Dochtor Kennedy, the president of AdvisorLaw in Westminster, Colo., and an attorney who represented clients on 58 of last year’s awards, said he believed one reason the arbitration cases doubled is the fact that there are more specialist lawyers than there used to be who are qualified to represent brokers in securities employment disputes, and more brokers are aware of their presence.
“It used to be there weren’t many firms that advocated for the industry reps. There were the more conservative firms that wanted to support the broker-dealers,” Kennedy said. “But firms like mine, we know these guys are punching bags. They might have had a great relationship with their manager, but at the end of the day they’re just a cog in the wheel. A lot of people never knew they could fight it, but now they do know.”
Regardless of the actual number of annual U5 arbitrations, the needle on wins for brokers has not really budged one way or the other over time. In 2015, 50% of brokers who sought arbitration won their cases. In 2019, the percentage was 57%, the high of the last seven years. In 2021, the percentage was back to 51%.
Although all the industry sources interviewed for this article expressed surprise that the percentage wasn’t higher, no one offered a clear answer as to why that’s the case. One reason for the shroud of mystery, however, might be that arbitration panels tend to be stingy with details in the written awards, especially when the decision is a denial of a claim.
The impact on some broker careers, however, is clear. An examination of Form U5 cases in 2015, 2019 and 2021 showed that, indeed, some brokerages assailed former employees with trumped-up charges designed to assign blame, retain assets and increase profitability.
And Finra is declining to change that.
Watch for Parts II and III of this series next week. Part II: The lack of brokerage accountability can turn careers to dust. Part III: Choosing a path forward when next steps are limited.
Read a condensed version of this series in the April 2022 print issue of Financial Advisor magazine.