Resolving Investor Disputes: A Call for Change

Investors who find themselves in disagreements with their financial advisors often face an opaque and costly resolution process. Recognizing this issue, Piaba (Public Investors Advocate Bar Association), a group of influential attorneys representing investors, has launched an advocacy campaign to bring about much-needed change.

The catalyst for Piaba’s campaign was a recent report by the Securities and Exchange Commission (SEC). In the report, the SEC highlighted various concerns regarding the advisor arbitration process, one of which is the absence of a reliable and comprehensive public record of client complaints.

It is common for advisor service agreements to include mandatory arbitration clauses that define the terms under which disputes are brought forward for resolution.

However, unlike the brokerage sector, where arbitration disputes are resolved within a single forum overseen by the industry self-regulatory organization Finra, advisor arbitration proceedings often end up in private forums such as the American Arbitration Association or Jams. In these forums, arbitrators can charge exorbitant daily fees, sometimes reaching up to $8,000.

When multiple arbiters are involved in a several-day proceeding, the resulting fees easily add up to tens or hundreds of thousands of dollars. This high cost makes pursuing a complaint prohibitive for many investors.

Hugh Berkson, President of Piaba, highlighted that many investors are unaware of the presence of arbitration clauses in their agreements. They are then shocked to discover that these clauses effectively prevent them from bringing any claims against their advisors. Berkson voiced these concerns during an online meeting with reporters.

Even if an investor succeeds in their dispute, Berkson explained that arbiters commonly split the fees evenly between the parties involved. Therefore, even in the best-case scenario for the client, thousands of dollars in arbitration fees may still be incurred.

Piaba’s advocacy campaign seeks to address these issues and shed light on the need for a more accessible and equitable resolution process for investor disputes. Through their efforts, they aim to bring about positive change in the financial industry, ensuring that investors have a fair chance at seeking justice when harmed by their advisors.

Advocate for Fairness in Advisor Arbitration

Joe Peiffer, president-elect of Piaba, is dedicated to making advocacy on advisor arbitration a central issue during his tenure heading the group. The Securities and Exchange Commission (SEC) recently produced a report that outlined many faults in the arbitration system but failed to provide recommendations for reform.

Peiffer believes that the SEC should take action by implementing rules that would bring transparency to the system. He proposes the creation of a database to log each complaint, similar to the system used by Finra for broker disputes. Additionally, Peiffer calls for stronger protections and rights for investors, including prohibiting clauses in service agreements that prevent clients from pursuing class-action litigation.

In terms of the proceedings themselves, Peiffer aims to make it more accessible for clients to pursue complaints. He suggests that the hearing should be held closer to where they reside rather than being based on the location of the Registered Investment Advisor (RIA). Furthermore, he advocates for reining in excessive fees.

Peiffer draws attention to the irony of RIA fiduciaries being allowed to treat their aggrieved customers worse than brokers who claim they are not fiduciaries. He highlights the need for change and emphasizes that fairness should not be a partisan issue. If Piaba and other allied groups fail to convince the SEC to overhaul the process, Peiffer intends to lobby Congress for legislation.

“We are determined to fight until we achieve fairness on this issue,” Peiffer stated.

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