Has a stockbroker or financial planner done you wrong?
You might try mediation as a way of getting some money back. Mediation is an alternative to a lawsuit (your ultimate recourse in a dispute with a planner) or to arbitration (mandatory in disputes with brokers).
Most commonly, aggrieved investors will first file the lawsuit or a request for arbitration.
Then the parties exchange documentary information relevant to the dispute (although your lawyer may have to hammer the broker or the planner to get it). After that, the cases usually settle without a formal hearing, especially when experienced lawyers are involved.
“We tend to know where cases will come out,” says Orlando attorney Robert Dyer,” and settlement saves time and money.”
Inexperienced lawyers, demanding clients, and pigheaded brokers, however, may press for better deals than they’re likely to get. That’s when mediation is helpful, Dyer says.
As a neutral third party, the mediator can assess the strengths and weaknesses of each party’s position and offer a reality check.
Here’s how mediation works. Both sides agree on a mediator, chosen from a list of experienced people whose professional backgrounds are disclosed.
“You want someone who understands the industry,” says attorney Tom Giachetti of Stark & Stark in Princeton, N.J.
The proceeding starts with a general meeting, where the adversaries and their lawyers present their evidence and their views. Each side then retires to a separate room. The mediator speaks privately to each. He or she explains the relative merits of your case, probes for what you’d need to accept a settlement, and conveys (with permission) the irreducible needs of the other side.
Settlement offers and counter-offers are then carried back and forth. The mediator can’t dictate a deal, although he or she can lean on one side more than the other. In the end, the parties will reach a compromise themselves.
Attorney Tom Grady of Naples, Fla., says mediation helps especially when your case is morally strong but legally flawed; when the other side is liable but the damages are unclear; and where there’s bad blood between the adversaries.
“It’s hard to believe that you can bring combatants into a room and get them to agree to a solution in a day, but the dynamics of the mediation process make it work,” says Rick Ryder, editor of the Securities Arbitration Commentator in Maplewood, N.J.
If you can’t reach a compromise, or change your mind about the deal you contemplated during mediation, you can still go to court or arbitration. Mediation isn’t binding unless you actually sign a settlement.
Your alternatives to mediation aren’t terrific. A court case can take years. Arbitrations average close to a year.
Mediations cut three to nine months off the arbitration time. Furthermore, arbitration can be an arbitrary form of justice with unfair awards, says Boston attorney David Shellenberger.
Your brokerage agreement probably requires you to use arbitration panels provided by the National Association of Securities Dealers(NASD) rather than those of an independent forum. Individual NASD panels can be fair, but the process is widely perceived as biased in favor of the industry.
The NASD runs the industry’s two-year-old mediation program, too. Why should investors trust it any more than NASD arbitration? Because it’s not binding.
The mediator must be neutral; otherwise, you’ll walk away. For a free brochure, “NASD Mediation,” call 212-858-4400. A coalition of financial-planning organizations endorses mediation through the American Arbitration Association (212-484-4000), which is independent of the financial industry. Besides saving time, mediation saves money for people with claims exceeding $30,000.
Unfortunately, that’s not always the case for smaller claims.
A $10,000-to-$30,000 case costs each party an average of $825 in mediation, says Ken Andrichik, the NASD’s director of mediation, compared with $755 in arbitration. AAA mediation costs an average of $675 if you file the case, and $375 if the other party files.
That’s in addition to your lawyer’s fee, which is lower than if you had arbitrated or gone to court, but substantial nevertheless.
You can represent yourself, but you’ll be up against a lawyer and may find it hard to get documentation to prove your case.
To find an arbitration lawyer who handles cases in the nearest city where the NASD holds hearings, get the “Advocate Record,” published by the Securities Arbitration Commentator (201-761-5880). It lists the lawyers’ names and addresses, the cases they’ve handled and the results. The price: $25, $50 or $75, depending on the size of your area’s list.
More on MSAs
You may have seen ads for the new types of health plans known as a Medical Savings Accounts (MSAs). They can help small companies that want to offer their workers low-cost health insurance. If you meet the tests required of individual buyers, check them out if you’re healthy and have money to spare.
In general, here’s how they work:
1. You qualify for an MSA if you or your spouse is self-employed; or if you or your spouse works for a company with 50 or fewer employees and you’re not covered by group insurance. You can set up the plan yourself or your company can provide it.
2. There are two parts to the MSA health insurance and a tax-free savings account. The insurance carries a high upfront deductible, which will be indexed to inflation. This year, it’s $1,500 to $2,250 for individual plans and $3,000 to $4,500 for families. (The deductible is the amount you pay for medical bills before your policy kicks in.)
Insurers may also require you to pay a percentage of each medical bill. But there’s a cap on your out-of-pocket costs for illnesses that the policy covers. For individual plans, you can’t be asked to pay any more than $3,000 a year; for family plans, no more than $5,500.
3. The savings part of the MSA is held by a custodian–the insurer, a bank, a mutual fund. Every year, you can deposit, tax free, up to 65 percent of the deductible for individual plans, or 75 percent for family plans.
Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.