For instance, in an effort to force higher risk firms or those that employ higher-risk reps, a new Finra regulation that came out Tuesday would allow the agency to require firms to deposit cash or qualified securities in a segregated, restricted account, which can be used to cover arbitration awards. The agency also to implement heightened supervisory procedures on firms that register reps deemed higher risk.
Berkson called the regulations “a step in the right direction, but not sufficient to raise capital requirements to ensure that these firms have enough capital reserves to pay arbitration awards.”
While Finra is the dominate arbitration forum for the securities industry, other forums such as JAMS, AAA, or other private arbitration forums do not report arbitrations or unpaid awards.
Also troubling is the trend of FINRA-licensed brokers leaving the industry (often in a cloud of scorn following regulatory or customer complaints) and joining the ranks of SEC-registered investment advisors The SEC does not administer a dispute resolution forum for IAs like FINRA does for brokers. PIABA, despite its best efforts, found no centralized database demonstrating the results of claims made against investment advisors.
Piaba also wants states and the SEC to create a central depository that tracks arbitration and unpaid awards.
Current Piaba President David Meyers said he recently represented a client—74-year-old widow Barbara Gelderloos of Columbus, Ohio--who obtained an award for the full $612,000 amount she sought from Gahana, Ohio-based Fishers Wealth Management, a state-registered investment advisor, that “sold them hundreds of thousands of dollars of totally speculative nonpublic, illiquid private securities as her now-deceased husband lay dying of brain cancer,” Meyers told reporters.
“It’s a small firm and she faces a real possibility of not collecting on her award. She never would have imagined that she will not collect the money that she is owed and that the financial planning firm that was supposed to have the expert in financial matters would not have the financial ability to satisfy a judgement. Or that there was no requirement the firm have liability insurance. Or that there is no regulatory protection to ensure she’d collect a judgement from a fully-licensed registered investment advisor firm,” Meyers said.
A call to Fishers Wealth Management rolled over to an executive office space answering service and was not returned.
“This problem has been going on too long and there are many people who are faced with the unpaid arbitration problem. It’s time for a fix and the time is now,” he added.