Arbitrators in disputes between investors and brokers will get more pay for their work, the brokerage industry’s self-regulator decided Thursday, people familiar with the matter said.
Lawyers and arbitrators hope the pay rise, the first in 14 years, will attract more–and more skilled–arbitrators.
The Financial Industry Regulatory Authority Inc., which oversees the arbitration process, approved an increase in compensation for hearing arbitrators. Finra’s board agreed to raise pay by 50%, to $300 for half-day dispute hearings and $600 for full-day sessions, according to people familiar with the matter.
The chairperson of an arbitration panel is to receive an extra $125, an increase of 67%, these people said.
The pay increases are “long overdue,” Philip Aidikoff of Aidikoff, Uhl & Bakhtiari, a Beverly Hills, Calif., law firm that represents mainly investors who seek compensation from brokers for investment losses. “It’s an acknowledgment that the arbitrators, for the most part, do a very good job and take it very seriously.”
He said in many hearing locations outside big cities such as New York or Los Angeles “there are a serious lack of arbitrators.” More attractive compensation could help lure more arbitrators, he and other lawyers said.
“There is a shortage in terms of talent and qualification” among arbitrators, said David Richan, a partner at law firm Baritz & Colman LLP in New York.
“I have had a lot of [arbitration] panel members who, by their questions and their comments during hearings, clearly don’t understand some pretty basic legal or industry concepts.”
Arbitrators are often lawyers, retired lawyers or professional mediators. Hearings usually span several days–but most arbitration cases get settled, often shortly before a scheduled hearing and for which arbitrators have booked time off from their day jobs. Arbitrators aren’t compensated for cancelled hearings.
“The Finra arbitrators are the poor step-child to the professional arbitrators,” Mr. Richan said.
In comparison, at the American Arbitration Association, arbitrators get an average of $850 a day for fast-track and expedited cases when the dispute is less than $75,000; the average hourly rate for other cases is about $250 to $350, depending on the complexity.
“It’s a labor of love,” said Robert Saint-Aubin, a retired lawyer and Finra arbitrator.
Arbitrators get compensated for pre-hearings, which can take as little as 15 minutes, and a lower rate when cases are decided without hearings.
But “parties are putting out an ever increasing number…of paper” for motions and discovery requests, Mr. Saint-Aubin said. “There is no compensation for preparation.”
He said a better way to compensate arbitrators would be to pay arbitrators $5 for each document page that needs to be read, and to be paid for time reserved for hearings.
Lower compensation for arbitrators, of course, keeps the costs of the arbitration procedure for the disputing parties lower, but lawyers said they would be happy to pay more if that attracts more arbitrators with the right skills.
“As a claimants lawyer, I want the best arbitrators possible to participate in these things, and if raising the honorarium is going to move it in that direction, I am all for it,” Mr. Aidikoff said.