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Securities Arbitration Claims Are up 114% This Year

The Doss Firm

It is no secret that the stock market has most of us shaking our heads these days.   Millions of Americans are watching their nest eggs dwindle.  Baby boomers have been hit the hardest because there may not be enough time to make up the losses.

Amazingly, most Americans do not know that their financial advisors have a duty to ensure that their clients’ assets are invested appropriately and in accordance with their investment objectives and risk tolerance.

In today’s Wall Street Journal an article entitled, Investors Face Tough Duel When Fighting Brokers, stated that investors have filed 1,264 arbitration claims with FINRA through March 31st this year.  That number is up 114% from the same period last year.  FINRA, also known as the Financial Industry Regulatory Authority, provides the arbitration forum for resolving disputes with brokerage firms.

The article provided some good tips to help improve your odds of successfully recovering your losses from your financial advisor and his or her brokerage firm.

Tip 1-  Keep Good Records- This is very good advice because most the time securities arbitration disputes come down to a he said / she said dispute between the customer and the financial advisor.  The customer testifies that the broker recommended an investment that was too risky and the broker testifies that the customer picked the investment.  Having documentation helps the arbitrators to find out who is telling the truth.

Tip 2- Ask what happened-  The article suggests that you write to your broker and explain why you feel your account was mismanaged.  I think this is a terrible idea for investors particularly if you are clueless about investing and if you trusted your broker to act in your best interest.  Too often customers who write to the brokerage firm complaining try to sound more knowledgeable than they are in the complaint letter.  The brokerage firm can then use the letter against the customer in the arbitration.  If you are intent on writing a letter, keep it simple and only ask, “Can you please explain how the investments you recommended to me are appropriate for my investment objectives and risk tolerance?”  Odds are the brokerage firm will not write back because they do not want to commit to anything in writing.  You can use the brokerage firms non-response against them in the arbitration proceeding.

Tip 3- Lock in the loss- The article suggests that you seek a second opinion from another broker and your accountant, then dump whatever investments you should have never owned in the first place.  I generally agree with this idea.  Your complaint is more compelling when you actually realize the loss.  I would, however, be skeptical of another broker’s second opinion because that person has an incentive to bad mouth the former broker in order to gain your trust and your money.  Therefore, it is definitely a good idea to educate yourself about why the investments were bad for you.

Tip 4- Get help –  The article suggests that the investor find a lawyer who specializes in securities arbitration. I totally agree. Because the area of law is so unique, it is a good idea to find a lawyer who specializes in the field.  PIABA is an organization consisting of plaintiff’s attorneys who practice in this area. You can find a securities attorney on PIABA’s website,

Tip 5-  Don’t “go on the papers.” If your losses are less than $25,000, FINRA provides for a simplified arbitration process.  This means that the customer will not have a hearing and the arbitrator will decide the case on the papers only. I agree with the article that customers do not generally fair well in simplified arbitrations.

Tip 6-  Pick Your Panel-  It is true that the customer gets a say in who decides the case. It is important to find a lawyer who practices in this area because they may have experience in front of many of the arbitrators in the pool.  Picking a panel is just as important as picking a jury.  Do not leave it to inexperienced attorneys.

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