People who want to be public panelists can fill out an 18-page application available on FINRA's Web site. The agency conducts background checks, provides training and continuing education, and evaluates panelists once they're on the roster.
The pilot program is being evaluated by a number of criteria such as the percentage of investors who opt in and select an all-public panel. According to FINRA, about half of the investors in the program choose to have a nonpublic arbitrator on their hearing panel.
"It's too early to draw conclusions," says Intindola, "but some investors and their legal counsel see some benefit to having a nonpublic arbitrator there."
Some people believe the pilot program is unnecessary. "Every empirical study done on arbitration awards show no significant rate of dissent by industry arbitrators," says S. Lawrence Polk, a partner at the Atlanta office of Sutherland Asbill & Brennan, who represents broker-dealers in securities arbitration cases.
FINRA reports that 98% of all three-person arbitration panel decisions are unanimous.
Marc Dobin, director of the financial services department at LaBovick & LaBovick in Palm Beach Gardens, Fla., who represents both sides in arbitration cases, says he believes industry panel members are helpful because they know the industry and understand its nuances.
SEC Expects To Examine 9% Of RIAs Annually
The Securities and Exchange Commission last month unveiled a draft of its strategic plan for fiscal years 2010-2015 that includes its expected examination rate of SEC-registered advisors. As described in the draft, the agency plans to examine an average of 9% of advisors annually during this period. It also plans to examine 15% of all investment companies. And in tandem with the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization of broker-dealers, it plans to examine 55% of all broker-dealers annually in the upcoming five years.
One of the SEC's goals is to examine certain "high-risk" advisors every three years, which the draft report says is predicated on getting enough resources to keep pace with the growing number of SEC-registered advisors.
What's a "high-risk" advisor? In a June speech, former SEC compliance director Lori Richards said it could be a firm that uses an affiliate to custody client assets, a hedge fund that seems to have "smooth" or outlier returns, a firm that uses an unknown auditor or no auditor, a firm with a disciplinary history or a broker-dealer that sells captive or affiliate hedge funds or limited partnerships.
Richards said an exam of a high-risk advisory firm would include verifying with its independent third-party custodian and a sample of its clients that assets exist as represented by the firm.