Galvin To SEC: Act On Investment Adviser Contracts
Secretary of the Commonwealth William Galvin, whose office regulates the sale of securities in Massachusetts, is urging the federal Securities and Exchange Commission to consider a ban on arbitration clauses in investment adviser contracts.
The state’s securities division recently surveyed the 710 investment advisers registered in Massachusetts. The survey revealed that more than half include binding pre-dispute clauses in their contracts with clients.
“Such widespread use of mandatory pre-dispute clauses in advisory contracts is troubling and a cause for concern,” Galvin wrote in a letter to SEC commissioners. “While arbitration may be appropriate in some cases, a clause binding an investor to arbitration before the circumstances are known may not be in the client’s best interest nor consistent with an investment adviser’s fiduciary duty.”
The 2010 Dodd-Frank Act authorized the SEC to reform or prohibit the arbitration requirements, Galvin noted.
Galvin’s office is overseeing a wider pool of investment advisers and brokers these days as a result of the law because it raised the threshold of total assets firms must have to remain under federal regulation. That resulted in nearly 200 firms being required to register with Massachusetts regulators last year.
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