As an investor, what are your options if you have a dispute with your financial advisor or broker?
 
Report Problems to Management
 
Although many investors take precautions to invest safely and intelligently, it is still possible for a dispute to occur between an investor and their financial advisor. Mediation and arbitration are important methods of dispute resolution that have been used successfully by the securities industry and others, but they generally should not be your first steps. Whether it is a discrepancy that has just arisen, or a disagreement that has escalated into a full-fledged dispute, an investor should begin by reporting the specific matter to the broker's manager. Often, management has the authority and insight to take steps that will rectify the problem quickly and easily. If it is just a misunderstanding, management intervention may be enough to put the transaction back on course.
 
If the brokerage firm's management does not resolve the complaint within a reasonable period, an investor should seriously consider seeking the legal advice of an attorney. Even if arbitration or mediation is chosen over a lawsuit to resolve the dispute, an attorney can provide valuable instruction and advice, and can help weigh the advantages and disadvantages of each method.
 
Arbitration
 
When it seems that other efforts to resolve the dispute have not produced results, it is then time to decide whether you will file a claim with the Financial Industry Regulation Authority (FINRA) to arbitrate. 

Filing a Claim
 
The arbitration process begins by filing a Statement of Claim which describes what has happened, written in the investor's own words. The Statement of Claim should tell the story clearly, concisely, accurately, honestly, and in sufficient detail so that someone reading it will understand what happened, what monetary damages are being sought and why the investor feels they are entitled to receive a favorable decision. It is important for the investor to be prepared to prove each part of the Statement of Claim, because the broker or firm will use the Statement of Claim to build their defense.
 
The Submission Agreement is the document indicating that the investor has selected arbitration as the means of solving a dispute. The arbitration process cannot begin without it. The Submission Agreement serves as the agreement by the investor to be bound by the decision of the arbitrators.
 
FINRA charges a filing fee for handling the arbitration. The filing fee is determined by the amount of the claim at issue. A portion of the filing fee is non-refundable and must be paid at the time of filing of a claim.
 
The claim is served on the broker or firm (respondent), who is then given time to prepare an answer. After the respondent is served, both parties are then responsible for providing, or serving, copies of all other documents, pleadings, correspondence, etc., directly to the other parties and for providing additional copies of any documents to FINRA for its record and for the arbitrators. Keep in mind that the broker or firm may also file a claim against a third party, or may file a counter claim against the claimant.
 
Arbitration Hearings
 
If the claim is for $25,000 or less, it is considered a "small claim" and usually, a single public arbitrator will render a decision by reading the written statements and supporting materials submitted by each party. Although, as a public customer, the investor may request an in-person hearing to appear and present live testimony instead of having the arbitrator render a decision based on the written submissions of the parties.  
 
In cases where the claim is for more than $25,000, or if an in-person hearing has been requested, the hearing will be scheduled as soon as possible. Hearings are conducted in sessions of up to four hours, usually with two sessions per day, though not necessarily on successive days.
 
The investor must arrange for any witnesses and/or evidence to be available for presentation at the hearing. The other party must be informed of the witnesses to be used and provided copies of anything planned to be used at the hearing as evidence at least 20 calendar days before the start of the hearing. The investor will also need to bring to the hearing enough copies of each item for each arbitrator and one for the files of FINRA. It is important to be well organized and to have outlined and practiced what should be said. Arbitrators appreciate cases that are concise and well focused.
 
The parties will select their arbitrator choice(s) from three computer-generated random lists based on Arbitrator disclosure information provided by FINRA. Each separately represented party may strike up to four of the arbitrators from each list for any reason.
 
Prehearing

A prehearing conference is set soon after the arbitrators are appointed. The parties and the arbitrators participate in the conference. At the conference, the arbitrators decide procedural matters, such as discovery between the parties, and set hearing date(s). Decisions or rulings made during the conference are entered into an order signed by the arbitrator(s) and distributed to the parties by the case administrator.
 
Discovery

The voluntary exchange of documents is encouraged. The discovery guide is available to help the parties to determine the categories of documents routinely produced in arbitrations. Subpoenas and Orders to Appear/Produce are also available to parties. The arbitrators may rule on discovery disputes and order documents to be exchanged. Based on the schedule established during the prehearing, the parties will conduct discovery.
 
Hearings
 
The arbitrators conduct each hearing in the manner they think will be the most effective in permitting the full and fair presentation of the evidence and arguments of the parties. The process will usually proceed as follows:
 
1.            The arbitrators and the witnesses are sworn in.
2.            Each party has an opportunity to make a brief opening statement.
3.            The claimant presents facts to the arbitrators, including documents

               and live or written testimony.
4.            The respondent presents his or her case in the same manner as the

               claimant.
5.            Then, any counter claims are presented in the same way.
6.            Parties may provide rebuttal evidence.
7.            Parties may make closing statements or summations of the

               testimony.
 
The investor must be prepared to demonstrate proof of your claim. The witnesses will be subject to cross-examination by the other party, and to questioning by the arbitrators. You will be able to cross examine any witnesses for the other party. You will also be able to object to any evidence presented by the other party before the arbitrators receive it. The arbitrators will examine the documents to determine if they will be admitted into evidence.
 
Decision and Awards
 
The decision is made after all parties complete their presentations and the arbitrators close the record. In cases where there is an arbitration panel, the outcome is based on agreement by a majority of the panel. Arbitrators typically render a final decision within 30 days after they close the record. They are not required to write opinions or provide reasons for their decision. The investor may request an opinion, but should make that request in writing before the hearing date.
 
A written document called the "award" (i.e., the "decision") which contains the decision of the arbitrators, will be received usually by first class U.S. mail or facsimile. All parties are notified at the same time. Arbitration decisions are also made public. If you are the claimant and the decision or award is made in your favor, you can expect to be paid within 30 days of the time that the other party is notified of the decision. The other party will pay you directly, usually by sending you a check in the amount specified by the arbitrator. Brokers and FINRA member firms must pay arbitration awards within 30 days of receipt, unless a motion to vacate is filed in court. 
 
Decisions made in FINRA arbitrations are final. Arbitrators cannot reconsider their decisions, once issued, even if new evidence surfaces later. A challenge of the outcome of an arbitration decision can be made in a court of law, but these cases are successful only under rare circumstances. The courts will generally uphold arbitration decisions.
 
It is important to remember that losing money with your investments does not necessarily mean you have a claim against your broker. The law governing securities is complicated and requires a careful assessment of the situation. If you have questions or concerns with matters involving your broker, please contact Craig S. Gerard at (517) 853-1510 or by email at csg@thegallagherlawfirm.com.