Legislation introduced to the House last week could stop brokers and advisers from requiring investors to take claims to arbitration rather than court. Nearly all brokerage and a large amount of advisory agreements include provisions limiting investors into arbitration.
Written by Rep. Keith Ellison, D-Minn., the bill bans pre-dispute mandatory arbitration clauses in contracts between advisers and clients. The legislation also prohibits any restrictions on investors filing class action suits.
“Working Americans shouldn’t have to sign away their rights in order to work with a financial adviser or broker-dealer to build a secure retirement,” Mr. Ellison, a member of the House Financial Services Committee, said in a statement. “An investor’s right to recover monetary damages through legal action is critical. Working Americans will be more eager to invest their hard-earned dollars when we give them more rights in the financial marketplace.”
In 2013, Mr. Ellison submitted a similar bill. It failed to get a hearing in the House Financial Services Committee, which is controlled by Republicans. It died at the end of the congressional session last December and had to be reintroduced to the new Congress.
Republicans’ strengthened House majority and their Senate majority pose an even bigger challenge for Mr. Ellison’s legislation this time, but state regulators are not discouraged.
“State securities regulators believe that investor confidence in fair and equitable recourse is critical to the health of our securities markets and long-term investments by retail investors,” the North American Securities Administrators Association said in the legislative agenda it released Feb. 23.