Securities Management and Research, Inc. and Berthel Fisher & Company Financial Services, Inc. Comment On Regulatory Notice 26-06

April 29, 2026

Ms. Jennifer Piorko Mitchell

Office of Corporate Secretary

FINRA

1700 K. Street, NW

Washington, DC 20006

Re:  Regulatory Notice 26-06- Request for Comment on Modernizing FINRA Arbitration Rules,

        Guidance and Processes

Dear Ms. Mitchell:

Securities Management & Research, Inc. (CRD# 759) (“SM&R”) and Berthel Fisher & Company Financial Services, Inc. (CRD# 13609) (“BFCFS”) (collectively referred to as “Berthel”) respectfully submits this joint comment letter in response to FINRA Regulatory Notice 26-06. While we strongly support FINRA’s mission of investor protection, the current arbitration framework, as applied, has developed structural inconsistencies that undermine predictability, fairness, and confidence in outcomes.

This submission provides targeted reforms grounded in legal principles, real-world experience, and operational realities. These recommendations are designed to preserve investor protections while correcting systemic imbalances that distort liability, increase costs, and reduce market participation.

Impact Statement

The proposed reforms would significantly reduce the cost and unpredictability of arbitration while improving decision quality. By clarifying eligibility, requiring causation, and limiting speculative damages, FINRA can reduce the volume of marginal claims and focus resources on legitimate disputes.

These recommendations are designed to improve decision quality, reduce cost, and ensure outcomes are tied to actual conduct rather than hindsight-driven narratives.

I. Introduction

In practice, FINRA arbitration has increasingly deviated from its intended role as a fair and efficient dispute resolution forum. While designed to resolve legitimate disputes, it is often used in a manner that imposes liability disconnected from principles of legal causation and responsibility.

For example, a broker-dealer may conduct thorough due diligence, ensure suitability, and provide full disclosure, yet still face liability years later due to issuer misconduct or external market events that were not

foreseeable. This dynamic, risks transforming arbitration into a mechanism for redistributing losses rather than adjudicating responsibility based on conduct.

II. Law vs. Equity – The Need for Legal Anchoring

Arbitration decisions must be anchored in governing law and the applicable facts of the dispute. When panels rely on generalized notions of fairness rather than applying established legal standards, outcomes become inconsistent, unpredictable, and difficult to reconcile with the regulatory framework.

A recurring concern is the perception that panels “split the difference” even where liability is not supported by facts. FINRA should mandate through arbitrator training, written guidance, and the arbitrator oath that arbitrators must fairly ascertain relevant facts and apply applicable FINRA rules and governing law.

FINRA should clarify that arbitrators are not permitted to disregard applicable facts or law or render decisions based solely on subjective notions of equity. Requiring arbitrators to articulate their reasoning and apply governing standards would promote disciplined decision-making and greater consistency across cases, without diminishing investor protection.

III. Eligibility – Preventing Stale Claims and Ensuring Consistent Application of Rule 12206

Without clear and consistent application of FINRA Rule 12206, claims based on transactions that occurred many years prior—often approaching or exceeding a decade—continue to proceed despite diminished evidentiary reliability, incomplete records, and fading witness recollection. This creates inherent unfairness and undermines the integrity of the arbitration process.

FINRA Rule 12206 is properly understood as an eligibility rule tied to a defined six-year period measured from the “occurrence or event giving rise to the claim.” This framework aligns with FINRA’s books and records retention requirements and provides an appropriate and necessary boundary for arbitration eligibility. Berthel does not believe the rule itself requires substantive revision. Rather, the primary issue is the inconsistent application and interpretation of the rule by arbitration panels.

Recent arbitration awards demonstrate that when properly applied, Rule 12206 functions effectively as a clear eligibility boundary. Panels have dismissed claims where the alleged misconduct occurred at or before the time of purchase and where subsequent generalized statements were correctly determined not to constitute ongoing actionable conduct sufficient to reset the eligibility period. See Exhibit A (FINRA Arbitration Award, In the Matter of the Arbitration Between 23 Hoffman LLC, et al. and Concord Investment Services, LLC, Case No. 23-02260 (Jan. 2024).

