The Financial Industry Regulatory Authority (FINRA) publicly posts statistics about the arbitration proceedings held under its auspices. As of this writing on August 5, the 2022 numbers are available through June, providing an interesting overview of the kinds of disputes retail investors are currently initiating against their investment advisors within FINRA’s arbitration program.
Retail investors (individual, nonprofessional investors) may find themselves in a situation where they relied on their financial advisors to put them into (or out of) particular investments, but the returns are not panning out. Or the recommended investments came with unexpected or excessive fees or commissions.
There is likely to be a range of legal remedies available but concerned retail investors may give serious consideration to the option of arbitrating their disputes through FINRA. We previously provided a two-part posting detailing the FINRA arbitration process, through which an investor may recover financial losses and other relief.
Regulation Best Interest disputes
Broker-dealers and their employing firms must provide investment advice and services that are in the “best interest” of retail clients. Known as Regulation Best Interest (Reg BI), the Securities and Exchange Commission (SEC) rule has required this standard of care since June 30, 2020. Previously, the standard was the less stringent “suitability.”
Reg BI demands significant broker-dealer responsibility toward their retail customers in the areas of compliance, disclosure, care and conflict of interest. FINRA arbitration statistics track Reg BI disputes for the first time in 2022.
By the numbers
At the above link to the FINRA website are several types of arbitration statistics. The top 15 customer arbitration controversy types as of June 2022 were:
- Breach of fiduciary duty
- Failure to supervise
- Breach of contract
- Suitability of investment
- Omission of facts
- Blue Sky law (state securities regulations) violations
- Elder abuse
- Unauthorized trading
- Breach of Regulation Best Interest
- Errors – charges
- Execution errors
Another notable statistic FINRA tracks is customer arbitration disputes by type of security:
- Common stocks
- Real estate investment trusts (REITs)
- Corporate bonds
- Private equities
- Mutual funds
- Limited partnerships
- Business development companies
- Variable annuities
- Exchange-traded funds
- Municipal bond funds
- Preferred stocks
- Municipal bonds
Anyone concerned about whether their broker-dealer’s advice led to unsuitable investment choices, if they suspect misrepresentation or that advice was not in their best interest should consult with a knowledgeable securities attorney for information and guidance.