More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
SEC Commissioner Luis Aguilar told state securities regulators Tuesday that he objects to predispute mandatory arbitration as it denies investors the right to choose between arbitration and the traditional judicial process “at the very beginning of their relationship with their brokers and advisors.”
“Investors also should have the unencumbered right to seek redress in all available forums,” noted Aguilar (left) in his prepared remarks at the North American Securities Administrators Association’s annual public policy conference in Washington. The session was closed to reporters.
“Almost all customer agreements with brokerage firms include an arbitration clause requiring customers to arbitrate their claims in an arbitration forum, and they’re now popping up in the investment advisory industry,” he said.
By adding such provisions, “brokerage and advisory firms are essentially requiring their clients to give up their legal rights before the client even knows about the nature of a dispute, and before the client has had the opportunity to consider whether giving up those rights would be in their interest.” Aguilar said the inclusion of such rules in contracts with brokers and advisors “diminishes investor protection.”
Aguilar went on to say that “a client’s right to go to court to recover monetary damages is an important right that should be preserved and kept in the client’s toolkit.”
A client’s right “to bring private actions under the Exchange Act is meaningful, and the client should not be required to waive—prematurely—their legal rights, including their rights to bring an action in federal or state court,” Aguilar said.
He then listed the following statistics. In fiscal year 2012, the SEC brought 147 investment advisor-related cases, roughly 20% of all enforcement cases, and accounted for the largest category of enforcement cases during that fiscal year. Of these enforcement cases, approximately 88 out of 147 cases, or 60%, involved allegations of fraud under the Exchange Act.
Similarly, Aguilar said, in fiscal year 2012, the SEC brought 134 broker-dealer cases. This is about 18% of all enforcement cases, and accounted for the second largest category of enforcement cases during that fiscal year. Out of these 134 broker-dealer enforcement cases, roughly 95 cases, or 71%, involved allegations of fraud under the Exchange Act.
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