Guidance on Disputes between Investors and Investment Advisers that are Not FINRA Members

FINRA Office of Dispute Resolution has received inquiries from lawyers who represent investors and those who represent investment advisers (IAs) which are not FINRA members about the availability of FINRA’s arbitration and mediation forum to resolve their disputes.  Currently, such disputes are resolved in court or in non-FINRA dispute resolution forums.  In response to these inquiries, FINRA offers the following guidance:

With respect to arbitration, FINRA will accept these disputes on a voluntary, case-by-case basis if the parties meet the following conditions:

• The IA and investor submit a post-dispute agreement to arbitrate.
• The IA or other parties agree to pay all member surcharge and processing fees and such fees are paid prior to service of the statement of claim.
• The investor files a special written
  FINRA Arbitration Submission Agreement
  to submit the dispute to FINRA Office of Dispute Resolution that is:
  • Signed by all parties to the arbitration (including all investor parties and all IA parties).
  • Signed after the events occurred that gave rise to the underlying dispute.

The special submission agreement requires the parties to acknowledge that:

• FINRA cannot enforce awards entered against non-member IAs and/or their employees (because FINRA is not a Self-Regulatory Organization for IAs).
  • Prevailing parties may enforce awards entered against non-member IAs and/or their employees in a court of competent jurisdiction pursuant to applicable state or federal law.
• FINRA may bar the IA from the forum in future cases if an IA fails to pay any award, settlement agreement, or FINRA fees.
• FINRA cannot process expungement requests relating to information maintained in the Investment Adviser Registration Depository (IARD).  
  • Therefore, the parties may not make expungement requests related to information maintained in the IARD in this matter. 
• FINRA and its arbitrators and mediators will be held harmless from liability arising in connection with the resolution of the parties’ dispute.
• Disputes involving IAs will be administered in accordance with the SEC approved FINRA Codes of Arbitration Procedure.
• The final award will be made publicly available.

FINRA will also accept industry disputes between non-member IAs and their employees on a voluntary, case-by-case basis if the parties meet the above conditions.

With respect to mediation, FINRA will offer mediation services for any IA disputes on a voluntary basis.  Mediation can be faster and less expensive than arbitration or litigation.  If the parties agree to mediate, they will not give up any right to arbitrate or litigate if they cannot reach a satisfactory settlement. FINRA's mediation program has achieved an 80% success rate – parties who mediate in our forum resolve four out of every five cases.

Parties and counsel may direct any questions regarding IA cases to Todd Saltzman, Vice President of Case Administration, Neutral Management and Operations at (212) 858-4273 or by email.

Note:  FINRA requires IAs to arbitrate investor and industry disputes when the IA is dually registered with FINRA and the dispute arises in connection with the IA’s business activities as a FINRA member or associated person (see FINRA Rules 12200 and 13200).