging misappropriation of trade secrets, breach of contract, or violation of non-compete agreements. Firms sought to protect their client lists and prevent departing brokers from taking valuable business relationships with them. However, this led to uncertainty and costly legal battles, which were disruptive to both brokers and clients.

The protocol was established to mitigate these issues, allowing brokers to change firms with a clear set of rules while protecting client interests. By defining what information can be taken and how solicitation should be handled, the protocol helps ensure that transitions occur in a fair and legally compliant manner.

Who Does the Broker Recruiting Protocol Benefit?

The protocol provides benefits to multiple parties within the financial industry:

Brokers – The protocol gives brokers greater freedom to move between firms without the constant threat of lawsuits, provided they comply with its provisions.
Clients – Clients retain access to their trusted financial advisors, making the transition smoother and allowing them to decide whether to follow their broker to a new firm.
Firms – Participating firms benefit by having a predictable, structured process for handling departing and incoming brokers, reducing litigation risks and operational disruptions.

Limitations and Risks of the Protocol

While the protocol has streamlined broker transitions, it is not without limitations. Some of the key risks and challenges include:

Firm Withdrawals – Several major firms, including Morgan Stanley and UBS, have exited the protocol in recent years, opting instead for restrictive employment agreements that limit broker mobility.
Legal and Compliance Issues – Brokers who fail to strictly follow the protocol’s guidelines may still face legal action. Taking more information than allowed or engaging in pre-move solicitation can result in disputes.
State and Federal Laws – The protocol does not override state and federal regulations related to data privacy and client confidentiality. Brokers must ensure compliance with all applicable laws.

How to Navigate a Broker Transition Under the Protocol

If you are considering a move to a new firm under the Broker Recruiting Protocol, it is essential to proceed carefully to ensure compliance. Key steps include:

Verify Firm Participation – Confirm that both your current and prospective firms are signatories to the protocol. If your current firm is not a member, your departure may be governed by other agreements, including non-compete or non-solicitation clauses.
Understand What You Can Take – Work with compliance and legal advisors to ensure you only take permissible client information. Do not retain sensitive data such as account numbers, balances, or transaction histories.
Follow the Resignation Process – Provide a formal resignation letter to your employer and follow the required steps for transitioning client accounts to your new firm.
Avoid Pre-Move Solicitation – Do not discuss your move with clients before leaving your current firm. Solicitation should only occur after you have officially joined the new firm.
Consult Legal Counsel – Given the complexities of employment agreements, financial regulations, and the potential for legal disputes, working with an attorney experienced in broker transitions can help mitigate risks and ensure a smooth move.

Why You Should Contact Bakhtiari & Harrison

Navigating the Broker Recruiting Protocol and transitioning to a new firm requires careful planning and legal guidance. Bakhtiari & Harrison advises financial professionals on regulatory compliance, employment agreements, and broker transitions under the recruiting protocol.

Our team understands the nuances of the recruiting protocol and the legal challenges brokers may face when changing firms. Whether you need assistance in assessing your rights, negotiating agreements, or protecting yourself from legal risks, we can help ensure a seamless transition.

Contact Us Today

If you are considering a move to a new firm, let Bakhtiari & Harrison provide you with the legal support you need. Contact us for a confidential consultation to discuss your situation and explore the best course of action.