Can FINRA Force Firms to Insure for Arbitration Awards?

Every once in a while a group of customer attorneys bemoan the fact that some arbitration awards go unpaid. It is true - some arbitration awards do in fact go unpaid. So do court judgments, and without the benefit of a study, I would bet that a significantly higher percentage of court judgements go unpaid than arbitration awards.

Let's keep in mind that only in the world of FINRA does a person or entity lose its ability to conduct business if it does not pay an award in 30 days. This concept is completely unheard of in the rest of the country. Only a FINRA firm, or broker, is required to pay an award in 30 days or risk the loss of the ability of the firm, and all of its employees, to earn a living.

Draconian for certain, but it gets awards paid. The ones that do not get paid result from claims that are brought against defunct firms. Well, shame on the attorney for bringing that case, since you knew from the day you filed that you were not going to collect unless you went to the bankruptcy court. And that is a risk of living and working in a capitalist society - companies go bankrupt and leave their creditors without a remedy. (Unless you owe money to the United States, then you always owe the money, regardless of your bankruptcy filing).

The solution? Someone came up with the clever idea - since we already force firms to pay awards in 30 days without us doing anything to enforce the award, lets see if we can force the firms to buy insurance to pay for those awards!

Of course this ignores the legal underpinnings of insurance, and the fact that such insurance undoubtedly does not exit. And why doesn't it exist?

If you couldn't guess, here is the FINRA spokesperson quote announcing that FINRA was not going to require firms to obtain insurance to pay arbitration awards:

We researched various types coverage in this area and found that insurance underwriters didn't necessarily want to cover 'higher' risk firms, precisely the ones about which we are most concerned.

We found that if an underwriter was to cover those firms, and would spread the risk across all firms, the cost became prohibitively high

Shocking - the cost of providing insurance to insure that all arbitration awards get paid if the firm goes out of business are too high.  Imagine the insurance payout for cases that were pending against Lehman Brothers!

Let's face it. Not getting paid is a risk that hundreds of thousands of  plaintiffs this county face every year. There is no reason make any exception for the 4,000 of those plaintiffs who have arbitrations against brokers and firms. Companies go out of business, individuals file for bankruptcy. It is a fact of life.

It happens.It is a risk. But with an experienced and diligent attorney, and hard work, that risk can be minimized. Bring good cases, bring them in a timely fashion, and don't litigate your adversary into bankruptcy.  Be creative in your settlements with firms who are in financial trouble.

Think out of the box.

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Mark Astarita is a securities arbitration attorney who has represented investors, firms and financial professionals, nationwide, in well over 600 arbitrations, for over 25 years. If you are interested in retaining him for a securities arbitration matter, before FINRA or any other forum, give him a call  at 212-509-6544 or email him.

Why Do Investors Keep Buying Actively Managed Funds?

An interesting question. With an overwhelming body of evidence showing that actively managed mutual funds underperform their appropriate risk-adjusted benchmarks, why do investors continue to invest in them..

Why Do Investors Keep Buying Actively Managed Funds? | BAM ALLIANCE

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The attorneys at Sallah Astarita & Cox include veteran securities attorneys with decades of experience. We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.

Baby Boomers Not Ready For Retirement. Is There Still time?

Financial Planning.com is reporting that the majority of Baby Boomers and Generation Xers appear to be looking at their retirement years through rose-colored glasses. More than three in four feel confident they will have enough money to live comfortably in retirement, even though nearly 40% of Baby Boomers and about two-thirds of Gen Xers have less than $100,000 in retirement savings. Moreover, a worrisome percentage--21.7% of Baby Boomers and 27.8% of Gen Xers--has no retirement savings at all. The grim statistics are the highlights of a report released today by the Insured Retirement Institute.

It gets worse. Not only do they lack savings, they lack the skils and investment knowledge to address the issue, according to the report. The combination of the two - lack of funding and lack of skills to increase savings and earnings is a dangerous combination. The lack of funds increases the chances of attempting to hit a home run with each investment, which typically leads to disaster.  In my decades of practice I have seen hundreds of investors who attempted to recoup losses, or increase gains, by speculative investments or risky trading strategies.

 

The problem is that some investors simply do not know better. Rather than attempt to get 100% or 1,000% return on an investment, get yourself to an financial advisor who knows more than you do, and who can calculate how much money you will need in retirement, and how to get there with as minimal amount of risk as possible.

Choosing an investment advisor is not an easy task, and there is no magic formula to find one either. Do some research, get referrals from friends, and do your homework. At the same time, educate yourself. When I came out of law school, knowing nothing about investing, a mentor told me to read two magazines every month - Money, which is written for the average person, and Financial Times, written for sophisticated investors and financial professionals. He told me that I would understand most of Money, and none of Financial Times, but to do it every month for a year.

I don't know that the average investor needs to read Financial Times, but I did, and my mentor was right. It took a while but I wound up with a practical understanding of investing and the markets, which has served me very well over my legal and investing career. 

Take this statistic from the report seriously - slightly more than half (51.4%) of Baby Boomers and less than half (40.7%) of Generation Xers have tried to calculate how much savings they will need for a comfortable retirement.

You need to do that, and if you don't know how, you need to learn how, and you need an advisor to help you plot the investment course to get there.

Baby Boomers, Gen Xers View Retirement Through Rose-Colored Glasses | Financial Planning