FINRA is making progress toward its goal of having a less homogeneous pool of arbitrators, an effort that is likely to take many more years.
Of the 945 arbitrators that applied in 2016, 14% were African-American and 33% were women, compared to 4% and 26% in 2015, according to the regulator.
“When I started in 1995, you would never see an all-female panel,” says Rick Berry, director of dispute resolution at FINRA. “We’ve come a long way, but we still have a long way to go.”
The lack of diversity on arbitration panels was spotlighted in a 2014 report from the Public Investors Arbitration Bar Association, which found that 80% of arbitrators were male and 40% were over the age of 70.
When arbitrators don’t resemble claimants or society at large, the system appears to have a structural bias, critics contend.
“It undermines customer confidence in the process,” says Christine Lazaro, vice president-elect of PIABA and director of the Securities Arbitration Clinic at St. John's University School of Law.
FINRA has strived to change its recruitment process and increase transparency. The regulator has partnered with more than 100 organizations to recruit more women and minorities, and published a webpage that reveals diversity statistics.
FINRA recently announced that it will hold a recruitment event at the Congressional Black Caucus Foundation’s Annual Legislative Conference later this month in Washington.
As its list of partnerships reveal, FINRA’s recruitment efforts tend to cluster around professional organizations. And while the latest class of arbitrators is more diverse, the overall group remains homogeneous: fewer than a third of all arbitrators are under the age of 60 and less than a quarter are women.
“We’re drawing from a pool of attorneys from one or two generations ago, when it was even less diverse,” says Ronald Colombo, a FINRA arbitrator and Professor of Law at Hofstra University.
For attorney Peter Singh, 26, the experience of becoming a FINRA arbitrator highlighted the lack of diversity even among incoming cohorts. “I was by far the youngest, and just one of two minorities trying to onboard at that point,” Singh recalls. After a year and half on the roster, Singh has yet to be impaneled. “My gut feeling is that it has to do with age, or lack thereof.”
The compensation model and demands of the job — which pays arbitrators a daily honoraria of $600-$725 on cases that can last several days — also discourages full-time workers and skews the roster toward retirees.
To radically overhaul the makeup of the 7,255 arbitrators nationwide would require more aggressive steps, maintains Andrew Stoltmann, an attorney and PIABA’s incoming president.
“They still aren’t recruiting what we call ‘Joe the plumber’ sort of arbitrators,” he says. “When you get lawyers, CPAs and business people exclusively deciding these cases — that’s not a jury of your peers.”
Fewer lawyers and accountants on the roster would mean less industry knowledge, but Singh and others see value in arbitrators that are “‘uninformed’ about the status quo.”
Stoltmann says that loosening requirements for FINRA arbitrators is the fastest and most effective way to improve diversity. The regulator requires that arbitrators have at least five years of work experience and two years of college to be eligible.
FINRA counters that it has worked hard to recruit from a wide set of professional backgrounds. In a recent recruitment video, the regulator recast the image of an arbitration panel, showing an architect, a librarian and a stay-at-home mom.
FINRA’s Berry is proud of recent progress. “The proof is in the numbers. We keep exceeding our goals,” he says.