The IAA Favors Banning Mandatory Arbitration
Written by Mark J. Astarita, Esq. on Thursday, October 01, 2009I am constantly amazed at the positions people take on issues when they haven't thought the entire issue through. The Investment Adviser Association, a trade association of investment advisers, supports the Obama's administration's efforts to ban mandatory arbitration clauses in securities contracts.
That is an easy position to take when it doesn't affect you, and when it damages your competitors. Arbitration clauses are so widespread in customer agreements because the government forces broker-dealers and individual brokers to arbitrate their disputes with customers. In order to level the playing field, firms started including arbitration agreements in their customer agreements, so that they had the ability to force a customer to arbitration.
Of course, the government does not force investment advisers to arbitrate their disputes with their customers; yet.
If pre-dispute arbitration clauses are banned, there will be no impact on the members of the IAA - no one will be able to force them to arbitrate a claim, since there is no rule that requires them to do so; yet. However, banning pre-dispute arbitration clauses, without addressing the government-forced arbitration clause for brokers, creates a one way street - customers can force brokers to arbitrate, but brokers cannot force customers to arbitrate.
How is that fair, just, or equitable? Clearly it is not.
The IAA thinks it is a good idea to ban such agreements and to create a one way arbitration agreement for their competitors? I'll be here to remind them of this position when the government combines the regulations for advisers and brokers, and forces investment advisers to arbitrate their disputes, as they currently force brokers and broker-dealers to arbitrate.
If arbitration is unfair, then let's ban it. It if is unfair then the rule should be that no one can be forced to arbitrate a dispute before it arises. Ban pre-dispute arbitration agreements, and ban agency rules which force over 650,000 employees to arbitrate their disputes with their employers and their customers.
The Investment News article on the IAA position is here.
That is an easy position to take when it doesn't affect you, and when it damages your competitors. Arbitration clauses are so widespread in customer agreements because the government forces broker-dealers and individual brokers to arbitrate their disputes with customers. In order to level the playing field, firms started including arbitration agreements in their customer agreements, so that they had the ability to force a customer to arbitration.
Of course, the government does not force investment advisers to arbitrate their disputes with their customers; yet.
If pre-dispute arbitration clauses are banned, there will be no impact on the members of the IAA - no one will be able to force them to arbitrate a claim, since there is no rule that requires them to do so; yet. However, banning pre-dispute arbitration clauses, without addressing the government-forced arbitration clause for brokers, creates a one way street - customers can force brokers to arbitrate, but brokers cannot force customers to arbitrate.
How is that fair, just, or equitable? Clearly it is not.
The IAA thinks it is a good idea to ban such agreements and to create a one way arbitration agreement for their competitors? I'll be here to remind them of this position when the government combines the regulations for advisers and brokers, and forces investment advisers to arbitrate their disputes, as they currently force brokers and broker-dealers to arbitrate.
If arbitration is unfair, then let's ban it. It if is unfair then the rule should be that no one can be forced to arbitrate a dispute before it arises. Ban pre-dispute arbitration agreements, and ban agency rules which force over 650,000 employees to arbitrate their disputes with their employers and their customers.
The Investment News article on the IAA position is here.
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2 comments: Responses to “ The IAA Favors Banning Mandatory Arbitration ”
By Marty Gofberg on Friday, 02 October, 2009
I never quite understood the rationale behind not requiring RIA's to be bound by Pre-dispute arbitration agreements especially when having such unfettered discretion to the clients funds, usually without any oversight by any compliance department (by small or solo RIA's utilizing custodial accounts at brokerage firms)...more egregious when the RIA has had a serious disciplinary record (forgery of clients signature for example) when in the past being a RR with the NASD/now FINRA, thus allowing the RIA to get away with any accountability whatsoever, unless the customer wishes to pursue years of protracted litigation to find out that the RIA personal assets have been shifted to wife or family members or to be threatened with the RIA declaring bankruptcy.I have seen this happen more than once in my career representing investors. Surely if the securities (SEC,IAA & SRO's) industry had any intention of investor protection they RIA's should be required to arbitrate in a forum accessible to the public investor.
By Mark J. Astarita, Esq. on Friday, 02 October, 2009
Government mandated arbitration is a troublesome, as are most government mandates things. The government should not be in the business of forcing people to give up legal rights - such as the right to have a judge decide a case, and to have that decision in a constitutionally sanctioned court.
I am a big fan of securities arbitration, I think it is the best dispute resolution forum available - considering the alternatives. But not everyone agrees and I don't think anyone should be forced to use that process. If someone wants to spent 3x the amount of money to go to court, they should be allowed to go to court. If they want to enter into an agreement to arbitrate before a dispute arises, they should be allowed to do that as well.