- Welcome.
I'm the President of
Securities Arbitration
commentator Richard P. Rider.
SAC will be your host today.
SAC strives to be a pro-arbitration
party-neutral force in its
dispute resolution activities.
What we hope to accomplish in this
and subsequent podcasts is to stimulate
thinking about specific
topics and issues of interest
in securities arbitration.
And to do so by bringing together people
who are knowledgeable
about and influential
in the securities arbitration industry
to discuss these issues and offer
their personal insights and opinions.
Listeners should please keep in mind
that while our guests
work for and represent
various firms and organizations,
their views, as expressed in this podcast,
are not necessarily the
views of those organizations.
To introduce our guest speakers
and lead them in today's discussion,
we've invited George H.
Friedman to be moderator.
George is an ADR consultant,
SAC Board of Editors member,
he retired in 2013 as FINRA's
Executive Vice President
and Director of Arbitration,
a position held from 1998.
Before that, he held a variety
of positions of responsibility
at the American Arbitration Association.
Most recently as Senior Vice
President from 1994 to 1998.
For the last 19 years, George has been
an adjunct professor of
law at Fordham Law School,
teaching arbitration.
He serves as Chairman of
the Board of Directors
of Arbitration Resolution Services Inc.,
and is the Principal of George
H. Freeman Consulting LLC.
George holds a JD from Rutgers Law School,
is admitted to several
bars and is a certified
regulatory and compliance professional.
George, thanks to you,
and thanks to our panel
for being here today.
- Thank you, Rick.
First we'll move on to some legalities.
Unfortunately we have to do this.
This is a long disclaimer.
I would tell you to pay
attention to this part.
Don't steal it 'cause
we're all lawyers here.
But let's move on now
on to the third slide,
to the next slide.
The FINRA Arbitration Program
which is the first in the securities...
I'm sorry, FINRA Arp Mediation Program
which is the first in
the securities field,
is celebrating its 20th
anniversary this year
and for that we credit Ken Anderschect,
the Senior Vice President of
FINRA Arp Dispute Resolution
who is the moving force behind
creation of the program.
Now, over the last few decades,
some 17,000 disputes,
17,000 have been referred
to the FINRA Mediation Program this year,
over the course of the program.
As we enter this year, the program is at
a bit of a crossroads.
The number of staff dedicated
to mediation has declined,
competitors have emerged in the form
of dispute resolution providers,
and even mediators themselves.
Now in this program,
we've gathered experts
and practitioners in the
securities mediation field,
and we're going to discuss what we think
the future holds for
FINRA's Mediation Program
and then speak some recommendations
to the recently-formed FINRA
Dispute Resolution Task Force.
It's a fast-paced program,
we're gonna move quickly
and with some level of crispness,
but we feel we will cover the topics
in a appropriate manner.
Now, on to the speakers,
and when we post this podcast,
there'll be detailed bios, but in brief,
let me introduce our panelists today.
Linda Drucker is an
Associate General Council
of Charles Schwab and
Co., where she manages
a team of attorneys and paralegals
located in San Francisco,
Denver, Chicago, and Phoenix.
Now that group represents
Schwab and FINRA arbitrations
and other legal matters nationwide.
Linda has nearly 20 years with Schwab,
supervised some 3,500
arbitrations and disputes,
and work with hundreds of
outside council mediators
and expert witnesses.
She serves as FINRA non-public arbitrator,
and has been a long-standing member
of the securities industry
and Financial Market
Associations Arbitration Committee.
She was a member of FINRA's
National Arbitration Committee
from 2007 to 2010.
Next Christine Lazarro is Director of the
Saint John's Law School
Securities Arbitration Clinic.
She came to Saint John's in 2007,
as the Clinic's Supervising Attorney.
She's also a Faculty Adviser from
the Moot Court Honor Society.
After Graduation Law School,
and prior to joining the
Securities Arbitration Clinic,
Christine was an associate
at the Boutique Law Firm
of Davidson and Grenam LLC.
She's familiar with and
represented many many clients
in arbitrations and mediations.
And last but not least, Joe Phifer
is founder of Phifer Roscoe Wolf
of Beller Car and Cain,
a nationwide law firm
with offices in five states.
Believe he's down in New Orleans.
We're up here in the
Northeast where it's freezing.
Joe's in a warmer climate.
He's represented over 500 clients
in FINRA Arbitrations, ranging
from individual retirees
to municipalities.
He's the current president of Piava,
the Public Investors
Arbitration Bar Association
which is a bar association
of claimants attorneys
and if someone important is here today,
he sits on the FINRA Dispute
Resolution Task Force.
We'll come back to that later.
He lectures frequently
in FINRA Arbitration
and has taught at Loyola School of Law.
Now, what are we gonna be
talking about here today?
Here are some of the questions
we're gonna pose to the panel.
As you can see, the brief
history and background
on the FINRA Mediation Program.
