The primary Massachusetts securities regulator has petitioned the SEC to study and abolish mandatory pre-dispute arbitration clauses in investment advisory contracts.  The Secretary of the Commonwealth, William Galvin, believes that arbitration clauses are inconsistent with an investment adviser’s fiduciary duty and that use of mandatory pre-dispute arbitration clauses is “troubling and a cause for regulatory concern.”  The Dodd-Frank Act gives the SEC authority to regulate pre-dispute arbitration clauses.  

OUR TAKE: Without arbitration, which is privately funded, all disputes would head to costly litigation, which is funded by taxpayers.  Moreover, there is an argument that arbitration actually benefits small clients who could not afford hiring lawyers to engage in civil litigation.   Whether or not this petition will carry weight in Washington, advisers doing business in Massachusetts may be affected by Galvin’s position.