The move may be hailed by investor groups, but other industry experts are criticizing the Securities and Exchange Commission's recent approval of a rule change that allows for the option of all-public panels in FINRA arbitrations.

The decision comes after FINRA petitioned the SEC for the change in October. Prior to the ruling, FINRA arbitration panels were traditionally made up of three individuals: two public arbitrators and one arbitrator related to the securities industry.

"This change will give investors an additional choice in selecting their arbitrators when they file claims," Richard Ketchum, FINRA chairman and chief executive, said in a statement. "We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process."

Under the new process, FINRA will send three lists to parties in an arbitration dispute. The lists include one with 10 chair-qualified, public arbitrators; another with 10 public arbitrators; and a third with 10 non-public arbitrators. Each represented party in the dispute has the right to strike up to four parties on the chair-qualified public and public arbitrator lists. The new option also allows each separately represented party in an arbitration the ability to strike up to all 10 arbitrators on the non-public arbitrator list. In this instance, FINRA will not appoint a non-public arbitrator.

The new rules, which are set to go into effect immediately for cases where a list of potential arbitrators has not yet been sent, has draw mixed reviews.

Alan Foxman, an attorney who worked in FINRA's arbitration department for eight years, and a regular contributor to On Wall Street Magazine, said that the new process might not have an impact on the decisions, but could increase costs.

"Honestly, I think it's probably going to be more of a perception issue than have a real substantive effect on how many cases the firms or the reps win, versus how many public customers win," Foxman said. The decision, he added, will place more pressure on both sides of an arbitration to use expert witnesses, rather than rely on the expertise of an industry panelist. Paying such experts could result in higher costs, which could ultimately offset the advantage of not proceeding in a courtroom, he said.

"I think that it may increase slightly the costs to all parties involved," Foxman said.

The SEC's approval of the new process was great news to Brian Smiley, a partner at Smiley Bishop & Porter LLP, a law firm that specializes in securities arbitration. "As a lawyer representing investors, I worry that a lot of the claims that are being brought by investors challenge industry-wide practices," such as auction-rate securities or variable annuities, Smiley said. "Without the rule, you end up with arbitrators having to decide these cases that come from firms that engage in the same practices," he said.

Peter Mougey, president of Public Investors Arbitration Bar Association called the all-public panel option a step in the right direction toward possibly allowing investors to choose between quasi-judicial forums, such as FINRA, and judicial forums such as state and federal courts.

"There's no mechanism for sharing within FINRA arbitration as there is in state and federal court," Mougey said, noting the lack of transparency in some FINRA arbitration cases.

Yet, for Rick Rummage, president of the Rummage Group, a recruiting firm for financial advisors, the new all-public panel option only makes an already tainted process worse.

Rummage argued that just bringing a case against an advisor could damage their business and income, and some of those cases are not justified. He recalled when, in his former brokerage practice, a client took a $70,000 hit to his investments due to market conditions and brought a case against him. But the client did not realize that his fund's performance was actually up about 12% a year over a five-year period.

Not having an expert on a panel only hurts advisors more, Rummage said. "Lately, it's just one of those situations where, if you're in the brokerage or banking industry, you're bad," he said. "But the truth is, the vast majority of financial advisors are very good, very honest."

FINRA conducted a 27-month pilot program that gave investors the option for an all-public panel. In that program, investors chose the all-public option almost 60% of the time. There were 14 firms that voluntarily participated in the pilot program.