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SEC To End Mandatory Arbitration Clauses
Tuesday, 16 April 2013

SEC's Aguilar Calls for End to Mandatory Arbitration Clauses
Such clauses, which are standard in brokerage contracts and often included by registered investment advisers, require any client claim of losses to be settled in binding arbitration instead of the courts. "Investors should not have their option of choosing between arbitration and the traditional judicial process taken away from them at the very beginning of their relationship with their brokers and advisers," Securities and Exchange Commission member Luis Aguilar said in prepared remarks for the North American Securities Administrators Association's annual conference in Washington on Tuesday. "By providing investors with the ability to choose the forum in which to bring their legal claims and protect their legal rights, we enhance investor protection and add more teeth to our federal securities laws."

SEC's Aguilar Calls for End to Mandatory Arbitration Clauses

By CAITLIN NISH
A top U.S. securities regulator is calling for an end to the mandatory arbitration clause found in contracts between financial advisers and their clients.

Such clauses, which are standard in brokerage contracts and often included by registered investment advisers, require any client claim of losses to be settled in binding arbitration instead of the courts.

"Investors should not have their option of choosing between arbitration and the traditional judicial process taken away from them at the very beginning of their relationship with their brokers and advisers," Securities and Exchange Commission member Luis Aguilar said in prepared remarks for the North American Securities Administrators Association's annual conference in Washington on Tuesday.

[image]
Getty Images Luis Aguilar

"By providing investors with the ability to choose the forum in which to bring their legal claims and protect their legal rights, we enhance investor protection and add more teeth to our federal securities laws."

Mr. Aguilar said the 2010 Dodd-Frank Act authorizes the SEC to prohibit or restrict arbitration requirements for both broker-dealers and investment advisers, but the agency has yet to take action on the issue.

"I believe the commission needs to be proactive in this important area," Mr. Aguilar said.

His comments come just months after a similar call by a Massachusetts's securities regulator.

Secretary of the Commonwealth William F. Galvin in February sent the SEC a letter asking that it prohibit investment advisers from putting pre-dispute mandatory arbitration clauses in their contracts.

Mr. Galvin cited a survey of investment advisers registered in Massachusetts that found nearly half indicated they included the clause. "This practice is more widespread than many observers may have believed," he wrote.

Nasaa, an organization of state securities regulators, said at the time it will ask Congress to authorize the organization's members to ban the practice state-by-state.

Larger RIAs, or those managing $100 million or more in client assets, are overseen directly by the SEC. Smaller firms are policed by state regulators.

The Financial Industry Regulatory Authority is the regulator for brokers and oversees the arbitration forum they use. It recently began offering that service to RIAs as well. Most disputes involving RIAs are now arbitrated by the American Arbitration Association, or JAMS, another dispute-resolution provider.
http://online.wsj.com/article/SB10001424127887323346304578426861945661572.html

 

 
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