A bill known as The Investor Choice Act has been proposed in Congress in an effort to prohibit mandatory arbitration agreements in the financial industry, Financial Advisor reports.
The legislation, introduced by Rep. Bill Foster (D-Ill.) and Sen. Jeff Merkley (D-Ore.), would bar broker-dealers and advisors from mandating client arbitration through clauses in their contracts. It would also ban prohibitions on class action lawsuits in customer contracts in certain financial sectors. The lawmakers said investors are often forced to agree to these terms in order to receive services from broker-dealers or investment advisors.
“Individuals shouldn’t need to surrender their legal rights because they choose to work with a financial advisor or broker-dealer to plan for their retirement and invest their hard-earned money,” said Rep. Foster. “This legislation levels the playing field for consumers and prevents them from being victims of a rigged system that denies them fair legal recourse if they are wronged.
“Every consumer deserves a fair shot at justice when they’ve been wronged or taken advantage of by investors,” said Sen. Merkley. “But when an investment advisor or broker chooses the judge, pays the judge, and promises future business to the judge, it’s clear that the system meant to deliver that justice is rigged. It’s long past time we stand up for consumers.”
A report to Congress by the Securities and Exchange Commission last year found that the majority of registered investment advisors require that disputes go to mandatory arbitration. The SEC’s study concluded that about 61% of RIAs have mandatory arbitration clauses in their investment advisory agreements with clients. It said that these clauses have become more prevalent as the number of SEC-registered advisors and their clients have grown in the past decade.
The SEC found that mandatory arbitration clauses can potentially limit the ability of clients to pursue legal remedies in the event of a dispute and can discourage clients who may be seeking restitution.
The Investor Choice Act has been endorsed by the Public Investor Advocate Bar Association, Consumer Federation of America, Public Citizen, Americans for Financial Reform and the North American Securities Administrators Association.
Last week, seven investor protection advocacy groups announced that they had formed a coalition to pressure the SEC to end the mandatory arbitration agreements by RIAs.
At Hyman Cotter PC, our attorneys have handled hundreds of arbitrations before FINRA, , the Chicago Board Options Exchange, the Chicago Board of Trade, JAMS, the American Arbitration Association and other self-regulatory organizations nationwide. We have also appeared in courts throughout the United States in various types of securities-related matters. For more information about our arbitration and litigation services, please contact us at 312-291-4600 or through our online contact form.
