Massachusetts asks SEC to Address Investment Advisors’ Use of Mandatory Arbitration Clauses

In a letter to the U.S. Securities and Exchange Commission, Massachusetts Secretary William Galvin is asking the SEC to consider a ban on binding pre-dispute arbitration clauses in investor advisor contracts, citing a survey that found them prevalent in contracts between investment advisers and their clients. In the alternative, Galvin asks that the SEC undertake a study of issues raised by the prevalence of such clauses.

The letter follows the release on Monday of a survey performed by the Secretary’s office, in which 50 percent of the investment advisors who responded reported that they insert mandatory pre-dispute binding arbitration clauses in contracts with clients.

The Dodd-Frank Wall Street Reform Act, enacted in 2010, gave the SEC authority to address and even prohibit the use of such clauses if doing so would be in the public interest and protect investors.

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