Mediation vs. Securities Arbitration – What’s the Difference?

Most investments carry some type of risk, but no matter what, you should be able to count on your broker to act in your best interest. Unfortunately, broker misconduct occurs more often than many people realize and the results can be devastating. If you believe your broker or investment advisor's misconduct or fraud has resulted in your financial loss, you need to understand the processes involved in resolving the dispute.

The Financial Industry Regulatory Authority (FINRA) handles the majority of disputes between customers (i.e., individual investors) and their brokers and brokerage firms. These cases are typically resolved in mediation or arbitration. In fact, FINRA reports that it handles about 7,000 arbitrations and more than 1,000 mediations each year. While the purpose of mediation and arbitration are the same - to resolve a dispute - the processes involved are very different.

Below are some of the key issues you need to know about each dispute resolution process.

Arbitration

The majority of broker misconduct cases are handled in mandatory binding arbitration as opposed to court because all brokerage firms require their customers to sign what is known as a "pre-dispute arbitration clause" contained in the opening account documents. During the final arbitration hearing, a panel of individuals, who have completed training through FINRA, will hear your case. You will have the opportunity to present evidence and witnesses to support your claim.

Arbitration takes the place of going to court and the decision made by the panel is considered final and binding (with very few exceptions). One of the major advantages of arbitration is the speed at which the decision, also known as award, is reached. Typically, the award is given within 30 days after the proceeding has been completed.

Mediation

Mediation is completely voluntary, unlike arbitration. It is less formal than the other types of dispute resolutions and can also be less expensive. A neutral third-party mediator, who is selected by both parties, will facilitate the negotiations. It is important to recognize that the mediator will not be making a decision on the case, although he or she may provide an evaluation of the claims and defenses and recommend a settlement to both sides. Therefore, mediation is considered non-binding. Although there are many people who claim to be "mediators", not all of them are effective in the field of broker misconduct cases. Selecting an effective mediator is an important part of the process.

Since the mediation process is non-binding, most brokerage firms will not pay the full value of the claims in a mediation session unless a formal arbitration claim is also pending. Mediation and arbitration can occur on parallel tracks, so that if an acceptable compromise is not reached during mediation, the formal arbitration process can continue and move toward a final hearing (which will result in a binding determination of the claim).

When to Contact a Securities Arbitration Attorney

Resolving a dispute with your broker is not easy. The brokerage firm will have a sophisticated group of lawyers well-versed in the securities laws and regulations attempting to limit their liability and to pay as little money as possible. You need to ensure you have someone on your side to even the playing field. If you are considering a claim against your broker, you should talk with a securities arbitration attorney.

Contact the law firm of Meyer Wilson, LPA for a free case evaluation by calling toll-free 1.866.827.6537 or filling out our online form. Our lawyers are licensed in Ohio and California and we represent investors nationwide in securities arbitration, mediation and litigation claims.

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