SEC’s Aguilar: Predispute Mandatory Arbitration Denies Investors’ Rights

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.”