Panels have also recognized that Rule 12206 operates as a filing eligibility requirement distinct from a statute of limitations and that its six-year period corresponds directly with FINRA’s record retention framework. See Exhibit B (FINRA Arbitration Award, In the Matter of the Arbitration Between Lauren A. LaPlante-Rottman IRA, et al. and Chelsea Financial Services, Case No. 23-03231 (2024). In addition, panels have dismissed claims where risks associated with investments were fully disclosed at the time of purchase and no intervening actionable conduct occurred within the six-year period. See Exhibit C (FINRA Arbitration Award, In the Matter of the Arbitration Between Claimants and Wintrust Investments, LLC, Case No. 23-03644 (2024).

Recent decisions continue to reinforce this framework. In a FINRA arbitration involving a real estate investment trust purchased in 2014, the panel dismissed claims filed in 2025 as ineligible under Rule 12206. The panel emphasized that suitability is determined at the time of the investment and is not extended by subsequent market performance or later dissatisfaction. The panel further found that the claimant’s execution of subscription documents and risk disclosures placed the claimant on notice of the risks at inception, and that reliance on alleged broker reassurances—such as statements that an investment was “fine” or would recover—did not constitute a new “occurrence or event” sufficient to reset the eligibility period. The panel also rejected any argument that delayed awareness or failure to review disclosed risks could extend the eligibility period, noting that there is no excuse for delayed filing where the relevant information was available at the time of the investment See Exhibit D (FINRA Arbitration Award, In the Matter of the Arbitration Between Victor Ravelo and Independent Financial Group, LLC et al., Case No. 25-01910 (2026).

However, these well-reasoned outcomes are not consistently applied across cases. In practice, claimants frequently assert a broad range of allegations without differentiation as to when each alleged occurrence or event took place, and panels do not consistently evaluate these allegations independently under the eligibility rule.

This inconsistency is further compounded by the timing of Rule 12206 motions, which are often heard only after extensive discovery and costs have been incurred. This creates a structural incentive for marginal or time-barred claims.

To address these issues, FINRA should focus on clarifying application and improving procedural implementation, rather than modifying the rule itself. Specifically, FINRA should consider the following enhancements:

 A. Early Determination of Eligibility

Eligibility should be determined at the earliest practicable stage to reduce cost and ensure only eligible claims proceed.

B. Allegation-by-Allegation Application

Panels should evaluate eligibility on an allegation-by-allegation basis to narrow disputes and improve efficiency.

C. Clarification of Occurrence or Event

FINRA should clarify that the relevant occurrence is tied to the time of recommendation or purchase, and not later dissatisfaction or generalized statements.

    D. Enhanced Arbitrator Training

FINRA should enhance training to ensure consistent application across panels.

    E. Use of Representative Awards

Representative awards should be used as training tools and are attached as Exhibits A, B, C, and D.

Rule 12206 should be preserved in its current form. The issue is not the rule, but its inconsistent application. Improved clarity and training will ensure fairness and consistency.

IV. Causation – The Missing Link in Many Claims

A fundamental principal of any adjudicatory framework is that liability must be tied to causation. However, in many cases, losses are attributed to broker-dealers despite being caused by external events such as issuer fraud, market shifts, or economic conditions. This has resulted in the unintended consequence of broker-dealers being insurers of investments.  This dynamic risks imposing a standard of liability that is difficult to reconcile with traditional fault-based frameworks applied in other regulated contexts.

For instance, an investment impacted by an unforeseen market downturn or sponsor misconduct should not automatically result in broker-dealer liability absent a demonstrable failure tied to that outcome. Reinforcing a clear causal nexus between alleged misconduct and investor harm would ensure that accountability is properly assigned and that arbitration outcomes reflect actual responsibility.

