Arbitration of Securities Disputes at FINRA

Our friend John C. Fleming from Hays & Owens, L.L.P sent us the following post:

[update: find John C. Fleming’s comment about this post here]

A reader of my blogs sent me an e-mail with a Customer Agreement from a major brokerage firm. She asked me to look it over and tell her if she should sign it.

The first thing that struck me was this clause:

“Brokerage activities are regulated under different laws and rules than advisory activities and generally do not give rise to the fiduciary duties that an investment adviser has to its clients.”

The agreement pointed out that the brokerage firm “…may face certain conflicts of interest and as such, its interests may differ from yours.”

These statements are typically inserted in account opening agreements.

I asked the reader this question: Why would you entrust your assets to a firm that tells you it does not have to act in your best interests and further that it may have conflicts of interest with you which it will resolve in its favor?

It gets worse:

The agreement also provided that all disputes must be resolved by mandatory arbitration. Not before an impartial panel, but one appointed by FINRA, which is essentially a trade group for the securities industry.

William Galvin, the highly respected Secretary of the Commonwealth of Massachusetts aptly described FINRA’s arbitration process in testimony before a congressional sub-committee as “an industry sponsored damage-containment and control program masquerading as a juridical proceeding.”

Read the full post: Why Don’t You Just Give Your Broker a Gun and Tell Him to Shoot You? Dan Solin, The Huffington Post, July 14, 2009.

To learn more about arbitration of securities disputes, visit Mark J. Astarita’s Securities Law Blog section on arbitration.

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