Then some practical questions:
Where do the cases come from?
How many are there?
What's FINRA's market share?
And is it growing or diminishing?
What do we think's gonna happen
to the Mediation Forum
over the next five years?
Some pointed questions:
Will it survive?
Should it?
And then we'll wrap up
with some recommendations
for the FINRA Task Force on changes
that might be made to
improve the Mediation Program
or even something as radical
as getting rid of it.
Time will tell.
OK, let's move on to the
three main topic areas
we're gonna be discussing
and then we'll circle back
and delve into them.
We'll first look at the state
of securities mediation today.
More on that in a minute.
Then whither or wither...
Look at the spelling.
Is it going to wither or what will happen
to the FINRA Mediation
Program after 20 years?
And then last, we'll
circle back to the panel
to discuss where we think
we'll be five years from now.
I'll say it later, but
this is my favorite part
because people can
disagree with your concepts
or predictions, but
they can't categorically
say you're wrong, unless they claim
to be returning from the future,
in which case credibility
goes out the window.
Now, let's get down to our first topic:
the state of securities mediation today.
We'll introduce the
subtopics as we go along.
Let's start with the first one.
Before we talk about
where the program's going,
we probably need to talk
about where it came from.
So let's start with a brief history
and some background on the FINRA Program
and to do that, I'm gonna
lead with Roger Dees.
Roger's a mediator.
He's been a mediator for a long time.
He's been a FINRA
Mediator for a long time,
and he knows from whence
this program came, so Roger.
- Well I hope that doesn't mean I'm old.
Way back in the last century,
you went out, and in fact
I witnessed this myself
many many many times, and asked lawyers
and experienced lawyers in securities
and in other backgrounds
if they knew anything
about mediation.
The typical answer would be:
"Oh I know all about arbitration."
And then you'd say:
"Well mediation's different
from arbitration."
And they would say: "What's mediation?"
So those days are long since passed,
but as far as the NASD now FINRA Program,
you have to go back to 1989,
and between '89 and '93, the
NASD Arbitration Department,
there was no mediation then,
engaged two pilot mediation programs
without side providers.
These were not very significantly used.
The results were not all that good,
and they were dropped.
And the current program really
is the result of two things.
One is experience of principally
defense lawyers I think
in the insurance industry
who had started using
mediation to resolve insurance,
not necessarily
securities-related problems.
And they were finding
mediation was resulting
in quicker, less-expensive,
and actually less-expensive
because the legal fees were reduced
because problems were being reduced,
were being resolved at an earlier state.
But also less-expensive resolutions
than they were getting
through the legal system.
So with that impetus, basically FINRA,
still the NASD, turned to
"Maybe this is something
"that might work in our field."
And there's a notice to members, 95-1,
where the NASD solicited comments
on a proposed NASD mediation program
and draft mediation procedures.
And the long story in the short
is that the details of this were picked up
by the Arbitration Policy Task Force,
a major document that if
you're not familiar with
really even today, almost 20 years later,
merits a rereading that was chaired
by David S. Router who is former chairman
of the Securities and Exchange Commission.
That was published back
in January of 1996,
and among the Router Commission's reports
of recommendations was the establishment
by the NASD of its own mediation program
and the rest is history.
So I don't know if that
was too much detail George,
but that's the background.
- No, excellent.
I think that 1995 year
sticks in my mind as well.
I came to FINRA a few years later,
and at that point it was
a new mediation program.
But that's spot on.
Now, Christine, you run a
securities arbitration clinic
and mediation clinic at a law school,
and we know that the
clinics tend to like cases
that aren't gigantic so the students
can be exposed to the full
range of activities in a case.
That I think would make
mediations attractive.
Now, there's a FINRA small
claims mediation program
that was launched.
Could you tell us a bit about that
and how you react to it?
- K so just a little
bit over two years ago,
FINRA launched its Small
Claims Mediation Program
which is specifically for cases under
that $50,000 threshold,
which are basically
the simplified cases which tend to be
the cases that the clinics are handling.
And for these cases, FINRA developed
a telephonic mediation program.
So for parties who are participating
in this program, FINRA will wave
its mediation filing fee.
If the case is $25,000 or less,
there are no mediator fees either.
So the program is completely
free for the parties.
If the case is over $25,000 to $50,000,
the parties will pay $50 per
hour for the mediator fees.
So a few of the clinics have
participated in the program
and they found it to be effective,
even though the entire mediation
took place on the phone.
And especially for these size cases,
it keeps mediation as
a viable alternative.
The cost of mediation really is a concern
for us and for our clients
because we don't wanna eat up
the potential amount of
money that will be there
for settlement for the costs
associated with mediation.
If parties do wanna use the program,
all they have to do is let FINRA know
that they're interested in the program
and then FINRA assigns a mediator
to the case who's agreed to
participate in the program.
It is important that you get a mediator
who's agreed to accept either no payment
for the process or the reduced fee.
