FINRA sets the ground rules between investors and their brokerages and advisors. I actually wasn’t sure who runs FINRA since I went to a seminar run by them and they seemed pretty authoritative. Here’s the skinny: the dog works for whoever feeds it. FINRA is fed by the financial industry, not by us.
FINRA (the Financial Industry Regulatory Authority) is an industry-run, independent, non-governmental organization.
Specifically, it is structured as a Self-Regulatory Organization (SRO).
How FINRA Operates
-
Industry-Run & Funded: FINRA is a private, non-profit corporation funded entirely by the financial industry—through member fees, registration dues, and licensing exams—rather than taxpayer dollars.
-
Government Oversight (The SEC): While FINRA is not a government agency, it operates under the direct oversight of the U.S. Securities and Exchange Commission (SEC), which is a federal government agency.
-
Authority: Congress granted FINRA the legal authority to write and enforce rules governing broker-dealers and registered financial representatives in the United States to protect investors and ensure market integrity.
-
SEC Approval: Rules created by FINRA must be submitted to and approved by the SEC before taking effect, and decisions made by FINRA can be appealed to the SEC.
Now FINRA is trying to change the small print to tilt the playing field even more toward the brokers.
Brokerage Firms Want to Yank Away Your Investor Protections
One of Wall Street’s regulators is pondering changes to the way investors can seek to recover losses
By Jason Zweig, The Wall Street Journal, Oct. 23, 2026
Should investors be protected from financial advisers, or should it be the other way around?
Regulators may soon decide whether an unlevel playing field should be tilted even more steeply against the little guy.
For years, arbitration has been the primary way individual investors can seek to recover losses caused by a broker or financial adviser. Investors usually don’t prevail. At the largest securities-arbitration forum, run by the Financial Industry Regulatory Authority, which oversees the brokerage business, investors fail to win any damage awards in about three out of four cases that don’t close in a settlement.
This March, Finra requested public comment on “modernizing” its arbitration rules. Outside analysts and attorneys expect proposed changes soon, perhaps by year-end…
When the tide goes out, as it always does, you might find that your adviser’s seemingly prudent recommendations turned out to be reckless or rife with conflicts of interest.
At that point, Finra arbitration would be your last, best hope of recovering losses. You deserve to be able to get a fair hearing… [end quote]
Most METARs probably make our own financial decisions so we have nobody to blame but ourselves. But FINRA arbitration covers both bad advice and intentional fraud by brokerages and financial advisors. In fact, direct financial loss resulting from fraud, deception, or misconduct is one of the most common reasons investors use the FINRA arbitration forum.
A risk-averse investor probably reduces the probability of loss by sticking with mature, well-proven brokerages and avoiding novel, too-good-to-be-true advisors and brokers. Even so, sometimes even highly-respected brokerages (like Lehman Brothers) fail. The chance of recovery from a major firm (e.g. Fidelity or Vanguard) after a failure is probably less than the chance of recovery from earthquake insurance after the future Cascadia mega-quake. Fidelity manages $20 Trillion in client assets so any failure would cause a financial crisis the likes of which the markets have never seen. In spite of the fact that many (if not most) of the assets are separate investments (e.g. stocks, bonds) and not threatened directly by a failure, it would be a fearsome mess.
And FINRA may be about to make those odds even worse. The changes are still in discussion.
For individual investors managing their own portfolios, the system highlights a critical practical reality: when dealing with brokerage relationships, document retention (trade confirmations, disclosures, prospectus materials, and correspondence) and prompt action remain the strongest defense if a dispute ever arises.
Wendy