Regulator wants SEC to consider banning pre-dispute agreements

Massachusetts' top securities cop says clients of RIAs shouldn't be precluded from going to court

Feb 12, 2013 @ 4:23 pm

By Dan Jamieson

Massachusetts' top securities regulator is concerned about RIAs' using pre-dispute arbitration agreements with clients.

In a letter sent today to the Securities and Exchange Commission, Massachusetts Secretary of the Commonwealth William Galvin urged the agency to consider banning the use of such agreements by registered investment advisers.

“At a minimum, the commission should commence a study of the issues raised by these provisions,” he wrote. “It is my opinion that they are inconsistent with the fiduciary duty that investment advisers owe to their clients.”

In an interview, Mr. Galvin said he is worried that advisers increasingly may be using pre-dispute arbitration agreements to the detriment of their clients.

His concern is based on an adviser survey conducted last month by the Massachusetts Securities Division. The state found that 45.5% of 323 responding firms use pre-dispute agreements, and of those, 65% designate a particular arbitrator or forum.

Of this latter group, 60% designate the American Arbitration Association as the forum, and 15% the Financial Industry Regulatory Authority Inc.

Most broker-dealers have long required pre-dispute agreements with customers.

“There's a distinction” between brokers and advisers, Mr. Galvin told InvestmentNews. “There tends to be a very personal relationship between an investment adviser and clients, and the facts [in a dispute] are very important” and tend to “turn on statements made. So an investor shouldn't be precluded from court.”

In an e-mail, SEC spokesman John Nester wrote: “We look forward to receiving the letter and hearing [Mr. Galvin's] views.”

In November, Finra opened up its arbitration system to RIAs and their clients, but only if both parties signed an agreement to arbitrate after a dispute arose.

Any pre-dispute agreements RIAs use have “no relevance to the Finra forum,” said Finra spokeswoman Michelle Ong in in email.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

What's the first thing advisers should do when they get home from a conference?

After attending a financial services conference, advisers can be overwhelmed by options, choices and tools. What's the first thing they should do when they get back to their office?

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

Galvin charges Scottrade with DOL fiduciary rule violations

Action of Massachusetts' top regulator shows states can put teeth into a rule under review by the Trump administration.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print