And then the mediator
reaches out to the parties
and schedules the mediation.
And I do think this is a good
step in the right direction,
especially for small claim cases.
- OK thanks.
Now more background.
Some basic questions:
Where do the cases come from?
For that I'll ask myself.
So I'll change seats.
But there are three major sources
in theory, actually two in actuality,
at least as it regards FINRA mediation.
(mumbling) clauses are
a distinct possibility,
but in the (mumbling) it's
not very many of those
in the customer broker field,
and in fact there might be an issue
many years ago at least some officials
at the commission whose staff deal with
on this question would express concerns
about mandatory mediation clauses,
something we're gonna talk about later.
So you just don't see too many of those
at FINRA Mediation.
You might see them in
investment adviser contracts,
many of which don't call for FINRA
and might call for the American
Arbitration Association
for example or JAMS.
But in the FINRA world, those
are few and far between,
almost non-existent.
The more robust source of cases for FINRA
come from the next two, what FINRA calls
straight-in cases or
arbitration conversion.
Straight-in simply means there
is no existing arbitration,
and one or more of the parties says:
"Hey look, we've got this dispute
"and we're willing to mediate
if the other side is."
And FINRA will step in and try to broker
an agreement to mediate.
It's about 10% of the
overall mediation case load.
So therefore the other 90%
of the mediation case load
results from arbitrations
that are converted
at some point to a mediation.
And there's an inducement of FINRA
will wave a fee for example for cases
of 25,000 if they're in arbitration,
so if you're in a FINRA arbitration
and a case involves less than 25,000,
and you wanna mediate, there's
no FINRA mediation fee.
I'm not discussing mediator fees.
So those are the numbers
and it's typically
where cases come from.
Now, how many cases are there?
These are good questions
and other statistics:
how well do people do?
If you go to mediation, the objective
is to get a case resolved by settlement.
What is success rate?
Number of mediators?
Linda Drucker, can I ask you to address
those pointed questions please?
- Sure.
George, you know interestingly,
the one really bright spot is that
the settlement success rate in mediations,
FINRA mediation, has
remained relatively constant
over the past several
years and it's hovering
at 79 or 80% of the cases settled.
So mediation is still highly effective
in that four out of every five cases
in which it is used are settled.
FINRA recently released some statistics
for January 2015 and
that's only one month,
but surprisingly those statistics show
that the settlement rate jumped to 91%
of the 46 cases that were mediated
through FINRA Mediation Department
in January of this year.
But if you look at the larger picture,
there are some observable trends
that are disturbing in terms of a decline
in the number of cases being mediated
through the FINRA program.
So in 2012, there were 572 cases mediated
under the auspices of the
FINRA Mediation Department.
That number dropped to 482 in 2013,
and it further declined to 431 in 2014.
So you see an 11%
decline from 2013 to 2014
which may in and of
itself not be significant,
but when you look at the drop
over the course of two years,
there's nearly a 25% decline.
24.6% to be exact.
So that is a concerning trend.
The question is:
What are the causes of this decline
in the number of cases being
mediated through FINRA?
Is it simply a symptom of the fact
that fewer arbitration
cases are being filed?
I mean we know that there's been
a tremendous drop of almost 50%
between the number of
arbitration cases filed
in 2013-2014 versus the
number at the height
of the credit crisis in 2009 and 2010,
so a decline in the
number of cases mediated
would be natural and expected.
Or are the parties simply using mediators
less frequently than they did before?
Maybe parties are settling cases directly,
but I suspect that's not the case.
The finally possibility is:
Is FINRA's market share of
the number of mediations,
total number of mediations declining
as parties go outside of the FINRA process
to other dispute resolution providers
and individual mediators.
And that's something
we're going to talk about
in a little bit, but I think
that's a real possibility.
So one other thing I wanted to point out
is regarding the number of
cases closed during mediation.
You're also seeing a decline there.
In 2012 there were 776 cases closed
as a result of FINRA mediation,
and that number declined in 2014 to 551.
So once again, if you compare
2014 with two years prior,
you have a drop of almost 29%.
And once again, we need
to ask the same question:
Is it a result of just pure
arbitrations in general,
or is there something else going on?
- My own take, having been
Director of Arbitration
for many years, at a high level
in the mediation case load,
again 90% of mediations
start out as arbitration.
So the mediation case load will follow,
to a great extent, the
arbitration case filing.
Or in plainer terms,
the last several years,
the number of arbitrations filed each year
has been going down, and one would expect
the number of mediations,
since most start out as
arbitrations, to also go down,
but there are other forces at play,
there's no question about that.
Which brings us to the next topic.
FINRA's market share and competitors:
a bit of a touchy topic,
but let's start with Joe.
He represents investors.
What are you seeing there?
- Well I've gotta say
that (cough) pardon me,
I very rarely will go through
FINRA for my mediation
because I will have arbiter or mediators
that I have found that I trust
and that, more importantly to me,
that the respondents trust,
and I think those mediators
are in such high demand that
they are not really working
within the FINRA mediator
system any longer,
and which involves a
little bit reduced fees
and things like that.
