According to PIABA President Michael Edmiston, when an RIA intentionally names an expensive private dispute resolution provider in an arbitration agreement “to act as a shield against client claims, that is the RIA putting its interests ahead of its client. That is a breach of the RIA's fiduciary duty.
“An RIA should have the courage to disclose the client's share of cost of an arbitration may range between $20,000 and $40,000. The duty to disclose extends to the RIA's efforts to inappropriately shield itself from claims. The fiduciary obligations owed by an RIA to a client remain in good times and bad,” Edmiston said.
If an RIA names an expensive dispute resolution provider, uses an “illegal hedge clause to limit claims and damages” and picks a hearing location far from the investors' residence, the RIA is acting solely in the best interest of the RIA, Edmiston added.
Right now, no regulator compiles or analyzes RIA arbitration statistics. To combat that, the coalition urged the SEC to compile public data, track investor complaints and their outcomes and create a uniform disclosure to be used regarding RIA arbitration clauses.
“This lack of transparency is particularly troubling in the context of recent trends in the securities industry, which show mass migration of assets from Finra-registered broker-dealers to SEC- and state-registered RIAs,” the coalition wrote.
Gensler has said in congressional hearings he supports limiting the use of forced arbitration by broker-dealers. The SEC did not respond to a request for comment on the coalition’s push for an SEC investigation.