A group of investor-protection attorneys is sharply criticizing FINRA for its decision to return $50 million to member broker-dealers instead of allocating the funds to cover unpaid arbitration awards owed to retail clients.
The Public Investors Advocate Bar Association (Piaba) contends that the brokerage industry’s self-regulatory organization missed a key opportunity to address one of its most persistent investor protection failures.
The funds in question come from a 2023 operating surplus. Rather than reserving the surplus for future contingencies or investor restitution, FINRA opted in May to issue rebates to broker-dealer firms in good standing. According to Piaba, that decision ignores the growing crisis of unpaid arbitration awards—money that investors are legally entitled to after prevailing in disputes but often never see.
“This is a multimillion-dollar crisis, plain and simple,” said Adam Gana, president of Piaba. “When nearly one in three investors who win arbitration awards never receive a single dollar, the integrity of FINRA’s arbitration process is fundamentally broken. Rebating these funds to firms—some of which may be the very source of unpaid awards—undermines Finra’s stated mission to protect investors and promote market confidence.”
FINRA, which operates under SEC oversight, defended the rebates. The regulator said the distribution applies only to compliant member firms and that the SEC had approved the fee structure and refund plan. “The 2024 fees were filed with the SEC and were not intended for the purposes Piaba describes,” a Finra spokesperson said.
In its defense, FINRA cited recent policy efforts aimed at reducing the number of unpaid arbitration awards. These include requiring “restricted” firms to reserve funds for potential claims and modifying its membership application process to screen out individuals or entities with a history of evading arbitration responsibilities.
Still, investor advocates say those reforms fall short. Piaba argues that FINRA continues to prioritize the financial interests of its member firms over the needs of defrauded investors. The association frequently points to Finra’s dual role as both industry regulator and membership organization as a structural conflict that compromises enforcement.
In a 2021 analysis, Piaba found that 30% of arbitration awards in 2020 went unpaid—up from prior years—and that 24% of total dollars awarded were never collected by investors. The group has urged FINRA, the SEC, and lawmakers to act decisively to close the gap. Proposed fixes have included the establishment of a national investor recovery pool funded by penalties and industry assessments, as well as stronger bonding or insurance requirements for higher-risk firms.
Piaba also flagged other recent FINRApolicy shifts as signs the regulator is tilting away from investor fairness. These include new requirements that have shrunk the pool of eligible arbitrators, as well as rules that allow firms to conduct branch inspections remotely—raising concerns about oversight lapses.
“We are seeing troubling signals from FINRA that suggest a retreat from core investor protections,” Gana said. “From ignoring the unpaid award issue to shrinking the arbitrator pool to embracing remote supervision, the pattern is clear: these actions serve firms more than the investing public.”
For wealth managers and RIAs who routinely turn to Finra arbitration as a last-resort mechanism for resolving client disputes, the trend is troubling. Advisors know firsthand how much weight clients place on the integrity of the system—especially when it involves recovering losses from misconduct. If the forum’s enforceability is eroded, so is its value as a deterrent and safety net.
More broadly, the issue underscores the need for financial professionals to exercise due diligence not just in product selection or suitability reviews, but also in firm-level risk assessments. If a brokerage lacks the resources—or willingness—to honor its obligations, that’s a material risk to end clients and a reputational risk to the advisors affiliated with it.
While FINRA has taken incremental steps, critics say the time for piecemeal reforms has passed. With unpaid arbitration awards now a well-documented and recurring problem, the wealth management community may need to press for deeper structural changes—whether through regulatory intervention or congressional action.
“This is about accountability,” Gana said. “Investors who’ve already been harmed once shouldn’t have to fight again just to collect on a binding award. The industry, and its regulators, must do better.”
