_Trustworthy Arbitration

A case study examining investors' grievances with stockbrokers suggests ways to make mandatory arbitration a more transparent and inclusive process.

_Nicole Iannarone

Iannarone is an assistant professor in the Thomas R. Kline School of Law.

Agreements with banks, retailers and other service providers often force consumers to resolve disputes through arbitration, a process that lacks the transparency of court proceedings and is managed by an overwhelmingly white and male cohort of professionals.

Usually a private process, arbitration can create a perception that disputes are being resolved in a “black box” by individuals who don’t represent the community their decisions affect.

Facing growing pressures to diversify, forums that manage mandatory arbitration have added non-white and women professionals to their rosters.

Nicole Iannarone, assistant professor in the Thomas R. Kline School of Law, examined the impact of diversification efforts by the Financial Industry Regulatory Authority (FINRA), a quasi-governmental agency that hosts arbitrations involving investors working with stockbrokers.


In a 2014 report from the Public Investor Advocacy Bar Association, whose members represent investors in claims against stockbrokers, 80% of available arbitrators in the agency’s pool were men, with an average age of 69.

FINRA arbitrations are more transparent than most, Iannarone says.

“Every time an arbitration panel makes a decision, it is there for the public to view,” she says. “So, we can learn about what is going on in the process, and that can help inform us and consumers, as we study and design other arbitration contexts.”

Nonetheless, FINRA historically maintained a homogenous arbitrator pool. The agency began recruiting arbitrators from diverse backgrounds, professions and geographic locations. Annual surveys conducted by an outside consultant have confirmed that FINRA’s roster is more diverse.

As a Hispanic woman who had joined FINRA’s roster but had not been called on to arbitrate a case, Iannarone decided to study if diverse arbitrators had been brought into the process.

Iannarone sought to find out if newer arbitrators were chosen between 2015 and 2019 to hear cases involving claims valued at less than $100,000, which play an important role in investor protection. Only those with experience hearing larger-dollar, three-arbitrator cases may handle small-claim cases solo.

Iannarone and trained law students built an elaborate database that included the parties and representation for each claim, the location of hearings and the outcome of each case.

The resulting case study, published in the Washington Law Review, found that arbitrators who first appeared on the roster in 2015 rendered fewer than 1% of decisions in smaller-claim investor cases.

Since parties are advised to research arbitrators’ histories before selecting them from FINRA-generated lists, Iannarone hypothesizes that newer arbitrators do not get picked because they lack a track record.

Arbitrators’ retirements will eventually lead parties to choose from a more diverse cohort, but Iannarone says FINRA could speed things up by providing parties with lists that proportionally include women or members of underrepresented groups or by reviewing its own rules that make it hard for newer arbitrators to serve.

Iannarone says it is also important to examine the potential role of bias.

“We need to study who is being stricken and why,” she says, noting the importance of ensuring that arbitrators reflect the small investor pool. “How can investors trust that FINRA is a fair forum when something goes wrong with their stock purchases, if that forum doesn’t include anyone with a background like theirs?”