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The Basics of FINRA Arbitration and Mediation

You put your trust and financial wealth in the hands of a broker when you open an investment account, and you rely on this adviser’s expertise to increase the value of your assets. However, most financial professionals won’t make promises or guarantees about how well your portfolio will perform. When business contract disputes arise over your broker’s conduct in handling your assets, you may feel like there aren’t options for recourse. Fortunately, you do have legal remedies to address a dispute through the Financial Industry Regulatory Authority’s provisions on alternative dispute resolution. FINRA includes procedures for both arbitration and mediation, so it’s helpful to understand your rights.

What is FINRA?

When the New York Stock Exchange’s regulatory division combined with the National Association of Securities Dealers, the merger established FINRA as a regulatory authority charged with overseeing all business transactions between dealers, brokers, and members of the public. The prior attempts at regulating the industry were fraught with inefficiencies and overlapping rules, so FINRA is a solution to the inconsistencies. FINRA has oversight of around 4,500 brokerage firms and approximately 640,000 individual registered securities agents.

One component of FINRA operations is its non-judicial dispute resolution process, intended to provide a fair and efficient forum for addressing a securities dispute. There are two methods the agency uses to resolve conflicts: Mediation and arbitration. An investor may request either of these proceedings by filing the proper paperwork that describes the dispute and business activities of a firm or agent. The alleged act must have occurred within six years prior to filing.

  1. Arbitration: In a FINRA arbitration proceeding, a panel of one or three arbitration professionals is selected by the disputing parties. These individuals review the allegations of fact and law in the pleadings, listen to oral arguments, study the evidence, and issue a decision on the dispute. The decision is final and binding, though either party can contest the finding in court. All of the information in an arbitration is confidential, though the FINRA award itself is posted as a public record.
  2. Mediation: Unlike an arbitration, mediation does not involve a panel weighing the evidence and issuing a decision based upon the facts. Instead, the parties to a dispute attend an informal meeting along with a mediation professional. The mediator’s job is to listen to both sides of the story and encourage the parties to come together in compromise. Mediators have special training that helps them facilitate a meaningful conversation, creating an environment that enables opposing sides to reach an agreement on the dispute.

You have options for recourse if you’re involved in a dispute with your broker about handing your financial portfolio. Both mediation and arbitration are preferable to taking the matter to court, so it’s wise to go the route of alternative dispute resolution as opposed to costly litigation. If you have questions about FINRA’s policies on resolving financial industry disputes, please contact the Tampa office of Feldman Mediation & Arbitration Services. Our professional mediators have assisted many parties with all types of business contract disputes and we can provide additional details on our services.




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