So from my perspective, I very rarely
use FINRA mediation process.
I do use mediation for my FINRA cases,
it's just that I don't
generally go through FINRA
for that because I think
for the size of the cases
that we hope to bring,
it doesn't matter as much
how much the mediator costs
if I think he's effective.
And so that has been my experience
for the smaller cases where you have to be
more cost-conscious.
I've also found that the mediators
that I use repeatedly,
and that the respondents
use repeatedly will work
with me on that too,
so I just hadn't seen the benefit really
of going through FINRA mediation
unless you were close to your hearing date
and you can get a cancellation fee waved
or something along those lines.
- Let me ask some followup question.
Roger, I'm gonna ask you one as well,
so stand by, but Joe, at a high level,
do you think the competition comes
from other dispute resolution providers
like AAA or (mumbling) or from mediators?
- I think it comes from mediators.
From my--
- OK Roger, here we go.
So hypothetically, I don't wanna ask you
what your practice is, but hypothetically,
as a mediator, how do you react to that?
- How do I react to what?
- To the idea that in large numbers,
parties that might otherwise
end up in a FINRA mediation
are directly going to
the mediator instead.
- Well I'd ask...
I don't care to tell you the...
Well I do care, because I think
that FINRA mediation is important
and I'll come back to that in a minute,
and that it should exist
and it should not disappear.
But the reason for that is different
from the original reason
that the program was created.
The original reason is nobody
knew what mediation was.
It needed to be promoted,
the pump had to be primed,
people had to have experience with it
'cause they had none, they had
to have successful outcomes
which eventually they did,
a cadre of good mediators
had to be established
which it was, and once
all of that happened,
the original...
And FINRA, through an
enormous amount of resources,
millions of dollars into that effort.
But once that was accomplished George,
the parties made
relationships with mediators,
they didn't need FINRA to
make that connection anymore.
I agree with Joe that sometimes
you need to have a...
You're using the hearing dates,
and as we all know, there's a FINRA rule
that if you go through FINRA mediation,
that the arbitration is then
automatically postponed.
Going back to the history,
there was a time when,
before that rule was adopted,
that you had to ask the arbitrators
for permission to postpone the hearing
and arbitrators weren't doing it.
Parties were in agreement to try
to settle the case and the
arbitrators were saying:
"We reserved these dates
"and you have to come in and see us."
So those days are passed of course.
So to answer your question hopefully,
what the existence, why the
FINRA Mediation Program...
I would say is to...
expose mediation to those
diminishing number of lawyers
who don't know about it anymore,
but the regular players know about it,
have found good mediators
and really don't need FINRA
to administrate it.
There's one other thing
George you haven't touched on
which was there was a
time long since passed
when FINRA, the existence, and you know
about this I'm sure, the
FINRA Mediation Program
was a benefit to FINRA, then the NASD
because in those days, the
NASD Dispute Resolution Program
showed a profit because
you're able to keep
fees from the arbitration
that you didn't have to spend
on processing and arbitrators 'cause cases
were getting resolved at an
early stage through mediation.
Those days are gone too.
- Oh yes.
Now, speaking of Roger, I of course forget
to introduce you Roger.
- No it's OK.
- No no, our audience
needs to know who you are
just so you're a famous mediator,
but he is, he's been a long
time mediator and arbitrator
and successfully resolved
over 1750 mediations
involving all kinds of
securities and related matters.
Of importance, Roger received
the FINRA AAA Office of New
York Court Administration
Front Line Mediation Award,
which I know is not easy to get.
He served on FINRA's National
Arbitration Mediation
Committee in fact I think it was the first
chair of the mediation subcommittee.
- They actually changed the name.
Before that it was just
the National Arbitration Committee.
- There you go.
Everyone you're taking
something away from this program
you probably didn't know before.
Roger also serves on the Board of Editors
of the Securities Arbitration Commentator,
and pretty much every year
the last several years
has shared the New York City Bar's
annual Hot Topics Program
on securities arbitration mediation
as he's doing again this year in May.
OK sorry about that Roger, I apologize.
OK so having discussed market share
and where the program came from,
let's get into where we
think it might be going.
And for that, we move
along to our next slide.
Now, this play on words aside,
we're gonna do this
part a bit differently.
We're outlining some possibilities
of what may become or should become
of the FINRA Mediation Program.
Now here are the obvious ones:
We leave it the way it is,
which is a full-fledged
program with rules,
mediators, and staff.
Or you scale it back,
perhaps through a mediator
vetting and referral service.
Or you eliminate it.
It's ineffective or perhaps unneeded
or a duplication in today's
dispute resolution world,
or some combination of the above.
So for this one, I'm gonna
call on each panel member
to address not to every point,
but your thoughts on where
the program needs to be,
or what it needs to become.
