Reuters (October 7, 2014 9:30 am) -- Lawyers for investors charged on Tuesday that securities arbitrators are chosen from a limited pool of mostly elderly men, one of several flaws in Wall Street's mandatory arbitration system that may be the cause for a steep decline in rulings favoring investors.

The finding, in a study by the Public Investors Arbitration Bar Association (PIABA), raises questions about how Wall Street's industry-funded watchdog recruits arbitrators, PIABA said, calling it a process largely shrouded in secrecy.

The Financial Industry Regulatory Authority (FINRA), the brokerage industry's self-regulator, runs the arbitration forum in which investors must resolve legal disputes with brokerages. PIABA wants the U.S. Securities and Exchange Commission, which oversees FINRA, to look into FINRA's arbitrator recruitment practices, it said.

FINRA's practice of targeting groups of professionals such as lawyers and accountants could prevent a broader range of "quality arbitrators" from serving, PIABA said.

"FINRA has a problem with a lack of diversity on its arbitrator roster that needs to be fixed immediately," PIABA said.

PIABA blames FINRA's recruiting practices for what it says is a steep decline in success rates for investors who arbitrate against firms.

"We have an aggressive recruitment campaign in place to seek individuals from diverse backgrounds to serve as arbitrators," FINRA said in a statement. The regulator recruits from more than 100 organizations reaching out to all types of people, FINRA said.

In 1992, about 60 percent of investors were successful in arbitration and received about 60 percent of the amount they claimed. Investors' current win-rate, however, is now 42 percent, with some receiving as little as a penny to 10 cents on the dollar, PIABA said, citing U.S. government and FINRA statistics.

Several factors can affect whether investors win, including the issue involved, market events and the skills of the investor's lawyer, FINRA said

FINRA's arbitration system, which has long been steeped in controversy, is already under internal review. A task force FINRA assembled in July will hold its first meeting on Friday to identify potential issues that may require change.

FINRA has made some changes to its program in recent years. A 2011 change, for example, allowed investors to select a three- person arbitration panel that did not include a mandatory industry-affiliated arbitrator. Last year, FINRA ramped up its process for vetting arbitrators after one was indicted on criminal charges and suspended from the practice of law but failed to disclose those legal run-ins properly.

There are 6,383 arbitrators, according to FINRA. PIABA's analysis of disclosure reports for 5,375 past and current securities arbitrators from as far back as 1991 found that 80 percent of arbitrators were male.

PIABA also analyzed 2118 disclosure reports it had complied from 2013-14. Of those, the average age was 66 and more than 78 percent were men.

Questionnaires that arbitrators must complete to provide information about their backgrounds to parties in a dispute, including potential conflicts of interest, are also poorly designed and not current, PIABA said.

PIABA's study comes weeks before the longtime head of FINRA's arbitration unit, Linda Fienberg, is to retire.