Several weeks ago, the Securities and Exchange Commission hosted a seminar for law student clinics that represent investors in securities arbitrations and mediations. These students fill a very important void by serving investors, particularly those with relatively small claims, who might not otherwise be able to find representation in disputes with their brokers. Perhaps the impressive students who spoke at the event will inspire other law schools to start such clinics.[1] Too few of these clinics exist now, however, to meet the demand for representation in securities arbitrations. The void of representation for investors with low-dollar claims remains particularly acute. A proposed FINRA rule could exacerbate the problem by preventing non-lawyers from getting compensated to represent investors in arbitration proceedings. Today, the Commission opened a thirty-day period for interested parties to file statements supporting or opposing this change. I urge the public to help us think about whether this rule is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.[2]

FINRA cites a number of reasons for the rule change. First, FINRA points to instances of poor representation by paid non-lawyers,[3] but it is unclear whether the frequency of such instances justifies a rule change. I invite the public to provide additional context by providing examples of low- and high-quality representation by paid no-lawyer representatives. FINRA contends that combining compensation with no attorney-like regulatory framework is a recipe for poor representation.[4] Does the public agree, or would reputational concerns be sufficient to produce good representation by compensated non-lawyer representatives? FINRA also points out that sometimes its arbitrators throw out the claims of an investor who is represented by a compensated non-lawyer on the grounds that the person is represented by someone engaged illegally in the practice of law.[5] Should FINRA, instead of adopting a prohibition on non-lawyers getting paid to represent investors, prohibit its arbitrators from taking on the role of enforcing state laws with respect to the practice of law? Some states have made it clear that they consider representing someone in an arbitration proceeding for compensation to be the practice of law, and other states could do so.[6] Does FINRA need to step in to prohibit conduct that is already under scrutiny in some states?

FINRA acknowledges that investors with small claims may not be able to find representation after the rule is in place.[7] Do commenters agree that small dollar claimants will have a more difficult time getting help? If so, is the protection afforded by the change worth the cost to a segment of investors that may most need assistance? Will the net effect of this change be to harm market quality by cutting off one avenue for harmed investors to get help?

FINRA’s proposal would codify the ability of law students, working with a licensed lawyer, to represent investors.[8] This explicit recognition of the important role that law students can and do play could inspire other law schools to start similar clinics. I look forward to hearing from commenters on this point as well. While most students who go through such a clinic may not end up representing investors in disputes after they graduate and pass the bar, some will. Do commenters agree that such clinics could help to increase the ranks of representatives for investors with disputes not only by explicitly recognizing that students can work on these matters, but by creating a pool of lawyers with relevant experience gained as students serving in these clinics?