So let me begin with you
Joe as a representative
of the customer's bar.
- Thank you.
Sorry if there was a
little background noise.
I'm actually conducting a mediation
for a FINRA case right now
as we're doing this podcast.
- (mumbling) folks.
- Yeah exactly, exciting.
Where do I see the program going
and where should it go?
Is that the question?
- What should happen here?
What will happen will be the next segment,
but what should happen?
- Well it seems to me that Roger's point
was exactly right, but this program
is still needed for people that are not
used to securities matters.
I think that the arbitration system
at least is supposed to and I think
this happens less and less,
and probably should happen less and less,
but it's supposed to
be able to accommodate
pro-say plaintiffs, and
those are the folks,
the pro-say plaintiffs,
the smaller claims people
and the folks that just
don't know too much
about securities arbitration,
where I think it really is still needed,
and will be helpful.
I think at this point,
we've got a good cadre
of mediators who can
mediate FINRA disputes
and they do or do not go
through FINRA Mediation
as I sort of discussed before.
But I think the reason that I think
the program should stick around
in the primary constituency
for which it should serve
are the people that
either are very unfamiliar
with the forum, are
representing themselves,
or have small claims.
I think it makes sense for those folks
and I think it'd be doing
a disservice to them
if it was completely eliminated.
- Thanks.
Let's go to the other side.
Linda, thoughts?
- Well I agree with Joe that the program
should be continued in some form.
Maybe scaled back a bit.
To a certain extent, it's a
victim of its own success.
But I think it does offer some benefits,
and I think you need not only a bare-boned
vetting and referral
service, but you do need
some case administration resources
for it to continue to be successful.
Maybe those will be more limited,
but you do need some
oversight of the program.
And I think the program is useful
for finding mediators
in states and locations
where even sophisticated
parties don't have
a cadre of mediators on call,
and the itinerant
mediators don't necessarily
or aren't necessarily able to travel
all over the country and
you can't necessarily
get one of those people to
travel to remote locations
in a 30 or 60 day window
of time, so that's useful.
I agree its primary utility
is in the smaller cases,
and cases where it's just not economical
to pay a mediator to fly
in or to pay a mediator
a $5,000 or $10,000 daily fee.
I also think it's a useful training ground
for new mediators.
At some point, this
generation of mediators
that we all use regularly 300 days a year,
they're gonna move on and
this could be a program
that generates the next
generation of mediators.
And we did refer earlier to the benefit
of enabling parties to
avoid postponement fees
if you use the FINRA Mediation Program
as opposed to going
directly to a mediator.
There's another benefit which is that
the mediator in the FINRA Program
doesn't have to do the
collection efforts himself.
FINRA bills the parties for
the cost of the mediation
and FINRA pays the mediator.
And I once had a mediator
approach me and say:
"I'll do this mediation for you,
"but please do it through
the FINRA Program,
"because I'm a little
worried that the other side
"isn't gonna pay my
fee and I wanna be sure
"that's taken care of."
So it does have that benefit
of getting these mediators
out of the collections business as well.
- That's an excellent point.
There's no question in my mind,
having been at FINRA all these years,
that the program helps
insulate the mediator
from some of these
occasionally difficult problems
with collection or beyond
that, scheduling issues,
complaints about party behavior.
There's no question in my mind
as a mediator, you might
want some intermediary
between you and the parties.
Alright, Christine, thoughts.
- I think the program really should stay
more or less as it is
now in terms of size.
I think the mediator vetting
process is important.
Again, for the experienced attorneys,
it's not as important,
but for the new attorneys
or those who are in this forum
as one timers,
it's nice to have a neutral source
for a mediator suggestion,
and even for the experienced attorneys,
when you're looking for
four, five, six suggestions,
it's nice to be able to go to one place
and get uniform information
about the mediators
so that you can compare the backgrounds
of the mediators and find the one
that's gonna be right for this case,
and have that information all put together
for you by FINRA.
With the rules, even for
experienced attorneys,
not having a set of rules in place,
when things are going well, that's fine,
but in those cases where
things don't work out,
sometimes it's nice to have
the rules to fall back on,
and to be in a forum where
you have mediation rules
in place, I think that's a good thing.
And again, for the new
attorneys in the field
and for those who are
here for the first time,
or handling a one-off case,
to be able to know exactly what to expect
coming into the forum,
I think is a good thing
and on the claimant's
side because we all know
that the firms are gonna
be the repeat players,
so this is really about
protecting the investors
and their representatives.
As far as the case administrators,
in addition to just coordinating
with the arbitration side of the case,
I've also used the mediation
case administrators
to reach out to my
adversary to feel them out
about mediation, about
their willingness to mediate
so I didn't have to do that myself
and it's nice to have
that third party there
to actually propose
mediation to the other side.
