SEC Urged to Reform Mandatory Arbitration
The U.S. Securities and Exchange Commission (SEC) is being pressed by the chief securities regulator for Massachusetts to eliminate the mandatory arbitration clause in contracts between registered investment advisers and their customers.
Under the clause a client can’t sue an advisor over investment losses or other damages but must submit all disputes to binding arbitration.
In a letter sent to the SEC, William F. Galvin, Secretary of the Commonwealth of Massachusetts, told the commission that the frequent use of pre-dispute arbitration clauses is troubling.
The letter said that according to research conducted by the Massachusetts Securities Division, nearly half of investment advisors it surveyed said they included a mandatory pre-dispute arbitration clause in their advisory contracts with customers.
Galvin wrote that requiring the clause was inconsistent with the duty of advisers to act in the best interests of their clients.