FINRA Investor Arbitration Win Rate Drops to Six Year Low: Report

The number of investors who successfully obtained damages through arbitration claims filed with the Financial Industry Regulatory Authority (FINRA) dropped again last year, falling to the lowest levels since 2008.

According to the latest statistics released by FINRA, which is a non-government regulatory authority that oversees all brokers and financial firms, only 42% of investor arbitration claims last year resulted in an award of monetary damages or non-monetary relief.

The total number of customer complaints decided by FINRA, including full hearings and those decided on paper, fell to 499 in 2013, after steadily declining since 2010, when 882 investor arbitration cases were decided. Along with the drop in the total number of cases decided and a drop in the total number of investors who were awarded damages (212), the percentage of investors who won their cases last year fell to a six year low.

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FINRA was created in July 2007 as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims brought by investors who allege that they suffered damages due to mishandling of their accounts, including claims for breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims of wrongdoing.

In 2013, the most common arbitration claim filed by investors was for breaches of fiduciary duty with 1,873 claims. The second most common claim was negligence, with 1,715 claims. Many of the cases filed had multiple charges.

The total number of new cases filed in 2013 was 3,714, which is 14% less than the 4,299 new cases filed in 2012.

The decline in new case filings could signal that the rate of arbitration claims filed over the fallout from the 2008 market crash are slowing.

Some observers suggest that the decreasing win ratio for investors may also be because many cases currently being looked at are actually for losses that occurred before the 2008 crash, meaning bad conduct is more difficult to prove and much of the evidence could be dated or lost. The win rate peaked in 2010 with a 47% win ratio and 415 cases ending in damages awards.


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