And you also have FINRA sending out
at the very beginning
of the arbitration case,
all the information about mediation,
suggesting mediation
from the very beginning,
and making sure everybody
is thinking about mediation
throughout the process of the case.
- Thank you.
I know FINRA will not
charge for that service,
the service of when one party says:
"Look I'm willing to mediate this case."
They will not charge for reaching out
to the other side and as I said,
trying to broker the agreement.
Alright Roger I'm not
forgetting you this time.
So, you heard what the others said.
You're a mediator.
What are your thoughts?
- Well who is the constituency
that FINRA serves?
And there are a number of constituencies,
but I think paramount is the integrity
of the American Capital Markets,
which I think is tops in the world.
And one of the reasons that people
from all over the world are willing
to invest their money
here in the United States
is that they believe they got a fair shake
if there's a problem and its resolution.
And mediation is part of
the options of resolution.
So I think that a FINRA Mediation Program
must continue, should
continue, and must continue.
The question is: to do what?
And one of the things
that I think is paramount
and I'm gonna pick up on,
Linda, something that you said,
which is: where's the next
generation coming from?
I couldn't agree with you more.
And beyond that,
there is a total,
almost total, in some respects
total, lack of diversity
in the pool of mediators,
and that's wrong.
And FINRA and the industry, and Joe,
the plain of spar,
Piava, should really put
a little bit of extra efforts,
and FINRA can be the convener for this
to help you out to bring in more women
as on-demand mediators, more minorities
as on-demand mediators, more
people from ethnic backgrounds
who represent the
investors and the industry
which is not the case today.
So I think FINRA can occupy
a very important role there.
Hasn't done it yet, but
perhaps it'll decide to do it.
And then beyond that, as an advocate,
as Christine just said, to those people
for whom mediation is unfamiliar,
to help bring them into the
process for their own good.
So I think that there's a place and a need
and I wouldn't be complete if I didn't say
a couple of things that, and you said it
at the beginning George,
and Linda said this also I think,
that it's a victim of its own success.
And that success, to a large degree,
rests on the NASD's
commitment, dollar commitment,
but also the physical efforts,
the time and energy, as
you said of Ken Anderschect
who headed this thing from day one,
and also an array of administrators
who I think were non-corral,
and reported back to me
when people were dealing
with the arbitration
side, the mediation side,
there often would be a difference
and sometimes a big difference
of the service that they got.
And notably people maybe
have forgotten this name:
Conrad Shee, he was
there a million years ago
and more recently at Siaga.
I cannot tell you
how many in the industry
and the claiment's side
were benefited by Ed bringing
problems into resolution
and people avoiding perhaps
worse results on either side
out of the arbitration process.
So yes, I think there's an
important role to be played,
may be changed but important.
- And it sounds like we may have our first
two recommendations for
the FINRA Task Force.
It seems like there's a consensus
the program should continue more or less
in its present form and the second
that it should be a convener or a vanguard
on recruitment especially
for women and minorities.
So we've got two already I think.
OK--
- That takes a commitment.
A difficult thing to do,
and a practically difficult thing to do
if you're a party, if you're representing
an investor, you're
representing a brokerage firm
or a financial adviser,
and you've had success
with a small group of
mediators in past resolutions,
why would you go elsewhere?
So it's something that has to happen,
but it's gotta be pressed and sold.
- And I absolutely agree.
Well let's move on to our final section,
which again, is my favorite part,
'cause people can't say you're wrong,
and they can just disagree.
But we talked about what
changes should be made,
now we get to what is
actually going to happen,
what we think will be happening.
Again I'm gonna call the roll
in slightly different order,
but the panelists will
give us our predictions
for where they think we're
gonna be five years from now
and I think to keep us moving along here,
I'll ask you as you go along to identify
what you might think
would be recommendations
to the Task Force.
Not to put him on the spot,
but to put him on the spot,
Joe, you're on the Task Force,
so I guess the first high level question
before we spend a lot of time on this,
do you think it would be receptive
to recommendations coming
out of our podcast today?
- Absolutely, the Task Force is receptive
to recommendations coming out
of any knowledgeable person,
be they an arbitrator, a mediator,
a participant in the forum, an investor
or claimants lawyer.
We wanna hear from everybody,
and so I'd like to
encourage even listeners
of this podcast to make their suggestions
to the FINRA Task Force because we've got
a lot of really smart people,
and a lot of people a lot
smarter than me frankly
on the Task Force,
but we don't have everyone,
and so we want your suggestions
and we welcome them very much.
- Thank you Joe.
Along those lines, the
Task Force published
on the FINRA Web Site,
an initial list of areas
that I'll be looking at, and
one of the major groupings
is indeed mediation.
There are two bullets underneath that.
One is a suggestion that it will consider
to encourage greater use.
Sounds like we're all behind that here.
And the other which is more interesting,
is whether to have some
mandatory arbitration,
either opting in or opting out.
And so as we go through where might be,
I ask the panelists to touch on
certainly the opt in or opt
out on mandatory mediation.
