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FINRA Arbitration Statistics through early 2015

FINRA recently reported updated statistics on the number and type of arbitration claims being filed in 2015 relative to previous years.

A couple of thoughts on the numbers:

(1) Filings for January 2015 are down 21% from the previous year – This is likely a reflection of the upward moving market in 2014 and the fact that the last market correction was back in 2008.  Although bad financial advisors are ripping off their clients all of the time, clients rarely realize it in an upward moving market.  It is not until the market corrects that many of these bad acts are flushed out, so when the market rises it is not surprising that filings would be down.

(2) 21 Churning claims filed in January 2015 – When the market is rising, you often see a rise in churning claims as well.  Likely because bad advisors think it is easier to whitewash high turnover (and high commissions) so long as the account continues to be profitable – which is obviously easier to do when the market is up over 30% as it was in 2014.  We would anticipate a continued increase in the number of churning claims as long as the market continues this bull run.

(3) The most complained about security type was common stock.  This is a departure from the last few years.  Again, likely a reflection of the upward moving market.  When the markets rise, complex structured products (like non-traded REITs, limited partnerships, private placements) are generally rising as well, thereby reducing the number of claims brought involving such products.  However, when the market does correct, we would anticipate a spike in claims involving structured products because ultimately these are the products with the highest commissions and therefore the highest incidence of abuse by bad advisors looking to maximize their compensation.

(4) No auction rate securities cases.  This isn’t surprising.  These claims have decreased over the last few years as regulators have stepped in and most firms have agreed to buy back the investments from their clients.

(5) 78% of FINRA cases filed ended with a settlement between the parties.  This number has remained consistent over the last few years and confirms that the majority of cases filed with FINRA do end up settling.  This is likely due to the arbitrary nature of FINRA arbitration and the risk both sides take leaving their fates up to FINRA arbitration panels.  It seems that most parties in FINRA arbitration claims would prefer the certainly of settlement over the uncertainly of what a FINRA panel may rule.

(6) Only 38% of FINRA claims taken to hearing resulted in an award for the Claimant (down from 47% in 2010).  We would attribute this to arbitrator fatigue.  Arbitrators have been listening to claims coming out of the 2008 market correction for approximately 7 years now and it is natural for them to start comparing the newer cases to prior cases they already heard.  When those cases are not as strong as a case they previously heard, it becomes that much more difficult to convince them to award damages.  These statistics may continue to decline until another market event occurs.

The foregoing information is the opinion of the FINRA arbitration attorneys of The White Law Group.  The firm represents investors in FINRA arbitration claims throughout the country.  For a free consultation with a securities attorney, please call the firm’s Chicago office at 312/238-9650.  For more information on the firm, visit https://whitesecuritieslaw.com.


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