The ranks of Finra arbitrators are sorely lacking in diversity, claims an investor advocacy group.

The Public Investors Arbitration Bar Association conducted a study that examined more than 5,300 arbitrator disclosure reports and found that almost 80% of arbitrators were male, and that 40% were over 70 years old.

“It is a roster that is homogenous and not diverse,” said PIABA President Jason Doss.

However, the industry-funded regulator responded that it has gone to great lengths to ensure diversity exists in its arbitration panels.

“We have an aggressive recruitment campaign in place to seek individuals from diverse backgrounds to serve as arbitrators,” the regulator noted in a statement, listing more than 100 women’s and minorities groups it seeks arbitrator candidates from.

Doss challenged the regulator’s stance that it was trying to promote diversity among its arbitrator ranks, arguing that it had not done any study on the diversity of its arbitrators, and hides information about its arbitrator selection process. Additionally, he claimed, the lack of diversity may be tied to a decline in the number of successful cases argued on behalf of investors before arbitrators over the years.

“There’s no question that having a pool of arbitrators of diverse backgrounds will result in improved decision making,” Doss said.

“The reality is that win rates increase or decrease depending upon the controversy involved, market events and counsel,” Finra stated in response. “We have made substantial efforts to recruit and train arbitrators from diverse backgrounds and will continue to do so.”

Doss and his colleagues acknowledged that they did not study individual cases to determine what effect panel diversity actually had on rulings, but rather looked at the characteristics of panels.

There are roughly 6,300 FINRA arbitrators available for dispute resolution, and are paid an honorarium of $200 a day, though a proposal is being considered that would raise their pay.

FINRA’s arbitration process has come under scrutiny after a long-time arbitrator was found over the summer to have been lying about his credentials. In response, the regulator launched a task force to examine its arbitration process. The regulator noted that PIABA has a number of its members on the task force, and that it collaborates with the advocacy group to recruit arbitrators.

Discussing their research findings, Doss and his colleagues were critical of the performance of elderly arbitrators, mentioning that at times they have witnessed them dozing off during hearings.

“Younger arbitrators don’t exist in this pool,” Doss said. “The pool is not diverse, and it is heavily weighted towards elderly arbitrators.”

FINRA sharply questioned such criticism. “The notion that individuals 70 and older are unable … and unfit to serve as effective arbitrators is insulting and borders on age discrimination,” the regulator stated. “It stands to reason that a good portion of those able to make this time commitment on an ongoing basis for the pay offered are likely to be retirees.”

A former executive vice president and director of arbitration at FINRA, George Friedman, called PIABA’s critique of arbitration panels unfair, as the regulator does not ask about age, gender or race on its arbitrator application forms. “[FINRA] has made Herculean efforts to promote diversity,” he said.

Friedman also questioned the focus on diversity in PIABA’s report. “The overarching goal should be ensuring the fairness of the arbitrators,” he said.

However, Jill Gross, director of the Investor Rights Clinic and a law professor at Pace University, said increasing diversity among arbitrators was needed, since the process involves subjective decisions.

“Empathy and bias all play a role in that process,” Gross said. “Diversity is critical of a fair and open panel. Being judged by people who do not resemble the investors is a valid reason to be concerned about the process. Investors come in all shapes and colors, and arbitrators do not.”

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