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Professional Liability

FINRA Complaints – 5 Steps to Responding

5 Steps For Financial Professionals to Take When Facing FINRA Complaint

With the rise of BrokerCheck, it is more important than ever that brokers and financial advisors maintain a clean record. Complaints by clients can show up on BrokerCheck and create a shadow on the financial professional’s integrity, making it significantly more difficult to market to new clients. Claims against financial professionals are generally handled via arbitration under the Financial Industry Regulatory Authority (FINRA). The first step in an arbitration is the filing of a Statement of Claim (SOC). Because of the potential consequences and the short deadlines to respond to such a SOC, it is very important for financial professionals to take the following steps as soon as they find out about a potential SOC.

First, the financial professional should advise his firm of the potential SOC. The firm may have procedures in place to follow in such a situation.

Second, this claim may implicate errors and omissions/professional liability insurance coverage. The financial professional or his firm should immediately reach out to the professional liability insurance provider. Be sure to clarify whether the insurance company will be providing a defense for the individual financial professional, for the financial firm, or for both. If the insurance company is providing a defense, it will need time to hire counsel.

Third, if there is no applicable insurance coverage or if the coverage does not include defense of the claim, the financial professional will need to obtain counsel as soon as possible. Even if the financial professional’s firm will be engaging counsel to defend the claim, the individual financial professional may also want to hire his own attorney to represent the individual’s particular interests in defending the claim. In an industry where reputation and integrity are everything, there are disadvantages to letting another entity or legal team make the final decision. Representation of a broker-dealer in a FINRA arbitration is a specialized area of practice with its own procedure and considerations. Financial professionals should consider focusing on an attorney experienced in FINRA matters.

Fourth, immediately put a document hold in place. This should be part of every financial professional’s standard operating procedures. The financial professional/firm will want to ensure that no questions of spoliation arise as the arbitration progresses.

Finally, be aware of the ever-present risk of enforcement action by FINRA. If the financial professional has broken any rules or otherwise engaged in any improprieties, the arbitrators dealing with the complaint can refer the matter to the FINRA Enforcement team.[1] This is an exception to forum confidentiality. The insurance company and/or the professional’s employer may ask for written statements about the events alleged in the Statement of Claim. Anything created or used pursuant to the arbitration could also show up in a disciplinary action. Financial professionals should thus be very careful about what is put into writing, even writings given to the financial professional’s own firm. These writings will not be confidential and could be used against the financial professional in the future.


Defending a FINRA arbitration can be an arduous process, but a qualified attorney can help guide financial professionals through the process so they can get back to doing what they do best.


[1] FINRA Rule 12104(b); Louis H. Castoria and Fred N. Knopf, Securities Arbitration in FINRA A Guide to What Every Securities Broker Needs to Know, Wilson Elser Moskowitz Edelman & Dicker LLP, February 2009.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.