When you open a brokerage account, you most always agree to bring any future disputes that arise with your stockbroker or brokerage firm to FINRA for adjudication. This means you give up your right to a jury trial.
FINRA offers both arbitration and mediation services. In a nutshell, mediation is where a neutral third-party attempts to help the parties reach an amicable settlement. Essentially, the mediator points out what he or she sees are the strengths and weaknesses of each party’s position. In arbitration, one or three arbitrators (depending on the amount in dispute) hear testimony, review evidence, and render a binding decision. It is possible to utilize both methods in the same case.
Here are some of the main ways that arbitration and mediation differ.
Unlike FINRA arbitration which is mandatory for FINRA members, mediation is a voluntary process. In mediation, the parties have complete control over whether to settle or not. It is possible to mediate, but not reach a settlement. Even so, mediation may be a useful tool, in that, an independent person knowledgeable about the securities industry can give you an objective opinion about the strengths and weaknesses of your case. In arbitration, the parties have no control over the arbitrators’ Award and are bound by their decision. There are very limited grounds on which to appeal a FINRA Award.
Arbitration is less formal than a jury trial, but mediation is even more informal. An arbitration proceeding often follows the format of a court hearing and the witnesses testify under oath and on the record. The FINRA Award is a matter of public record. Mediation, on the other hand, is an opportunity for the parties to tell their side of the story and ultimately engage in creative problem solving with the help of the mediator. Mediation is not recorded and whatever happens during the mediation is confidential.
Typically, the arbitration case is filed first and at some point before the final hearing, the parties will mediate in an attempt to settle the case. The majority of FINRA arbitration cases settle before the final hearing.