financial advisors

Mandatory Arbitration Is Not A Fiduciary Practice

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Click here to watch a video and learn more about Evidence Based Advisor Marketing.

Q4 hedge fund letters, conference, scoops etc

financial advisors

Meditations / Pixabay

Here’s a communication I wish all advisors would send to their clients:

Dear [Client],

You may have read news reports that both Facebook and Google have ended the requirement for mandatory arbitration for sexual-harassment disputes. I believe the elimination of compelling employees to arbitrate these disputes is long overdue. I am writing to tell you about a change in our policy, which takes this development to another level.

Effective immediately, we will no longer require our employees or clients to arbitrate any disputes with us. Instead, we will give them and you the option to either arbitrate or pursue claims in court, before a jury, if you wish.

Here’s why I made this decision.

Arbitration favors repeat players

There’s a reason corporations and the securities industry have insisted on mandatory arbitration of disputes. It removes the uncertainty of a verdict by a jury and it’s often quicker and more cost-effective than court proceedings. It’s also a confidential proceeding, which may be beneficial to all parties.

But there’s a hidden rationale behind the requirement that employees and clients submit to mandatory arbitration. It favors “repeat players” – typically the company, not the complainant. It also makes any appeal from the decision of the arbitrator very difficult, giving the arbitrator(s) extremely broad authority.

Arbitrators have a strong economic interest in perpetuating arbitration of disputes.

For them, being selected to decide a dispute has many perks. The pay is often good. The honor and power of serving as a “judge” is difficult to overstate.

While most arbitrators are fair and impartial, they understand that if they get a reputation for ruling against “repeat players,” their chance of serving on future panels will be diminished.

An employee or client of a broker is rarely a “repeat player.” Consequently, it should be the choice of our employees and clients to have disputes resolved in arbitration or in court.

Conflicts of interest

It’s a conflict of interest to insist on arbitration of disputes with our clients. As registered investment advisors, we are required to avoid conflicts where possible, to fully disclose any that exist and to always act in your best interest.

Because we adhere to these principles, we rarely have disputes with our clients. However, in the rare instance when we do, I no longer believe it’s right for us to insist on a forum for dispute resolution that puts you at a disadvantage.

We don’t just “talk the talk” about doing right by our clients. We “walk the walk.” That’s why I am changing our policy, effective immediately.

Read the full article here by Dan Solin, Advisor Perspectives

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted & limited time offer for being a sophisticated and loyal reader.

ValueWalkPremium is a website and newsletter on the latest industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 3/31/2020 or after the next 45 subscribers take advantage whichever comes first – please do not share this discount with others