And if you forget, I will prompt you.
So let's begin.
Joe, you have the floor.
So where do you think we're gonna be?
And I know you're not
speaking to the Task Force,
but speaking for yourself,
what changes should it make?
- Well I think that it
actually we're kind of
on the right path here.
Again, I hate to just
echo what Roger said,
and it's not often I
always say Roger's right,
but he's right on this issue I gotta say.
And he's dead on on who I
think FINRA should be serving,
and it seems like they're
moving in that direction
with these smaller case phone conferences.
I've not had any experience with them,
but it sounded like from Christine
that they were going at least
OK and fairly well maybe
in some instances, and
I also agree with Roger
that the second thing that has to be done,
and this is where FINRA is
gonna have to spend some money
and spend some time and thought,
is to how to get the next
generation of mediators,
and not only how to get
them, and how to train them,
but how to make 'em look
more like our clients.
And I think that's something that is
something that I'd like to see
in the next five years myself.
- Hey thank you.
Linda?
- Well I think one thing
that should be explored
is the use of technology.
As a broker dealer on the West Coast
with many mediations on the East Coast,
it often takes us three day...
When we commit to a mediation,
we often lose three days of time.
A day of travel time on either end,
and the mediation day itself.
So it's not inconceivable
that in five years
we'll be doing mediation via FaceTime,
video conferencing, other
forms of technology,
so that, we're certainly
doing them already
by telephone conference and those can be
very very effective in smaller cases,
but we need to figure out a way
if you're doing it via
telephone conference
or video conference, how you can do
the presentation, do
a detailed PowerPoint,
make the opening
statements really available
as opposed to just a telephonic
sort of the individual
sessions for the parties.
And I think we do need to focus
on a new mediators training program.
One of the concerns I
have is that when I looked
at the requirements to
be a FINRA Mediator,
you already have to be a
very experienced mediator
to get on to the FINRA Mediation Roster,
so I know many attorneys including people
in these diverse populations
we're talking about
who want to become mediators,
but they can't even get
their foot in the door.
So I think on these very small cases
where FINRA's charging $50 an hour
and it's being done telephonically,
FINRA has to recruit people
that they're not necessarily
skilled mediators already,
there needs to be an opening
for experienced lawyers
who don't have a long
resume of 100 mediations
or even 10 mediations to their credit.
And I think I like the idea of having
to opt in or opt out.
It should sort of be like
those online dating things
where both people click that
they wanna meet each other
then they're connected.
So if there should be forms send out
at certain points in the process,
and maybe at the beginning,
and then also 90 days before the hearing,
something of that nature
where the parties check
whether they're open to mediation
and if both say "Yes.",
the mediation is scheduled.
- Let me circle back to Joe.
What about that opt in or opt out idea?
I'm not asking to divulge
things you shouln't
from the Task Force's deliberations,
but from the bullet, it seems,
as someone proposed for
the Task Force to consider,
mandatory mediation with
the right to opt out
or some kind of an opt in system,
so can you share any insights with us
or reactions that you might have?
- I think what I can say about that
is that the Task Force is
considering that obviously,
what's on the bullet point,
and that it's been
assigned to a subcommitte
and they're working through the issue.
And I don't really want to say
what my position is on that in this call
'cause it's a specifically enumerated
Task Force topic but I do welcome
any input from anybody else.
- OK and that's perfectly fair.
Didn't mean to put you on the spot.
- No no, it's OK.
- And I'll just react to
one of the issues here.
I'm Chairman of the Board of
Arbitration Resolution Services
which of course is an online provider
and I think Linda hit
it right on the head:
the future is gonna
see incredible advances
in technology, we're seeing them already,
and the idea that parties
will be "sitting",
I put quotes around that, but
"sitting" in a conference room
even though they're in distant cities
and appearing to be looking face to face
probably in 3D holograms,
I'm sure that's coming soon.
To the point where you'll be able to judge
reactions, body language,
and also the idea
that for some really small cases,
you might just try to match up bid
and all for an exception,
but it's definitely coming.
Telephone mediation I think will be viewed
years from now as a
transitional technology
in the same way we look at fax now,
as a bridge or transition to email
and other forms of social media.
I will get off my soapbox and
turn it over to Christine.
Where do you think we're gonna be?
Any ideas for the Task Force?
- I agree that mediation
really is important
for the small cases,
especially the simplified
cases on the papers.
In those cases, the customer
doesn't get to testify,
so they don't get to tell their story,
and the big issue in those cases
is they usually don't feel like
the other side understands
what happened to them,
and this can be a problem in settlement
and can lead to impasse
in the negotiation.
So the opportunity to be able to speak
to the other side and explain
what happened to them,
sometimes can be all that it takes
to actually get to the settlement.