V. Problem of Selective “Cherry Picking” Losses in Portfolios

A recurring and significant issue in FINRA arbitration is the selective presentation of investment outcomes, whereby a claimant isolates a single underperforming investment within a broader portfolio and asserts liability based solely on that discrete position. This approach fails to account for the full context in which the investment decision was made, including the investor’s overall strategy, risk tolerance, and the performance of other investments recommended or facilitated by the same firm.

In practice, investors—particularly those allocating capital to alternative investments—often construct diversified portfolios precisely to manage risk across multiple positions with varying performance characteristics. Some investments may underperform, while others meet or exceed expectations. Evaluating a firm’s conduct by focusing exclusively on one investment, without considering the performance and rationale of the broader portfolio, creates a distorted and incomplete picture of both the investor’s experience and the reasonableness of the firm’s actions.

This selective “cherry-picking” of losses introduces a hindsight-driven standard that is inconsistent with established principles of portfolio management and diversification. It also risks transforming FINRA arbitration into a mechanism that effectively insures against any individual investment loss, regardless of whether the overall investment strategy was appropriate, well-diversified, and prudently implemented. Such a standard would be unsustainable in any financial services context, as it would penalize firms for engaging in sound investment practices that are designed to benefit investors over time.

To promote fairness and analytical rigor, FINRA should provide guidance—or adopt rules—clarifying that arbitration panels must evaluate claims within the context of the investor’s overall portfolio and investment strategy during the relevant period. At a minimum, panels should be permitted, and encouraged, to consider evidence of related investments, including those that performed in accordance with expectations or generated positive returns, when assessing both liability and damages. Consideration of offsetting gains and the aggregate outcome of a coordinated investment strategy is essential to determining whether a broker-dealer’s recommendations were suitable and whether any alleged conduct actually resulted in compensable harm.

Incorporating a portfolio-level analysis would promote a more accurate and balanced assessment of investor outcomes, ensure that liability is tied to actual misconduct rather than isolated results, and align arbitration decisions with widely accepted investment principles. It would also preserve robust investor protection by ensuring that legitimate claims are fully adjudicated, while discouraging selective and incomplete presentations that distort the underlying facts and improperly expand liability beyond its intended scope.

Absent such clarification, the arbitration framework risks incentivizing claims that focus on isolated negative outcomes rather than the overall reasonableness of the investment strategy, effectively converting broker-dealers into guarantors of individual investment performance rather than evaluators of suitability and risk.

VI. Evidentiary Integrity and the Need for Reliable, Structured Standards

The current evidentiary framework in FINRA arbitration is intentionally flexible, but in practice, the absence of meaningful guardrails can result in the admission and reliance upon unsupported, speculative, or unreliable assertions. While arbitration is not intended to mirror the formal rules of evidence applied in judicial proceedings, a complete absence of evidentiary discipline risks undermining the integrity and consistency of outcomes. 

When all proffered materials are effectively treated as admissible without meaningful scrutiny, arbitration panels may be required to evaluate large volumes of information without clear standards for reliability, relevance, or probative value. This increases the likelihood that decisions may be influenced by unverified statements or hindsight-driven narratives.

To address these concerns, FINRA should implement practical guidance that establishes baseline expectations for evidentiary reliability while preserving flexibility.

A. Establishment of Baseline Evidentiary Principles

FINRA should articulate high-level principles guiding arbitrators in assessing reliability, corroboration, and relevance of evidence to promote consistency.

B. Designation of an Evidentiary-Focused Arbitrator

At least one arbitrator should have familiarity with evidentiary standards and assist the panel in applying objective criteria when evaluating evidence.

C. Pre-Hearing Evidentiary Conferences

Pre-hearing conferences could be used to narrow evidentiary disputes and improve efficiency.

D. Guidance on Hearsay and Speculative Evidence

FINRA should clarify that while hearsay may be admissible, its weight depends on reliability and corroboration.

E. Written Explanation of Evidentiary Weight

Panels should briefly explain how key evidence was evaluated to improve transparency.

