National investment loss law firm KlaymanToskes is investigating growing concerns surrounding Registered Investment Advisers (RIAs) and their use of mandatory arbitration clauses in client agreements. We believe that these clauses, which often include restrictive terms like “hedge” clauses that limit investor recovery, may violate an RIA’s fiduciary duty to act in their clients’ best interests.
Recent discussions, including a panel hosted by the Securities and Exchange Commission’s (“SEC”) Office of Investor Advocate, have highlighted how RIAs use mandatory arbitration agreements in ways that undermine investor rights. Unlike broker-dealers, who must report arbitration cases to FINRA and whose arbitration outcomes are publicly accessible, RIAs operate under less stringent disclosure requirements, leaving investors with little transparency about disputes involving their financial advisor.
RIAs often include hedge clauses in arbitration agreements to limit liability. These clauses can effectively shield RIAs from damages claims, even when they act against their clients’ best interests. Such provisions have come under scrutiny, with SEC enforcement actions targeting firms using overly restrictive clauses. The SEC has the authority under the Dodd-Frank Act to restrict the use of mandatory arbitration clauses when disputes involve federal securities laws, a step that could strengthen investor protections.
Another troubling aspect of RIA arbitration is its high cost compared to FINRA’s arbitration process. According to securities attorney Lawrence L. Klayman, arbitration forums used by RIAs often charge exorbitant fees when compared to FINRA’s standardized process. These costs, combined with the lack of publicly accessible arbitration outcomes, make it difficult for investors to seek justice.
Unlike FINRA arbitrations, which are publicly documented and appear on brokers’ BrokerCheck records, disputes involving RIAs are often handled in private forums. This lack of transparency leaves investors unaware of prior complaints or arbitration decisions involving their financial advisor, further compounding the imbalance of power.
Investors who have been harmed by RIAs using restrictive arbitration clauses have options for seeking justice. At KlaymanToskes, we specialize in representing investors who have suffered financial losses due to breaches of fiduciary duty, unsuitable investment advice, and other securities violations. Our firm is committed to helping clients navigate the complexities of arbitration and recover their losses.
Contact KlaymanToskes at 888-997-9956 or fill out a short contact form for a free and confidential consultation to discuss your potential recovery options.
KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm has recovered over $250 million in FINRA arbitrations and over $350 million in other securities litigation matters. KlaymanToskes has office locations in California, Florida, New York, and Puerto Rico.
KlaymanToskes, P.A.
Lawrence L. Klayman, Esq.
888-997-9956
investigations@klaymantoskes.com
www.klaymantoskes.com