The Dirty Secret of the Securities Industry

The Dirty Secret of the Securities Industry

There’s a universe of advice and information out there for investors looking to educate and protect themselves. Tune in to MSNBC or visit and you’ll find a million answers to million different questions related to investing intelligently. But for all this “noise” about investing, there is some basic, critical information you probably will not hear about that could make all the difference to your financial well-being.

If something goes wrong, that is…

Incidentally, you will not hear about this “secret” from your broker, because he or she doesn’t want you to know about it. Ditto your brokerage firm.

So what is this secret, you ask?

FINRA Securities Binding Arbitration Agreements

The secret is that, whether you were aware of it or not, you signed away your right to pursue litigation in a court of law against your stockbroker and his or her firm in the event of misconduct in your account.

What’s that now?

You heard us. You signed away your legal rights by signing a binding arbitration agreement that has become ubiquitous in the financial industry. Your broker very likely did not mention anything about it when you opened your account because, well, these agreements are non-negotiable. If you, for example, refused to sign away your legal rights, the brokerage firm would simply send you on your way out the door. The agreement is not open for discussion.

One thing the agreement does is prevent you from having your case for financial misconduct heard in a court of law and judging by a jury of your peers. That’s a big deal. Instead of a jury, your case will proceed through an industry-sponsored arbitration process and ultimately decided - if it goes a hearing - by an arbitrator or panel of former industry professionals.

That’s right. The outcome of your case - the fate of your financial well-being - will be in the hands of, in effect, the same people who were responsible for the misconduct in the first place.

Sound like a fixed game? You betcha.

Don’t Bring a Knife to a Gunfight: Find a Securities Lawyer

While investor advocacy groups have been lobbying for the illegality of such binding agreements clauses, they haven’t gotten very far. Until the day comes when the agreements are a thing of the past, the best you can do for yourself in the event of financial misconduct or investor fraud is to seek legal counsel with experience in FINRA securities arbitration. This is a very specialized area of law, where knowing the sometimes bizarre rules and practices counts double.

Pennsylvania & New Jersey Securities Lawyer

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If you or someone you know has been the victim of investment fraud or broker misconduct, please contact us immediately for a free consultation at 215 462 3330 or by using our online contact form.