Such provisions, without client informed consent, demonstrate “the adviser is placing its interests ahead of the client’s interests in violation of the fiduciary duty,” she added.
Firvida said the agency needs to continue to study the affects of mandatory arbitration clauses on clients and zero in on the frequency of unpaid arbitration awards among SEC-registered advisors.
“This is a big, first step from the Office of the Investor Advocate because they’ve recognized that forced arbitration is a real problem for investors,” said Michael Edmiston, an attorney and past president of the Public Investors Advocate Bar Association, who has made it his mission to spearhead forced arbitration reform.
“At this point, it’s a decision for [SEC] Commissioner [Gary] Gensler as well as other SEC commissioners on how they want to implement a suspension,” Edmiston said.
While it’s “easy” to suspend the enforcement of the clauses going forward, “the better question is what happens to cases that are pending in arbitration forums. Could these clients escape and go to court? Could RIAs try to force their way out of arbitration to buy more time? These are strategic decisions that will take time to think and work through,” he added.
Edmiston said one option would be to have the SEC oversee the arbitration process.
"Some cases are better in arbitration and some in court," he said. "Ultimately, my position is it should be left to the investor [to decide].”