Arbitration vs. Mediation
Arbitration and mediation offer two options for investors who suspect that they have been wronged by another investor, broker, or brokerage firm. The right choice for you depends on the details of your case. Certain cases are only eligible for arbitration, while others must be handled through mediation.
In arbitrations, a panel of either one or three arbitrators is selected by both parties. These arbitrators essentially act as judges and determine an award based on what occurs during the hearing. They have the following responsibilities:
- Read pleadings filed by both parties
- Listen to arguments
- Study the evidence
- Arrive at a decision for a financial award
These meetings are confidential, but awards will be posted in FINRA's Arbitration Awards Online Database. These claims usually take a little over a year to settle.
In order to file for arbitration, the following criteria must apply:
- For investor disputes, the case must involve an investor and an individual or entity registered with FINRA (such as a broker or brokerage firm).
- For industry party disputes, the case must involve an individual or entity registered with FINRA (e.g. cases between brokerage firms, brokers, or between or among brokerage firms and brokers)
- In either case, the claim must be filed within 6 years of the events in dispute
Arbitration claims go through the following process:
- Claim is filed - The arbitration is initiated when the claimant files a statement of claim which relevant facts and requested solutions.
- Claim is answered - A respondent answers the claim by specifying additional facts and defenses to the statement.
- Arbitrators selected - Each party receives lists of potential arbitrators and chooses which ones they want to hear their case.
- Pre-hearing conference - Arbitrators and all parties have a phone conference to schedule hearing dates and settle preliminary disputes.
- Discovery - Documents, evidence, and information are exchanged.
- Hearings - Parties and arbitrators meet for an in-person hearing in which arguments and evidence from both sides are presented.
- Decision & Awards - Arbitrators use the evidence presented to arrive at a final decision.
Mediation is a less formal, voluntary alternative to arbitration. The goal is for the mediator to help both parties arrive at their own resolution to the dispute. The mediator will meet with both parties together, as well as separately as he or she attempts to guide them towards a solution.
The mediation process usually goes through the following phases:
- Initiate mediation - Both parties file a Request for Mediation. If they are seeking mediation after already beginning arbitration, they must contact their arbitrator for a referral.
- Select a mediator - FINRA provides a list of proposed mediators with expertise in various subject matters, along with their corresponding rates and mediation histories.
- Mediation sessions - Mediation takes place at a time and location agreed upon by both parties. A session usually takes about one day. Parties have the option to represent themselves or to be represented by an attorney.
- Settlement - In the majority of mediations, both parties sign a settlement agreement.
- Impasse (optional) - If no settlement is reached, the claimant has the option to file an arbitration claim, proceed with an existing arbitration, or reinstate a suspended one.
This conflict resolution method is often faster and more cost-effective than arbitration or litigation. If the two sides cannot come to an agreement, they still have the option to take the matter to arbitration or litigation. However, FINRA's Mediation Program has a success rate of 80%.