Trouble with a broker? Do not assume future payout


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If you believe your broker or broker has hurt you financially, don’t expect to be automatically compensated — even if you are awarded an arbitration award, according to a new report from the bar association whose members represent the plaintiffs.

The Public Investors Public Bar Association (PIABA) said about 30% of FINRA arbitrations were not paid in 2020.

FINRA is an independent organization that oversees brokers and brokerage firms. Clients who feel that their brokers have engaged in financially harmful behavior can turn to the organization for assistance. Typically this includes FINRA using arbitration to attempt to resolve the dispute.

Arbitration is a dispute resolution process that does not involve the court system.

But nearly 30% of FINRA’s arbitration awards went unpaid in 2020. Unpaid awards are part of a long-term trend, according to PIABA. A press release stated:

The 2020 numbers are in line with previously reported FINRA statistics, which range from 12% of outstanding dollars in 2015 to 34% in 2018, and 22% of [customer] Unpaid awards in 2015 increased to 34% in 2017. In short, the problem has not improved since the 2016 initial PIABA report.”

The CNBC report says the lack of payments is a result of the fact that many brokers “do not have sufficient reserves or insurance to cover arbitral awards.”

Michael Edmston, president-elect of PIABA, blames the unpaid awards directly at FINRA’s feet, saying the organization “did nothing but dismiss the problem, shirk responsibility, and brag about improvements that ultimately failed.”

The PIABA report says FINRA could solve the problem by creating a national investor recovery grouping. PIABA is asking Congress to pass legislation requiring FINRA to do so.

Without a solution, PIABA says, it could only be a matter of time before a “full crisis” emerges. According to the report:

“When a market correction comes, the weaknesses of poor (or fraudulent) investment schemes will be more apparent and likely to lead to horrific losses. Investors who have fallen victim to the mismanagement or fraud of their financial professionals will roll the dice whether a successful arbitration lawsuit will result in No actual refund.”

A FINRA spokesperson told CNBC that the organization “remains focused on reducing the amount of unpaid compensation.”

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