FINRA Contemplates Creation of Fund for Unpaid Arbitration Awards

Wednesday, September 14, 2016

The Financial Industry Regulatory Authority (FINRA) is considering creating a fund to be used for unpaid arbitration awards. As it stands, some investors do not recover arbitration awards.

According to FINRA News, a study done by the Public Investors Arbitration Bar Association revealed that in 2013 alone a total of $62 million in awards went unpaid—about one in three awards. The Wall Street Journal found that more than $34 million of arbitration awards made to investors in 2014 remain unpaid, or 15% of the total awards granted that year. Of the awards granted to investors in the five years through 2014, almost $213 million, or 13% of overall awards, remain unpaid. A proposal aimed at solving this problem would require FINRA members to pay annual dues into a pool, amounting to about $100 per broker, to help compensate the award winners.

The fund may encourage additional arbitration claims, according to, since investors have little incentive to pursue claims that are uncollectable and securities lawyers may refuse to represent fraud victims when there is no chance of collecting from bankrupt firms or brokers.

Rising Cost of Universal and Variable Universal Life Insurance: Legal and Other Options

Sunday, September 11, 2016

Many consumers are learning the hard way that life insurance bought years ago is much more expensive and more risky than anticipated.

The Wall Street Journal reported here that a number of major insurers are "breaking a long-standing industry taboo of raising rates on life-insurance policies."   According to the Journal, tens of thousands of people have been notified that they face rising costs, from single digits to as much as 200%.  

Fine print buried in the policies gives insurers the right to raise costs, subject to certain limitations. 

That fine print typically does not, however, protect persons who sell insurance from claims of fraud or misrepresentation.  For those policies that qualify as securities, the fine print does not exempt persons selling securities from their obligations under federal and state securities law.  Nor does the fine print exempt registered representatives and financial planners from their fiduciary obligations, including to act only in the best interest of customers.

To explore the options, consumers facing bad insurance outcomes should get a second (or third) opinion from an independent insurance or financial consultant -- there are many -- who can look over the policy, information on the performance of the policy over time (so-called insurance illustrations) and consult on options. 
In doomsday scenarios, the consumer may have no real choice but to drop the policy -- allowing it to lapse at zero value.  The consumer ends up without insurance and loses all of the money paid into the policy. That result may be a red flag for bad financial advice.
Fortunately, there are a range of policy rescue options available in many circumstances, cogently summarized here.  In assessing the options, financial and tax consequences must be considered carefully.  Those options include: 
  • adjusting the policy (the policy terms are often flexible, within limitations);
  • changing to a new policy or other type of investment (e.g., an annuity);
  • surrendering (i.e., cashing out) the policy;
  • selling the policy (a life settlement)

To explore the options, consumers facing bad insurance outcomes should also consider a consultation with legal counsel experienced in pursuing insurance related legal claims