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Association lobbies SEC to eliminate forced arbitration by RIAs

On Behalf of | Feb 2, 2022 | Financial News

An organization of securities arbitration attorneys is pushing for changes in the RIA industry aimed at reducing the costs of arbitration for investors, reports Financial Advisor.

The Public Investors Advocate Bar Association, whose members represent investors in disputes with the securities industry, says it is discussing the issue with the Securities and Exchange Commission.

According to the PIABA, RIAs often require clients to file arbitration claims with privately run dispute resolution forums such as the American Arbitration Association or JAMS, where arbitrators set their own fees. Brokerage firms are required to designate FINRA as the arbitration forum for disputes, and FINRA firms subsidize the bulk of the arbitration costs.

PIABA President Michael Edmiston said his group is now seeking to prohibit RIAs from using forced arbitration clauses in their account agreements. Another proposal, he said, would be requiring RIAs to pay most of the costs of the forum they have designated in their arbitration clause.

Edmiston said an investor would have to put up over $30,000 in upfront fees for a private arbitration forum for a claim against an RIA, as opposed to $2,300 for a FINRA arbitration forum. The PIABA says the costs of pursuing an arbitration claim against an RIA have become prohibitive for many individual investors.

The PIABA said it is lobbying both the SEC and the North American Securities Administrators Association regarding the issue.

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