AAA vs. FINRA Arbitrations - Transcript

When disputes arise in the securities industry, arbitration is often the primary method of resolution. Two of the most common forums for arbitration are the American Arbitration Association (AAA) and the Financial Industry Regulatory Authority (FINRA). While both forums aim to resolve disputes efficiently, they differ significantly in their processes, costs, and implications for investors and industry professionals. At Malecki Law, we understand the nuances of these arbitration forums and help financial professionals navigate the challenges arbitration proceedings can raise.

AAA and FINRA arbitrations share some fundamental characteristics. Both involve filing a claim, conducting discovery, and ultimately presenting evidence and arguments during a hearing. These steps are designed to provide a structured resolution process that is generally faster, less expensive, and less formal than litigation in court. Arbitrators in both forums serve as the decision-makers, issuing binding awards based on the evidence and arguments presented.

While AAA and FINRA arbitrations share similarities, their differences can have a significant impact on the arbitration process and outcome:

1. Arbitrator Selection and Costs
   • AAA arbitrators are often highly qualified professionals with extensive experience in arbitration and the securities industry. However, their expertise comes at a steep cost, making AAA arbitration a more expensive option.
   • FINRA arbitrators, while also experienced, are generally less costly. This makes FINRA arbitration a more accessible choice for investors, particularly those who have already suffered financial losses.
2. Payment of Awards
   • One significant advantage of FINRA arbitration is its enforcement mechanism. If a respondent fails to pay a FINRA arbitration award, their license to operate in the securities industry may be suspended or revoked. This creates a strong incentive for respondents to honor awards promptly.
   • In AAA arbitration, there is no similar enforcement mechanism. Investors who win awards may face challenges in collecting their compensation, especially if the respondent lacks the resources or willingness to pay.
3. Regulatory Oversight
   • Every FINRA arbitration filing is reviewed by FINRA’s regulatory and enforcement arms. This added layer of scrutiny can encourage firms to settle disputes to avoid exposing potentially problematic practices during arbitration or subsequent investigations.
   • AAA arbitration lacks this regulatory component, meaning cases proceed without the additional pressure of enforcement review.
4. Mandatory Arbitration Clauses
   • Many registered investment advisers include mandatory arbitration clauses in their agreements, often specifying AAA as the arbitration forum. This has sparked debate about whether such clauses are fair to investors, particularly given the higher costs associated with AAA arbitration.
   • In contrast, FINRA arbitration is the default forum for disputes involving FINRA-registered brokers and firms, offering a more structured and investor-friendly process.

For investors, FINRA arbitration often provides a more cost-effective and reliable path to recovery. The lower fees, and the enforcement mechanisms tied to the payment of awards, make FINRA a practical choice for individuals who have already experienced financial losses. Additionally, FINRA’s regulatory and enforcement teams adds an extra layer of accountability, increasing the likelihood of fair outcomes.

One of the biggest challenges in arbitration is collecting on an award. In AAA arbitration, even a favorable decision can be difficult to enforce if the respondent is unwilling or unable to pay. This often requires additional legal action, which can be costly and time-consuming.

In contrast, FINRA’s policy of revoking licenses for unpaid awards ensures that respondents have a strong incentive to fulfill their obligations. This benefit reduces the burden on investors and helps streamline the recovery process. At Malecki Law, our experience with FINRA arbitration has shown that this mechanism is highly effective in ensuring compliance with awards.

Determining whether to pursue arbitration through AAA or FINRA depends on several factors, including the specifics of your dispute, the parties involved, and the terms of your agreement. While AAA may offer certain advantages, such as access to high-caliber arbitrators, the costs and challenges of enforcement often make FINRA a more favorable option for investors.

Arbitration can be complex, and choosing the right forum is a critical decision. At Malecki Law, we provide strategic guidance tailored to your financial situation, helping you navigate the nuances of AAA and FINRA arbitrations. Our team is dedicated to protecting your rights, maximizing your recovery, and ensuring that justice is served. If you are facing a dispute that requires arbitration, contact Malecki Law at (212) 943-1233 or reach out online to schedule a consultation. Let us help you evaluate your options and pursue the best path forward for your case.

Transcript:

Triple-A is different from FINRA arbitrations in a number of ways so claims that the American Arbitration Association (AAA) are similarly handled as FINRA arbitrations meaning you file a complaint there’s some discovery and ultimately you have a hearing.

Triple-A arbitration has arbitrators that tend to be extremely high quality but they are extremely expensive. So, many investors prefer FINRA arbitration because they’ve already lost a lot of money.

And there’s some debate about whether or not it’s fair to force investors into AAA which many registered investment advisors do.

The good thing about FINRA over AAA is that if you do not pay a FINRA arbitration award your license is taken away.

So there’s a high incentive that once you go to arbitration if you get an award they will pay it because they don’t want to lose their license.

You know collection can be a terrible thing and in my business I’ve been fortunate over the years I’ve never really had collection issues because of this this uh benefit to FINRA arbitration.

Also FINRA arbitration every FINRA arbitration filed gets reviewed by FINRA regulatory, the enforcement arm, so that puts a bit of pressure on firms to settle sometimes because they don’t want things to come out that may happen in the investigation or that you cooperate with the investigation so there are some benefits to FINRA arbitration.