VII. Clarification of Arbitrator Obligations and Reasoned Awards

FINRA arbitration serves as a mandatory dispute resolution forum for member firms and associated persons. As such, it is critical that arbitration awards reflect a disciplined and transparent application of governing law, FINRA

rules, and the evidentiary record.

To promote fairness, consistency, and confidence in the forum, FINRA should require that arbitration panels provide a reasoned basis for their awards sufficient to demonstrate that:

            • The panel identified and applied the relevant FINRA rules, contractual provisions, and applicable law;

            • The decision is grounded in the material facts established in the record, rather than generalized   

notions of equity;

            • Any finding of liability reflects a clear and supportable theory of causation; and

            • Any damages awarded are logically tied to the proven conduct and resulting harm.

Importantly, this requirement is not intended to transform arbitration awards into judicial-style opinions or to require expansive narrative findings. Rather, the objective is to ensure that awards reflect a discernible and principled analytical framework, confirming that the outcome is anchored in the applicable law and facts presented, without inviting unnecessary detail or advisory commentary.

At the same time, requiring a reasoned framework promotes greater accountability in panel decision-making. Even in the absence of a formal appellate process, the expectation that awards demonstrate adherence to governing rules, facts, and causation reinforces that arbitrators must operate within legal and evidentiary boundaries, rather than relying on subjective or purely equitable considerations.

Establishing this standard would:

            • Reinforce that arbitrators are obligated to apply governing rules and law, not to decide cases based

              on subjective or purely equitable considerations;

 •Promote discipline and accountability in panel-decision-making, particularly where the application of

   law and facts may otherwise be unclear;

            • Enhance consistency and predictability across awards without creating formal precedent;

            • Improve the credibility and integrity of the arbitration process for all participants; and

            • Provide parties with a clear but appropriately bounded understanding of the rationale underlying the

decision.

By adopting this clarification, FINRA can strengthen confidence in its arbitration forum while preserving the efficiency and finality that make arbitration an effective dispute resolution mechanism.

VIII. Damages – Eliminating Hindsight Bias

Speculative damages models allow reconstruction of hypothetical outcomes that were never guaranteed. This introduces hindsight bias and distorts liability.

For example, suggesting that an investor “would have” achieved better results in a different investment assumes perfect foresight. Damages should instead reflect actual losses tied to proven conduct.

IX. Due Diligence – Need for Clear Standards

The lack of defined due diligence standards creates uncertainty. Firms cannot reasonably defend against claims when expectations are undefined and evaluated retrospectively.

A safe harbor framework would provide clarity. If a firm follows established due diligence steps, there should be a presumption of reasonableness, shifting the burden to claimants to identify specific failures.

X. Structural Cost Imbalance, Early Case Screening, and Settlement Pressure

A significant structural issue within the current FINRA arbitration framework is the pronounced cost imbalance between claimants and respondents, which can create substantial pressure to settle even where claims lack merit. The cost of defending an arbitration claim through a full hearing—including legal fees, expert costs, discovery expenses, and forum fees—can be substantial. As a result, respondents may face economic incentives to resolve claims irrespective of their underlying validity.

This dynamic can unintentionally encourage the filing of marginal or unsupported claims, as the cost of defense alone creates settlement leverage. While arbitration is intended to provide an efficient and cost-effective alternative to litigation, this imbalance can, in practice, reduce efficiency and divert resources away from the resolution of meritorious disputes.

To address this issue, FINRA should consider implementing targeted procedural reforms designed to improve early case evaluation and reduce the progression of claims that lack a sufficient legal or factual basis. These reforms would enhance fairness for all parties while preserving access to the forum for legitimate claims.

A. Enhanced Early Case Screening Mechanism

FINRA should consider implementing an enhanced early screening process, either administered by the Director of Dispute Resolution Services or through an expedited arbitrator review, to evaluate whether claims meet minimum threshold requirements before proceeding to full discovery.

At a minimum, such screening could require that claims allege cognizable, realized damages, articulate a clear causal nexus between the respondent’s conduct and the alleged harm, and present a facially plausible theory of liability based on applicable FINRA rules or governing law.

