More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Anti-Fraud Provisions of the Investment Advisers Act RIAs and IARs should view themselves as fiduciaries at all times, whether they meet the legal definition or not. Deviating from the fiduciary standard of full disclosure while courting clients may cause the advisor significant problems.
State securities regulators are throwing their support behind FINRA in its battle to overturn a decision by the self-regulator’s hearing panel that allowed Charles Schwab & Company to prevent its customers from participating in class-action lawsuits.
The North American Securities Administrators Association (NASAA) on Wednesday filed an amicus brief with FINRA’s National Adjudicatory Council (NAC), the national committee that reviews initial decisions rendered in FINRA disciplinary and membership proceedings, supporting FINRA’s efforts.
“Charles Schwab’s attempt to unilaterally alter its account agreements to include the class-action waiver is an obvious attempt by the firm to insulate itself from liability to its own clients,” said Heath Abshure (right), NASAA president and Arkansas securities commissioner, in a statement. “This ruling would essentially allow broker-dealers to prohibit participation in class actions against them by their customers. That’s wrong on the merits and bad public policy.”
The Public Investors Arbitration Bar Association (PIABA), AARP, the National Consumer Law Center and Public Justice also filed similar amicus briefs the same day supporting FINRA’s efforts to overturn the hearing panel’s decision.
NASAA argued that the FINRA hearing panel erred by refusing to enforce FINRA rules prohibiting the use of class-action waivers in customer agreements. “In doing so, the hearing panel ignored FINRA’s statutorily duty to enforce the organization’s rules, relied on an erroneous application of the Federal Arbitration Act, and placed investors in imminent harm by precluding their ability to seek redress for small dollar claims,” NASAA’s brief said.
“Our interest in this case stems from our strong belief that investors should be free to join with other investors through the representative class action process to resolve claims that are too costly to bring independently,” Abshure said. “The hearing panel’s decision deprives investors of this choice through an erroneous application of the Federal Arbitration Act and should therefore be reversed.”
NASAA also told Securities and Exchange Commission Chairwoman Mary Jo White in a May 3 letter to use the authority granted to the agency in Section 921 of the Dodd-Frank Act to prohibit or impose limits on the use of mandatory arbitration clauses in broker-dealer and investment advisor customer contracts.
In the letter, Abshure wrote that “it is essential” for the SEC to act given the recent decision by Schwab to expand its forced arbitration contracts to require that investors waive their right to participate in class actions.
Read Is Schwab’s Arbitration Win Really a Loss? by Bob Clark on AdvisorOne.