Financial Industry Regulatory Authority arbitrators are too old and too male, the Public Investors Arbitration Bar Association (Piaba) contended Tuesday.
Analyzing Finra’s database of 5,375 arbitrator disclosure reports, Piaba found 80 percent of arbitrators are men and the average age is 67.
Noting 12 percent of arbitrators are 80 and above, the group said that some of the many seniors were too infirm to perform their duties effectively.
“Piaba has received complaints from its members that some arbitrators serving on arbitration panels were having a difficult time effectively participating in arbitration hearings, in large part, because of their advanced age,” the study said.
Finra disputed the charges. “The notion that individuals 70 and older are unable to and unfit to serve as effective arbitrators is insulting and borders on age discrimination,” said Finra in a statement. “We have an aggressive recruitment campaign in place to seek individuals from diverse backgrounds to serve as arbitrators.”
In its report, Piaba chastised Finra for failing to do a study on the diversity of its arbitrators.
Finra said it reaches out to more than 100 organizations nationwide through on-site events, targeted recruiting advertisements and direct marketing campaigns.
Piaba said Finra also needs to disclose how it selects the professionals allowed to adjudicate investor vs. broker-dealer disputes.
“Transparency with regard to why and how Finra recruits arbitrators is critical to the legitimacy and fairness of the entire arbitration forum, given the impact it could have on the composition of the arbitrator roster and the outcomes of cases,” Piaba said.
Turning to another alleged weakness in the arbitrator system, the group complained Finra relies on the arbitrators to self-report conflicts of interest and biases, which it said research has long proven to be ineffective.
Piaba said the lack of disclosure in how Finra selects arbitrators and conflict-of-interest problems buttress the argument that the mandatory arbitration process is unfair for investors and they should be allowed to go to court to settle their grievances with brokers.
“The securities industry has had almost 30 years to get the arbitrator disclosure process right and has not done so,” Piaba said.
According to Finra, they supply Piaba with arbitrator application forms and have had a link from Piaba's Web site to their arbitrator application pages for more than 10 years.
“The suggestion that Finra has not been partnering with Piaba in recruitment of potential arbitrators is absurd,” said Finra.