Arbitration Agreements by Investment Advisers Receiving Criticism - At Least in One State

This week William Galvin, Massachusetts Secretary of the Commonwealth, sent a letter to the Securities and Exchange Commission (“SEC”) urging them to disallow the use of arbitration agreementsby registered investment advisers.  Such agreements are common in contracts between investment advisers and their clients, and typically specify such items as the process of arbitration, what governing body will administer the arbitration proceedings, and the jurisdiction in which arguments will be heard. 

According to Mr. Galvin’s letter, the use of such agreements is “inconsistent with the fiduciary duty that investment advisers owe to their clients,” and the SEC should “commence a study of the issues raised by these provisions.”  Whether or not the SEC will take action remains to be seen.  In an e-mail, SEC spokesman John Nester wrote: “We look forward to receiving the letter and hearing [Mr. Galvin's] views.”  JLG will continue to monitor any developments made in this area.

For further information on this, or other related topics, please contact us at [email protected] or (619)298-2880.

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