FINRA Arbitration vs. Court: Why You’re Probably Stuck with Arbitration
FINRA Arbitration vs. Court: Why You’re Probably Stuck with Arbitration
When your broker screws up, your first instinct might be to sue them in court. But here’s the reality: you probably can’t. Most brokerage agreements contain mandatory arbitration clauses that require you to resolve disputes through FINRA arbitration instead of the court system.
Let me explain what this means and why it might actually be better for you.
Why Arbitration Instead of Court?
When you opened your brokerage account, you probably signed an agreement that included an arbitration clause. This means you gave up your right to sue in court and agreed to resolve disputes through arbitration instead.
The Supreme Court has consistently upheld these agreements, so fighting them is usually futile.
Advantages of Arbitration
Faster resolution – Arbitration typically takes 12-18 months vs. 3-5 years for court litigation.
Lower costs – Arbitration is generally less expensive than court litigation.
Expert arbitrators – Arbitrators usually understand investment issues better than typical juries.
Less formal – The rules of evidence are relaxed, making it easier to present your case.
Privacy – Arbitration proceedings are private, unlike court cases which are public record.
Disadvantages of Arbitration
Limited discovery – You might not be able to get as much information from the other side.
No appeals – Arbitration awards are final with very limited grounds for appeal.
Industry bias – Some critics argue that arbitrators are biased toward the industry.
No class actions – You generally can’t join with other investors in a class action lawsuit.
How to Succeed in Arbitration
Get experienced counsel – Arbitration has its own rules and procedures that are different from court.
Prepare thoroughly – You typically only get one shot, so make sure your case is well-prepared.
Choose arbitrators carefully – You usually get some input on arbitrator selection – use it wisely.
Present clearly – Arbitrators appreciate clear, concise presentations of the facts and law.
The Bottom Line
While you might prefer to have your day in court, arbitration can actually be an effective way to recover losses from broker misconduct. The key is understanding the process and having experienced representation.
If you’re facing a dispute with your broker, don’t let the arbitration requirement discourage you from seeking justice. An experienced securities attorney like investment fraud lawyer Robert Pearce can help you navigate the arbitration process and maximize your chances of recovery.
Remember: arbitration isn’t a consolation prize – it’s often the best way to get your money back when brokers violate their obligations to you.