Claims that fail to meet these threshold criteria could be dismissed without prejudice, stayed pending further development, or required to be repleaded with greater specificity. This approach would not limit investor access to arbitration but would ensure that the forum is reserved for disputes involving identifiable and actionable claims.

B. Expanded and More Practical Motion to Dismiss Framework

FINRA should consider expanding the grounds for pre-hearing dismissal to include failure to plead causation, absence of realized damages, claims based solely on post-transaction events, and failure to meet defined due diligence standards where applicable frameworks are satisfied.

In addition, FINRA could require that such motions be heard on an expedited basis and decided prior to full discovery to prevent unnecessary cost escalation. This would provide a meaningful mechanism to resolve non-meritorious claims early in the process.

C. Limited Cost-Shifting for Clearly Deficient Claims

To further address structural imbalance, FINRA should consider adopting a limited and targeted cost-shifting mechanism in circumstances where claims are dismissed at an early stage for failure to meet threshold

standards. Such a framework could apply only where a claim is clearly deficient on its face and allow recovery of reasonable forum fees and a portion of defense costs.

The purpose of such a mechanism would not be punitive, but rather to discourage the filing of claims lacking a sufficient factual or legal basis and better align incentives with the efficient use of the arbitration forum.

D. Procedural Efficiencies to Reduce Cost Escalation

FINRA may also consider additional procedural enhancements to reduce unnecessary cost burdens, including phased or limited discovery protocols tied to the viability of claims, early case management conferences focused on narrowing issues, and streamlined procedures for resolving threshold legal questions.

Taken together, these reforms would help ensure that FINRA arbitration remains an efficient and fair forum for resolving legitimate disputes. By improving early case evaluation and addressing structural cost imbalances, FINRA can reduce incentives for non-meritorious filings while preserving robust access for investors with valid claims.

XI. Necessary Procedural Improvements to FINRA Arbitration Process

FINRA arbitration procedures can create unintended imbalances, inefficiencies, and unfairness due to factors and situations that were not foreseeable at the time of the drafting of the initial procedural rules.  For example, aggregation of claims may promote efficiency, certain procedural dynamics can result in disproportionate influence by claimants in ways that undermine neutrality and fairness in the arbitration process.

A. Arbitrator Selection Imbalance in Cases Involving Multiple Claimants

A key concern arises in the arbitrator selection process when multiple claimants are represented by different counsel. In such cases, each claimant’s counsel may independently exercise arbitrator strikes and rankings, resulting in a cumulative effect where claimants collectively exert greater influence over panel composition than the respondent.

FINRA should consider safeguards such as coordinated claimant rankings, limiting strikes on a per-side basis, or consolidating claimant voting power to preserve neutrality in panel formation.

B. Venue Selection and Remote Participation

Procedural concerns arise where claimants select a favorable venue while requesting remote participation. This creates inequities for respondents and may impact credibility of testimony.

FINRA should require in-person participation at the selected venue, with limited exceptions such as documented medical necessity or mutual agreement of the parties.

C. Fee Assessment and Unspecified Damages

When claimants fail to specify damages, respondents may be assessed disproportionate fees. This creates inefficiency and incentivizes ambiguity.

FINRA should require reasonable specificity in damages at filing or adjust fees once damages are clarified.

XII. Arbitrator Qualifications in Complex Cases

FINRA arbitration increasingly involves complex financial products and regulatory issues, yet arbitrator pools do not always reflect necessary expertise.

FINRA should implement enhanced qualification standards, including experience thresholds, subject-matter expertise criteria, and specialized arbitrator pools for complex cases.

XIII. Discovery Compliance and Enforcement of Claimant Production Obligations

A recurring procedural challenge in FINRA arbitration is the inconsistent enforcement of discovery obligations, particularly with respect to claimant document production. While FINRA has established discovery guides and parameters intended to facilitate fair and efficient exchange of information, in practice, respondents frequently encounter situations where claimants fail to produce responsive documents in a timely or complete manner.

