What is arbitration in investments?

Definition and Examples of Arbitration in Investment

Arbitration is a process for resolving disputes between two parties without resorting to court. In investment, arbitration is often used to resolve disputes between securities brokers and their clients. Investment arbitration is a type of dispute resolution mechanism where the client and broker agree to resolve their disagreement outside of court. This is typically resolved using a panel of arbitrators instead of a judge and jury. The Financial Industry Regulatory Authority (FINRA) is the governing body overseeing most investment-related arbitration disputes.

How Does Arbitration in Investment Work?

The arbitration process in investment is typically faster and less expensive than a full court trial, making it an attractive option for many investors. Arbitration also depends on your account agreement, and it may be the only option for filing a legal claim.

What is the Form of the Arbitration Process?

It is important for an investor to have a broker to determine their loss when they believe they have incurred it due to poor financial advice or actions by their broker. Regulatory bodies such as the Securities and Exchange Commission (SEC), FINRA, and other government regulatory organizations enforce strict standards of conduct for securities brokers and registered investment advisors. Financial advisors must act in their clients’ best interests and disclose any potential conflicts of interest they may have in the form of commissions they earn from the investments they recommend to clients. Attorney Robert Van De Veere noted that investors may also have a claim if their financial advisor steals their money or borrows from them and fails to repay it. “In such cases, the brokerage firm could be liable to reimburse the client – plus interest.”

What Does This Mean for Individual Investors?

Arbitration provides recourse for investors against the actions of their brokers. It offers a faster and cheaper way to resolve disputes by presenting them to an arbitration panel instead of going through the courts due to the length of the case. Although arbitration can be a good way to resolve disputes, you lose some rights when you agree to it – such as the ability to file a class action suit or appeal the arbitrators’ decision.

Source: https://www.thebalancemoney.com/arbitration-in-investing-5272061