And telephone mediation is OK,
and I think it is the
first step in that process,
but I think we're at the
point in technology now
where video conferencing really
should already be happening,
and we use it in the classroom
to bring in speakers,
to bring in distant students,
and it should be easy enough to evolve
the mediation process at this point
so that we can be doing mediations
at a relatively low cost,
no more expensively than
the telephone mediations
using video conferencing technology.
And as far as a recommendation
to the Task Force,
for the small claims where
there are no fees right now,
I would recommend extending that
up to the $50,000 mark and
making mediation mandatory
for all the simplified cases
with an opt out for the claimant.
So that claimants have the ability
to utilize mediation in
those cases if they wish,
but have the ability to opt
out if they don't want to.
- Similar to the old
optional public panel rule.
- Right.
- Very similar concept.
- George, I need to respond to that.
I don't think the
industry would be in favor
of that unilateral opt out.
There are definitely cases where mediation
of any form, even telephonic mediation,
requires a commitment
of time and resources,
and there's still going
to be a group of cases
that the industry looks at and says:
"This is a frivolous case."
Or "This is a case that
there's no liability."
And I don't think it should be mandatory.
The parties should have
some amount of free will
and free choice in deciding
whether to mediate.
- I'll exercise the
moderator's prerogative.
I haven't weighed in on too many,
but yeah my reaction
to mandatory mediation,
I mean it's not gonna
arbitration, it's mediation,
so the case doesn't settle obviously
if the parties don't agree.
So compelling an
unwilling party to mediate
to me smacks of wasting time and money.
Now I'm sure there are nuances to it.
We certainly don't have
time to take about it today,
but my first gut reaction was:
"I'm not so sure about that."
Roger, I don't wanna forget you again,
so you get the last word on this.
- Well first of all, I agree with Linda
and with you because there are disputes
and they're not infrequent,
where for one reason or another,
having nothing to do with
the merits of the claim,
but everything to do with the effect
of a litigation on an industry position
or a position with employees,
or in a position with competitors,
where one party just
does not want to settle.
They would rather spend the money
and risk the possibility
of not prevailing,
and in doing that, they send a message out
and so mandatory mediation basically,
I completely agree with the both of you.
I'm not in favor it.
Now, having said that, I think
when people do get together,
oftentimes the beginning of the day,
this problem will never get resolved,
and at the end of the day,
lo and behold it is resolved.
So I'd encourage people to
sit down with each other,
but if they've got some
other reason not to do it,
you gotta respect that.
So that's number one.
And number two, as far as FINRA,
going forward, this is not
gonna be a revenue producer,
and we haven't talked about that.
So internally where is FINRA gonna get
the political will to
spend money on this thing?
So that's something that...
And, is there a benefit sometime?
It doesn't have to be a benefit to FINRA,
it could be a benefit to the integrity,
as I said before, of the capital markets
of the entire industry, but going forward,
I don't see the
administration of mediations
being profitable, at least not for FINRA.
But it can if it chooses, do
a number of different things.
One of the things that interests me
is the creation of innovative
dispute resolution processes
for certain disputes.
For instance, if you have product cases,
if you have a bad broker situation,
if you've got a number of cases
and you wanna dispose of them,
to create a process that's efficient
and gets the job done is something
that FINRA might have a place convening
or giving options to people.
Another thing we haven't
talked about is Meet R,
which I think has got a great potential,
where a case starts as the mediation,
both sides want to resolve it,
they don't wanna spend the money
to have a full-scale arbitration
if the mediation is not
end in a resolution,
and then let the mediation
end in an agreed process
where going forward,
it's an agreed process
rather than a full-blown
FINRA arbitration.
And maybe FINRA can have a hand
at being so to speak a think tank
in exploring some of these
innovative and creative options.
And the last thing is: what is mediation?
We haven't even talked about that
and there's a real debate.
And what goes on in FINRA mediations
to some people may be mediation,
and to other people may not be mediation.
But that's maybe, George,
a topic for another day.
Long story in a short to finish that,
if you only look at the
four corners of the problem,
you're probably not
reaching in many cases,
not all cases, but in many cases,
the reasons why people found
a lawyer in the first place
to bring a claim or defending a claim.
So that's something...
Oh and we also haven't talked
about employment mediation,
which is a whole 'nother issue,
and mediation the
tension between the firms
and their registered employees.
- There'll be more podcasts.
- I've seen instances where the employee
has got so much clout that the employee's
making the decision
rather than the firm, so.
- Food for thought.
OK it's time for us to wrap up.
It's been a great great panel discussion.
I'd like to thank our panel
at SAC for a great program.
Christine, Joe, Linda,
and Roger: great job.
Thank you audience also for listening.
You can follow SAC and
some of our panelists
on social media.
Look for our next podcast
coming later this spring.
We have plenty of topics to think about,
so thanks for attending.
Visit our web site at SACarbitration.com.
See additional program offerings,
you can sign up for notifications,
and of course follow us on Twitter.
That concludes our program.
Thank you very much and have a great time.
- George, thank you.
- Thank you.
