FINRA Arbitration and Mediation: A Compelling Case for Doing Both

By Kim L. Kirn


The Financial Industries Regulatory Authority (FINRA) has created a parallel universe for handling disputes outside of the regular court system. It’s a bit like a sci-fi heroine finding herself in an alternate universe where up is down and the sun rises at midnight but sets at 8:00 a.m. In the FINRA universe, everybody has agreed to arbitrate or mediate their disputes.


Some FINRA arbitrators prefer to arbitrate cases, while others prefer mediation. As a FINRA arbitrator and mediator, I believe that there is value in choosing to do both. I find that I am a stronger, more effective mediator because of my work as an arbitrator and vice versa — my arbitration work is stronger because of my work as a mediator.


FINRA Arbitration and Mediation

First, most FINRA arbitrators start out as arbitrators, later moving on to becoming mediators. That was the case for me back in 2007. FINRA trains its arbitrators and, of course, as cases come your way, you learn more and more about the industry. Almost everyone is touched by FINRA in some way. If you maintain a securities account with any brokerage house, be it full service, some service, or discount, you have agreed to arbitrate your disputes through FINRA. And all employees working in the financial industry have agreed to arbitrate their disputes with their employers.


Here are six compelling reasons to consider arbitrating and mediating FINRA cases instead of limiting your FINRA practice to only one ADR method:


You have specialized experience. FINRA arbitrators see cases involving customers dissatisfied with their returns; customers unhappy with the selections made by their broker, claiming “unsuitability”; and employees who are moving to a new employer and unhappy with non-compete clauses. This specialized knowledge, so different from the typical car accident or “slip-and-fall” cases typically seen in mediation give a FINRA arbitrator an invaluable “leg up” when mediating cases.


An experienced FINRA mediator who arbitrates can look the attorneys and parties “in the eye” and candidly tell them what the FINRA arbitrator will find important in their case.  He or she can be brutally honest about the strengths and weaknesses and be that “agent of reality” that perhaps the attorney and client need to encounter.


You understand the costs involved in each ADR method. A FINRA arbitrator sees the costs expanded by the parties in arbitration. Many times, affidavits for attorney’s fees are included in arbitrations and as a mediator, I can appreciate the costs that parties in a dispute will expand to get through the arbitration and use that knowledge to give the parties accurate information as a mediator. I want the parties to make the best decisions they can make with the most accurate information.


Arbitrations tend to go long — almost every arbitration in which I have participated has gone long.  One reason? Arbitrators do not have the same control over the hearing that a judge has in terms of barring testimony and excluding evidence. Longer arbitrations mean higher attorney’s fees and higher forum fees, and understanding the cost structure makes a FINRA mediator more effective. The reverse is true as well; as an arbitrator I can appreciate what the parties are sacrificing in order to move forward with their case. It gives me greater empathy towards both sides towards all sides.


You are familiar with the speed of FINRA arbitrations. Arbitration moves faster than regular litigation; most cases — not all, but most — are in hearing within one year. As a FINRA arbitrator, I realize that there may be less time to fully explore mediation. As a FINRA mediator, I understand that the parties may feel their backs are “up against the wall” if they have a hearing date coming up fast. While FINRA arbitrators can grant extensions, the logistics of moving dates with all the parties and the three arbitrators can be a daunting task. When mediating FINRA cases, I can use this knowledge to help encourage settlement during mediation, even if it’s only settlement of some, not all, of the issues at hand.


Your knowledge positions you to be chosen as a FINRA mediator. The parties in a FINRA case have little choice regarding arbitrators; arbitrators’ names are provided on a list to the parties before the hearing. With limited ability to strike those names, their arbitrators are foisted upon the parties.


When choosing mediation, however, the reverse is true. The parties have a multitude of options including FINRA-trained mediators, which includes an entire array of private mediators who may dabble in FINRA cases or devote their mediation practices to the securities industry. As a FINRA arbitrator, however, you are more likely to be chosen as a FINRA mediator because of your knowledge and experience.


You have more flexibility when working as a FINRA mediator. Arbitrators are quite limited in the remedies that they can impose. There are usually money damages, attorney’s fees, and perhaps a question of interest, but the FINRA arbitrator’s options are strictly defined. However, when I work as a FINRA mediator, I understand that my narrow alley is broadened to include many more options:  timing of payment, method of payment, future contact, future employment, and many other more nebulous factors. Because I know that these kinds of remedies are unavailable in a FINRA arbitration, I can help encourage a creative settlement during mediation that includes them.


You are aware that FINRA arbitration awards are public. FINRA arbitration awards are a matter of public record they are available through the FINRA website and discussed and promulgated throughout the industry. Mediations are confidential and any resolution reached in mediation can be kept confidential. This is a huge factor for well-known brokerage houses but even lesser-known parties care about safeguarding their reputation within their community. Understanding this difference can help a mediator push the case towards resolution.


As you can see, the two very different roles of acting as a FINRA arbitrator and mediator are complementary. The hats I wear as an FINRA arbitrator and a mediator are very different hats, but I am a better arbitrator for having worked as a mediator and a better mediator for having worked as an arbitrator.



About Kim L. Kirn

Kim KirnKim Kirn has conducted more than 1,000 mediations and 75 arbitrations over the past 16 years as an ADR professional. Her areas of experience include employment, real estate, personal injury, sexual misconduct, consumer, commercial, insurance and education including special education. She is a tireless advocate for the mediation process and will continue to urge the parties towards settlement until no stone is left unturned.