These Are the Most Common Reasons Why Investors File for FINRA Arbitration

For investors who have suffered fraudulent losses, FINRA arbitration provides a way to hold their broker or investment advisor accountable. The Financial Industry Regulatory Authority (FINRA) shares oversight of the U.S. investment markets with the U.S. Securities and Exchange Commission (SEC), and registered firms and individuals are required to submit to FINRA arbitration when their clients file claims for fraud. In this scenario, investors can generally hire a FINRA lawyer to represent them at no out-of-pocket cost, with their legal fees (if any) being calculated as a percentage of their financial recovery if their case is successful.

 So, when can (and should) defrauded investors file for FINRA arbitration?

7 Common Reasons Why Investors File for FINRA Arbitration

Investor fraud can take many different forms—and investors can (and should) seek appropriate remedies for all forms of fraud. However, some forms of investor fraud are particularly common, as shown in FINRA’s Dispute Resolution Services Statistics. Here is a look at some of the most common reasons why investors file for arbitration with FINRA:

1. Breach of Fiduciary Duty

According to FINRA, breach of fiduciary duty has been the single most common issue raised in customer arbitration proceedings over the past several years. As a general rule, brokers and investment advisors owe various fiduciary duties to their clients. When brokers and investment advisors breach these duties—for example, by engaging in conflicts of interest—investors can seek accountability for any losses they suffer.

2. Negligence

Negligence is the second most common issue raised in customer arbitration proceedings, according to FINRA. Like all professionals, brokers and investment advisors can be held liable for their negligence on the job. This includes (but is by no means limited to) common forms of negligence such as:

• Failing to understand the investments they are recommending
• Overlooking or misunderstanding investment risks
• Failing to timely execute trades
• Failing to provide all material information to investors
• Failing to give due consideration to investors’ individual risk profiles

These issues, among others, can leave investors facing substantial losses that could—and should—have been avoided. When brokers and investment advisors make mistakes that lead to investors’ losses, they deserve to be held fully accountable.

3. Failure to Supervise

Under FINRA’s Rules, brokerage and advisory firms have a duty to supervise their employees. This duty is intended to help prevent investor losses resulting from negligence and to ensure that individual brokers and investment advisors do not engage in conflicts of interest or other fraudulent practices. When firms fail to meet this duty, they can be held directly accountable, in addition to facing vicarious liability for their employees’ negligence or misconduct.

4. Misrepresentations

Brokers and investment advisors have a duty to provide accurate information to their clients. When brokers and investment advisors make misrepresentations—whether intentionally or inadvertently—this can also provide grounds for defrauded investors to seek appropriate remedies through FINRA arbitration. This applies to all types of investment-related information, from the risks involved with particular investments to the fees and commissions that investors will be required to pay.

5. Breach of Contract

If your broker or investment advisor (or brokerage or advisory firm) has breached the terms of your customer contract, you may be able to seek appropriate remedies through FINRA arbitration in this scenario as well. Breach of contract is the fifth most common claim in customer arbitration proceedings, according to FINRA. Examples of specific claims include those related to fees, withdrawals, and investment discretion—among many others.

6. Omission of Facts

Along with misrepresentations, omissions can also leave investors ill-equipped to make sound investment decisions. Omissions of fact are the sixth most common claim in customer arbitration proceedings, according to FINRA. Here too, whether a broker’s or investment advisor’s error is intentional or inadvertent, it can provide clear grounds for an investment fraud claim under FINRA’s rules and federal law. If you believe that you made an uninformed investment decision because your broker or investment advisor failed to provide you with material information, you should consult with a FINRA lawyer promptly.

7. Unsuitable Investment Recommendations

When making investment recommendations, brokers and investment advisors must focus on each individual customer’s portfolio and risk profile. This is known as the “suitability” requirement. If a broker or investment advisor makes unsuitable investment recommendations, this can also lead to untenable investment losses that could—and should—have been avoided. FINRA’s data indicate that unsuitability is the seventh most common claim in FINRA arbitration.

Most Common Investments Involved in FINRA Arbitration Proceedings

Just as some forms of investment fraud are more common than others, fraud involving certain types of investments is more common than fraud involving other types of investments as well. According to FINRA, the most common investments involved in FINRA arbitration proceedings are as follows (from most common to least):

• Real estate investment trusts (REITs)
• Mutual funds
• Private equities
• Options
• Exchange-traded funds
• Annuities
• Structured products
• 401(k)s
• Variable annuities
• Municipal bond funds

Notably, FINRA only recently started tracking customer arbitration proceedings involving cryptocurrency. As a result, while cryptocurrency-related investments (including ICOs) do not currently appear on this list, they will likely appear in the future.

If you think that you may need to file for FINRA arbitration, what is your first step? In this scenario, it is important to act promptly—and, to protect yourself, you will want to ensure that you are relying on sound legal advice from an experienced FINRA lawyer who has your best interests in mind. To find out if filing for FINRA arbitration makes sense, you should consult with an experienced FINRA lawyer as soon as possible.

Schedule a Call with an Experienced FINRA Lawyer at Zamansky LLC

If you have questions about filing for FINRA arbitration, we encourage you to contact us promptly. We provide free initial consultations, and we represent defrauded investors across the United States. To schedule a call with an experienced FINRA lawyer at Zamansky LLC as soon as possible, call 212-742-1414 or inquire online today.