Public Investor Study Finds that FINRA Arbitrator Pool Is Homogenous

Tuesday, October 7, 2014

Earlier today the Public Investors Arbitration Bar Association (PIABA) released a report raising questions about the mandatory arbitration process that virtually every retail investor in America is required to use to resolve disputes with brokerage firms.  That process is administered by the Financial Industry Regulatory Authority (FINRA), which is responsible for recruiting, vetting, training, and appointing (and removing) arbitrators from its roster of arbitrators.  An arbitrator is for all intents and purposes a private judge -- a neutral person who resolves disputes filed with FINRA.

A few key findings in the Report:
  • the recruitment of arbitrators and disclosure of arbitrator bias was not, at all, transparent or reliable;
  • the arbitrator pool is not diverse -- the PIABA analysis showed that the pool is 80% men / 20% women. The average age of the arbitrator in the public pool is 69 years old with over 12% of arbitrators being over 80 years old.
The Report has received substantial news coverage including from (among others): Reuters, Fox News, CNBC, Financial Advisor magazine,  USA Today, and the Wall Street Journal.

FINRA released a statement today defending its efforts to recruit a diverse panel of arbitrators and arguing that it has worked with many organizations, including PIABA, "to recruit the best arbitrators possible."  In defense of the age of the arbitrator pool FINRA accused PIABA of borderline "age discrimination" and wrote that "[i]t stands to reason that a good portion of those able to make [the] time commitment on an ongoing basis for the pay offered [to serve as arbitrators] are likely to be retirees."

The North American Securities Administrators Association ("NASAA") posted this comment on the PIABA Arbitration Study, “NASAA has consistently raised concerns about the mandatory predispute resolution process and the report issued by PIABA notes additional important issues related to arbitrator disclosure and transparency that merit further review. NASAA continues to support the Investor Choice Act, introduced by Rep. Keith Ellison (D-MN) and supported by 30 House members, which would provide investors an opportunity to seek resolution of their claims through the court system.”

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