The Financial Industry Regulatory Authority Inc. recently announced that it has opened up its arbitration system to registered investment advisers (RIAs). According to Linda Feinberg, President of FINRA’s office of dispute resolution, an RIA can now voluntarily submit to the same FINRA arbitration process to resolve customer disputes as is currently used by the brokerage firm industry.
This move makes sense. As a lot of firms have transitioned from the fee based model used by more traditional brokerage firms (like Morgan Stanley, Merrill Lynch, etc.) to the investment advisory model, these new RIAs are left trying to figure out where to resolve any disputes that may arise.
Certainly, the FINRA arbitration process may appeal to some of these firms. For one, the RIA may prefer the FINRA arbitration process over court or other arbitration venues because of the lower costs typically offered by FINRA. FINRA’s process is streamlined relative to court and has less stringent discovery procedures (including no depositions) that make the process cheaper and less time consuming that court.
Another reason many RIAs may prefer FINRA arbitration is because of the training and experience of FINRA arbitrators. RIAs may prefer a panel of arbitrators experienced in securities disputes over a jury of people unfamiliar with the intricacies of securities law, and investment advisor responsibilities/obligations.
Finally, RIAs may prefer FINRA over other forums because it is a known quantity. There are literally thousands of investor fraud claims resolved each year using the FINRA arbitration process. FINRA publishes statistics on those cases, and RIAs can easily evaluate and determine what their exposure may be in a particular securities fraud claim by reviewing those statistics. This may be preferable to court or other arbitration forums with less experience in resolving the types of disputes common in the securities industry, like unsuitability, improper sales of high risk private placements, churning, etc.
Whatever the particular reasons may be, it is almost certain that this move will increase the number of claims filed with FINRA. There are simply too many large and powerful RIAs out there now for the FINRA process not to be used by some of them.
A recent Investment News survey listing the largest RIAs by assets under management showed that there are a number of RIAs with assets under management of over a billion dollars. A truncated listing of some of those firms is as follows:
Aspiriant, LLC, Northside Capital Management, LLC, Avalon Advisors, LLC, Dearborn Partners, LLC, Gresham Partners, LLC, Savant Capital Management, Inc., RMB Capital Management, Veritable LP, Silvercrest Asset Management Group, LLC, KLS Professional Advisors Group, LLC, BBR Partners, LLC, Welch & Forbes, LLC, Inverness Counsel, LLC, Ronald Blue & Co., LLC, Homrich Berg, Foundation Resource Management, Inc., Everett Harris & Co., Wetherby Asset Management, Evanson Asset Management, LLC, Capital Investment Counsel, Inc., Bingham Osborn & Scarborough, LLC, Brighton Jones, LLC, RegentAtlantic Capital, LLC, The Mutual Fund Store, Creative Planning, Inc., Genspring Family Offices, LLC, Evercore Wealth Management, LLC, Mill Creek Capital Advisors, LLC, Ferguson Wellman Capital Management, Inc., R.M. Davis Inc., Atherton Lane Advisers, LLC, Luminous Capital LLC, Buckingham Asset Management, LLC, Choate Investment Advisors, Rockefeller Financial, Klingenstein Fields & Co., LLC, Mercer Global Advisors, Inc., myCIO Wealth Partners, LLC, Dowling & Yahnke, LLC, Douglas C. Lane & Associates, Inc., Ballentine Partners, LLC, Heintzberger Payne Advisors, Signature Financial Management, Inc., Tiedemann Wealth Management, LLC, Williams Jones & Associates, LLC, Bartlett & Co., Gofen and Glossberg, LLC, Harris myCFO Investment, Palisade Capital Management, LLC
Given the number of large RIAs, it is clear that assets have flown towards this model. As assets flow towards the RIA model, no doubt litigation will follow that direction as well and securities fraud related claims will also shift towards firms using the RIA model rather than the more traditional fee-based, brokerage firm model.
The foregoing information has been provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. The firm represents defrauded investors in securities claims against financial professionals in all forums, but most cases handled by the firm use the FINRA arbitration process.
For more information on The White Law Group visit https://www.whitesecuritieslaw.com.