In many cases, respondents are forced to pursue repeated follow-ups, engage in motion practice, and incur additional legal and administrative costs simply to obtain materials that should have been produced in the ordinary course under existing discovery guidelines. This dynamic creates unnecessary delay, increases the cost of proceedings, and places respondents at a structural disadvantage in preparing their defense.

The issue is particularly acute where claimants, through counsel, selectively produce favorable documents while withholding or delaying production of materials that may be relevant to the evaluation of suitability,

investment experience, communications, or overall portfolio context. Such practices undermine the integrity of the arbitration process and impede the panel’s ability to make fully informed decisions based on a complete factual record.

To address these concerns, FINRA should consider implementing more structured and enforceable mechanisms to ensure compliance with discovery obligations, including the following:

A. Affirmative Panel Oversight of Discovery Compliance

FINRA should require arbitration panels to take a more active role in overseeing discovery compliance, including confirming at defined intervals that both parties—particularly claimants—have complied with applicable discovery guides and document requests. Panels should be empowered to require certifications of completeness and to inquire into any identified gaps in production.

B. Mandatory Discovery Certification by Claimants

Claimants should be required to certify, under affirmation, that they have conducted a reasonable search and produced all responsive, non-privileged documents within their possession, custody, or control. Such a requirement would align FINRA arbitration more closely with established litigation practices and promote accountability in the discovery process.

C. Streamlined and Enforceable Discovery Motion Process

FINRA should consider implementing an expedited and streamlined process for resolving discovery disputes, including shorter timelines for motion submission and decision, as well as clearer standards for granting relief.

Panels should be encouraged to address discovery deficiencies promptly, prior to the escalation of costs and delays.

D. Meaningful Consequences for Non-Compliance

To ensure that discovery obligations are taken seriously, FINRA should provide panels with clearer authority and guidance to impose appropriate remedies where a party fails to comply. Such remedies could include adverse evidentiary inferences, limitations on the use of withheld evidence, allocation of forum fees or costs associated with discovery disputes, or, in appropriate cases, dismissal of claims or defenses where non-compliance is material and prejudicial.

E. Early Discovery Conferences and Issue Identification

FINRA should also consider requiring early discovery conferences to identify key categories of documents and set clear expectations for production timelines. This would allow panels to proactively manage discovery and reduce the likelihood of disputes arising later in the proceeding.

Strengthening discovery compliance and enforcement mechanisms would significantly improve the efficiency and fairness of FINRA arbitration. Ensuring that claimants meet their production obligations under existing rules will reduce unnecessary motion practice, lower costs, and enable panels to evaluate disputes based on a complete and accurate evidentiary record. These reforms would benefit all parties and reinforce confidence in the arbitration process.

XIV. Absence of a Meaningful Appellate Mechanism and the Need for Limited Review

FINRA arbitration awards are final and binding and are not subject to review or appeal within the FINRA forum. While parties may seek judicial review under the Federal Arbitration Act, that process is not a true appeal. Courts reviewing arbitration awards are limited to extremely narrow procedural grounds and do not review the merits of the decision, including factual findings or legal conclusions.

As a result, even where an arbitration panel misapplies FINRA rules, disregards applicable law, or reaches conclusions that are unsupported by the evidentiary record, there is no meaningful mechanism for correction. This creates a structural gap in accountability that is inconsistent with other adjudicatory frameworks, particularly given the significant financial and regulatory consequences that may result from arbitration awards.

The absence of a limited appellate or review mechanism places heightened importance on arbitrator decision-making while simultaneously providing no structured process for addressing material errors. This dynamic can undermine confidence in the arbitration system and creates risk that similarly situated cases will yield inconsistent outcomes without the benefit of corrective oversight.

This issue is closely tied to the need for explained decisions and clearer expectations that arbitrators apply governing law and FINRA rules in a disciplined manner. Without articulated reasoning or a mechanism for limited review, there is no practical method to ensure consistency or accountability across cases.

