The Securities and Exchange Commission has approved new Financial Industry Regulatory Authority rules that prevent mutual fund and hedge fund industry personnel from serving as public arbitrators, effective July 1.

FINRA's new rules respond to concerns raised by investors about the neutrality of these personnel, according to the agency. Additionally, excluded hedge fund and mutual fund personnel must disassociate from their employers for at least two years before qualifying to serve as public arbitrators.

Other excluded persons include investment advisors, attorneys who work in the securities industry, and directors and officers of firms in the securities industry.

According to its website, FINRA maintains a roster of more than 6,000 arbitrators. FINRA has two classifications of arbitrators: public and non-public. Public arbitrators are select individuals who are not required to have knowledge of the securities industry while non-public arbitrators have a more extensive securities industry background.

For claims of $100,000 or less, FINRA appoints a public arbitrator. Claims of more than $100,000 or for unspecified or non-monetary amounts are presided over by two public arbitrators and one non-public arbitrator. However, investors have the option of choosing an all-public arbitrator panel.

"We couldn't disagree more with this approach," according to Todd Cipperman, principal of Cipperman Compliance Services, which provides compliance services to funds and registered advisors.

"Why would FINRA want to exclude professionals that actually know something about the securities industry? Is this plaintiff's argument about perceived neutrality actually supported by any empirical evidence?"

Michelle Ong, a spokesperson for FINRA, said FINRA maintains that the rule amendment responds to the concerns raised by investor representatives and is a positive step toward enhancing investor's perception of fairness at the forum.

"FINRA intends to conduct a comprehensive review under the auspices of the National Arbitration and Mediation Committee of both the public and non-public arbitrator definitions with a view toward clarifying the definitions," she said. Empirical evidence? No comment.