In light of the absence of SEC action on topic, Rep. Keith Ellison, D-Minn., a member of the House Financial Services Committee, has introduced the Investors Choice Act of 2013. It would prohibit firms from including mandatory arbitration in broker and investment adviser agreements.
“Investors want to get back in the market, but they’re rightly wary that the game is rigged against them,” Rep. Ellison said, “The Investor Choice Act helps level the playing field. Investors shouldn’t have to sign away their rights in order to work with a financial advisor or broker dealer to build a secure retirement. By removing some of the unfair advantages, consumers will be more eager to invest, which will create jobs and strengthen our economy.”
Not surprisingly, the legislation has won the support of the North American Securities Administrators Association (NASAA). Whether it will garner the support of the House Financial Services Committee is far less certain.
As discussed in a prior post, the controversy over mandatory arbitration agreements heated up in the wake of a recent FINRA enforcement action against Charles Schwab, in which FINRA claimed that its rules prohibit class-action waivers by brokerage and investment banking firms. Schwab has a mandatory class-action waiver in its contracts., In the Schwab action, an arbitration panel had dismissed part of the complaint, ruling that while Schwab’s contract did in fact violate FINRA rules, FINRA may not enforce them because they are in conflict with the Federal Arbitration Act.
Mr. Ellison does have a point. Let’s see where the Investor Choice Act goes. I’ll keep you posted.
As always, if you have questions or comments, please call, e-mail or tweet me @Bettina Eckerle.
Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz. She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.