     Proposed Framework for Limited Review

FINRA should consider adopting a narrowly tailored internal review or appellate mechanism designed to preserve the efficiency of arbitration while promoting accountability and consistency.

A. Limited Grounds for Review

Review should be confined to clearly defined categories, such as material misapplication of FINRA rules or governing law; failure to consider or disregard of material evidence; internal inconsistency in the award; or awards that lack any articulated factual or legal basis, particularly in the absence of explained decisions.

B. Threshold-Based Review Process

To prevent overuse, FINRA could require a defined monetary threshold or a preliminary showing that the request raises a substantial issue of law or process.

C. Specialized Review Panel

Review could be conducted by a separate panel of experienced arbitrators or a limited appellate body with demonstrated expertise in securities law and FINRA rules.

D. Expedited Timeline

To preserve arbitration efficiency, review should be completed on an expedited basis and limited to the existing record, without new discovery or hearings.

E. Standard of Review

The standard should remain deferential, focusing on clear error in application of rules or law, rather than reweighing credibility or factual determinations.

Introducing a limited and carefully structured review mechanism would not undermine the efficiency of FINRA arbitration. Rather, it would enhance consistency, reinforce disciplined application of FINRA rules and governing law, and promote confidence that arbitration outcomes are subject to appropriate oversight where material errors occur.

XV. Panel Composition and the Role of Subject-Matter Expertise

The composition of arbitration panels is a critical factor in ensuring that disputes are resolved fairly, consistently, and based on an accurate understanding of the issues presented. FINRA’s current framework for customer disputes generally provides for all-public panels, unless the parties mutually agree otherwise.

While this structure promotes perceptions of neutrality, it may not always ensure that panels possess the subject-matter expertise necessary to evaluate increasingly complex financial products, regulatory obligations, and industry practices. Modern arbitration cases frequently involve issues relating to alternative investments, structured products, liquidity constraints, disclosure frameworks, and suitability determinations that are grounded in industry-specific knowledge.

The absence of arbitrators with meaningful industry experience in such cases can lead to decisions that are influenced by hindsight or a lack of familiarity with how products function, how risks are disclosed, and how regulatory standards are applied in practice. This dynamic may contribute to inconsistent outcomes and undermine confidence in the arbitration process.

To address these concerns, FINRA should consider enhancements to its panel composition framework that incorporate subject-matter expertise where appropriate, while preserving neutrality and fairness.

A. Inclusion of Industry-Experienced Arbitrators in Complex Cases

FINRA should consider allowing for, or requiring, the inclusion of at least one arbitrator with relevant industry experience in cases involving complex financial products or regulatory issues. This could be implemented through case-type classifications, party election mechanisms, or enhanced list selection processes that ensure availability of qualified candidates.

B. Expertise-Based Panel Construction

Rather than focusing solely on public versus non-public classifications, FINRA could incorporate an expertise-based approach to panel composition. This would allow for the inclusion of arbitrators with securities industry experience, regulatory or compliance expertise, or relevant financial product knowledge.

C. Safeguards to Preserve Neutrality

Any incorporation of industry experience should be accompanied by appropriate safeguards, including continued robust conflict-of-interest disclosures, balanced panel composition, and clear expectations regarding impartiality. These measures would ensure that the inclusion of industry expertise enhances, rather than detracts from, the fairness of the forum.

Incorporating subject-matter expertise into arbitration panels—particularly in complex cases—would improve the quality of decision-making, promote more consistent application of FINRA rules, and reduce the risk of outcomes driven by misunderstanding or hindsight. A balanced approach that includes industry experience where appropriate would strengthen the arbitration process while maintaining its integrity and neutrality.

XVI. Conclusion

FINRA has an opportunity to strengthen arbitration by reinforcing legal principles, improving transparency, and addressing structural imbalances. These reforms will enhance fairness for investors while ensuring that liability is appropriately grounded in conduct and causation.

A system that is predictable, transparent, and legally grounded benefits all participants and reinforces confidence in the capital markets.

Respectfully submitted,

Jeff Roseman

General Counsel

SM&R and BFCFS