Gana Announcement Press Release FINAL2

Creating a mandatory insurance requirement for advisors and broker-dealers tops the agenda of Adam Gana, the veteran New York City securities arbitration attorney who was elected to take the reins as president of the Public Investors Advocate Bar Association (PIABA) last week.

Gana, a managing partner of Gana Weinstein LLP, said requiring firms to carry insurance to cover unpaid customer arbitration awards tops his agenda because “financial professionals often operate without insurance, collecting fees and commissions from customers and leaving them penniless when substandard advice causes harm.”

The subject is not a new one for PIABA, which investigated all of Finra’s publicly available arbitration awards and found that almost 30% of awards for claimants went unpaid, with 24% of money that was awarded during 2020 going unpaid.

The problem of unpaid awards has gotten worse since then. While scofflaw reps and firms stiffed investors out of $5 million in 2020, the amount of unpaid arbitration awards climbed to $19 million in 2022 and $23 million in 2023, according to Finra.

“Insurance coverage would provide protection for investors and allow the market to discipline misconduct,” Gana said.

The fact that solving the financial crisis will require giving consumers more access to financial advice makes the added protection that much more important, given the continued problem of unpaid arbitration awards, he added.

PIABA has also floated the idea of a private insurance pool of sorts—a National Investor Recovery Pool—that would provide recovery funds for investors who pursue a claim all the way through to a final award if they have exhausted reasonable efforts to collect the award from the respondent, he said.

Funding for the pool could be provided from Finra fine money, assessments on Finra member firms or fees levied on the investing public. “We have a very clear problem the industry created and a very clear way it could be fixed and financed by the industry,” former PIABA President Huge Berkson previously told Financial Advisor magazine.

A recovery pool “presents the most viable option because it can be created within the existing regulatory structure and will present both the lowest possible impact to the brokerage industry and the best financial impact for aggrieved investors,” Berkson said.

Gana also wants to reform what he says are forced and costly mandatory arbitration clauses.

The SEC estimates that 61% of advisors require clients to sign mandatory arbitration agreements, which stipulate the use of private arbitration venues such as the American Arbitration Association (AAA), which tend to cost tens of thousands more than Finra arbitration just to file a claim. Unlike Finra, private venues are not required to track or report investor win-loss ratios or how many claims are unpaid, so regulators, investors and attorneys are left in the dark.

“Investors should not be forced into expensive, foreign venues without better choices. Current arbitration agreements price investors out of justice and they need to be fixed,” Gana said.

Changes would require either a legislative fix or rulemaking from the SEC, which admitted in a recent report that the state of forced advisor arbitration is problematic. Both PIABA and the SEC have floated the idea of opening up Finra dispute resolution services to advisor arbitraton. Instead of building a new forum from the ground up, investment advisors could conceivably be required by congressional action or regulatory rulemaking to use the Finra forum, the SEC said.

Gana said he also wants to advocate for a stepped-up crackdown on bad brokers and encourage Finra to update its Discovery Guide, which hasn’t been updated since 2013. “It is time that Finra updated those guidelines to reflect the changes in technology and the need for documentation in Finra arbitrations,” said Gana, who has served as an adjunct professor for New York Law School in its clinical securities department and has published multiple peer-reviewed securities arbitration papers.

PIABA also plans to continue advocating for the Department of Labor’s fiduciary rule, he said. “I have first-hand, real-world experience with the devastation that happens when advisors are not held to a fiduciary standard,” outgoing PIABA President Joseph Peiffer, a New Orleans attorney, told DOL officials in February.