Originally published in the Investment Adviser Association Newsletter on December 3, 2012.
The Financial Industry Regulatory Authority (FINRA) recently issued guidance (Guidance) stating that it will now accept requests for arbitration on a voluntary, case-by-case basis from investors and investment advisers (IAs), provided the parties meet certain conditions, available at http://www. finra.org/ArbitrationAndMediation/ Arbitration/SpecialProcedures/P196162. These conditions are explained in detail below. The Guidance also states that FINRA will offer mediation services for any IA disputes on a voluntary basis. The question that IAs must now grapple with is whether FINRA’s proposal makes sense for them. This article provides background information that investment advisers should carefully consider before deciding whether to accept FINRA’s invitation to adopt its arbitration procedures.
At this time, IAs are regulated by either the Securities and Exchange Commission (SEC) or the states. For some time, however, FINRA has positioned itself to take on oversight responsibility for IAs, a move that the IA industry has resisted, See IAA testimony at https://www.investmentadviser.org /eweb/docs/Publications_News/ Comments_and_Statements/Current_ Comments_Statements/120606tstmny. pdf. Although one might question FINRA’s Guidance, the President of FINRA Dispute Resolution has denied any link between the Guidance and FINRA’s efforts to become the self regulatory organization (SRO) for IAs, see http://www.investmentnews.com/ article/20121028/REG/310289999.
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