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FINRA Arbitrator Guide: Is the Pool of Arbitrators Diverse Enough?

Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author

According to critics of the FINRA arbitration process, the lack of diversity in arbitration panels contributes to arbitration’s overall lack of fairness to investors. The Public Investor Advocate Bar Association (PIABA) published a report in 2014 that questioned the fairness of the arbitrator selection process and suggested a lack of diversity among arbitrators may contribute to a notable decline in investor awards. Recent data suggests that not much has changed.

The PIABA report pointed out that the pool of arbitrators represents a narrow selection of professions, including lawyers and financial professionals. Arbitrators do not officially need to have any specific professional designations; they are only required to have a college degree. Professionals with a refined grasp of the securities industry and/or the arbitration process do not reflect ordinary investors who may not have any background in the securities industry.

Following the release of the report, PIABA president Jason Doss stated, “There is no question that having a pool of arbitrators with diverse backgrounds and experiences will result in improved decision-making. FINRA states that the cornerstone of the integrity of its entire arbitration forum depends on FINRA having an effective and reliable process to detect and disclose arbitrators’ biases and conflicts of interest to the parties. Therefore, investors have no other choice but to conclude that arbitration is unfair.”

Do Investors Need to Worry About FINRA Arbitration?

There is reason to believe that FINRA arbitration is an unfair process for investors. Studies have pointed out that the percentage of FINRA arbitration cases that receive an award has gone down over time. PIABA also points out that the average dollar amount of FINRA awards has also decreased.

FINRA responded that PIABA’s conclusions regarding the decrease in win rates for investors, stating, “The reality is that win rates increase or decrease depending upon the controversy involved, market events and counsel. We have made substantial efforts to recruit and train arbitrators from diverse backgrounds and will continue to do so.”

Critics also point out that brokerage firms are more likely to have familiarity with potential arbitrators. Without a securities lawyer, investors are at a disadvantage when it comes to knowing which arbitrators to strike from the list.

Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.

Miniature scales sit on a desk next to a gavel.

What is FINRA Arbitration?

Most brokerage firms require investors to sign a pre-dispute arbitration agreement. This prevents the investor from suing the brokerage firm in civil court, ensuring that investors who have suffered losses will have to use the dispute resolution platform provided by the Financial Industry Regulatory Authority (FINRA). Once an investor has filed a statement of claim, FINRA provides a list of potential arbitrators. Both the brokerage firm and the investor rank the potential arbitrators. The highest-ranked arbitrators will decide the outcome of the dispute. FINRA arbitration awards are final and extremely difficult to vacate in court, making it essential for watchdogs to closely examine arbitrator biases and conflicts of interest.

  • The majority of arbitration cases settle before arbitration–approximately 69% of cases reach a settlement through mediation.
  • Only about 18% of investors actually receive an award, and of that 18% only 5% are awarded damages that are eventually paid by the firm.
  • 11% of FINRA arbitration cases are awarded no damages.

FINRA’s Statements on Arbitration Diversity

Director of Dispute Resolution Services Richard Berry states on the FINRA website, “It’s vitally important that our pool of arbitrators reflects the varied backgrounds of the parties who use the FINRA arbitration forum. We have bolstered our recruitment efforts, both in terms of increasing the numbers and diversity – in age, gender, race, and occupation – and continue working toward this goal.”

While FINRA may have taken steps to broaden the diversity of its pool of arbitrators, it remains overwhelmingly white, male, and over 60.

According to a 2022 FINRA survey:

  • 68% of FINRA arbitrators are male. (As recently as 2014, the arbitrator pool was 80% male.)
  • 42% are over 70, and only 29% of arbitrators are under 60.
  • 65% of arbitrators are white.
  • 20% of arbitrators are black, 5% are Latino, 5% are Asian, and 6% are multi-racial.

FINRA has defended the advanced age of many FINRA arbitrators, pointing out that “it stands to reason that a good portion of those able to make this time commitment on an ongoing basis for the pay offered are likely to be retirees.”


Will FINRA Arbitration Ever Improve?

FINRA has recently proposed a new rule that would increase transparency in the arbitrator selection process. Arbitrators can be removed from the pool of potential arbitrators with no explanation but the new rule will require a written explanation. This new rule, however, does not address the ongoing lack of diversity among FINRA arbitrators.

If investors are concerned about fairness upon entering into a dispute with a brokerage firm, they should speak with a securities attorney for a free case evaluation. Call (877) 600-0098 or email