Reality Bites: FINRA Claims Soar

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Now, I’m not an alarmist, but this is staggering: Consumers filed 50 percent more securities arbitration claims with FINRA through the first 10 months of 2009 compared to the same period in 2008. Surely, the economic times have something to do with this. Many consumers are reeling from unthinkable portfolio losses, and whether there is legitimate blame to be had or not, some feel their advisers are at least somewhat at fault. (Get the most up-to-date stats on FINRA’s Web site.)

The spike it arbitration serves a great purpose, and it’s not to scare you. It’s a reminder of the proactive steps advisers can take in their everyday business practices to prevent a claim and be prepared if it were to happen. Veteran business reporter Amy Buttell talked to lawyers and advisers who offer great advice in the March/April Practice Management Solutions cover story, “Avoiding Arbitration.”

What to do:

  • Be realistic: No one ever thinks a FINRA claim will happen to them; until it does.
  • Be meticulous: Establish strong processes and procedures for recordkeeping and client communication.
  • Get it in writing: “Most of the problems I see in arbitration hearings result from the adviser not having enough information in writing,” Larry Ginsburg, CFP®, says in the article.

What not to do:

  • Don’t take on potential problem clients. “It’s easier to turn away a client who you know will be a problem, rather than try to get rid of that clients once they are a client,” compliance consultant Nancy Lininger says in the article.
  • Don’t blow it off. If you receive a FINRA complaint, take it seriously and respond immediately.
  • Don’t be arrogant. If you find yourself in an arbitration hearing, heed this advice from David Lipton, J.D., director of the Securities Law Program at Catholic University: When you testify, avoid arrogance in all forms.

So you’ve heard this before, but in thinking about FINRA arbitration claims, it’s prudent to tell you again: “To be prepared is half the victory.” Now if Don Quixote author, Miguel De Cervantes, actually said this famous quote or not, who knows? It’s still a good message.

Carly Schulaka
Managing Editor
Practice Management Solutions magazine
Financial Planning Association
Denver, Colo.

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