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February 5, 2024

Investor Protection Advocates Call on SEC to Ban Mandatory Pre-Dispute Arbitration Clauses

WASHINGTON, D.C.—Brady Williams, Better Markets Legal Counsel, issued the following statement after 17 investor consumer advocacy organizations submitted a letter, organized by Public Citizen and Better Markets, urging the SEC to issue a rule banning the use of mandatory pre-dispute arbitration clauses in broker-dealer and investment adviser contracts.

“Our letter calls upon the SEC to use the authority Congress gave it back in 2010 to finally put a stop to the use of contract clauses that force investors out of court and into arbitration.  For decades, broker-dealers and investment advisers have tucked fine-print language into their client contracts that force investors with claims against them into biased, secretive, and often costly arbitration proceedings. Over the years, investors subjected to even the most egregious violations of law have been left with little or no recovery at the hands of arbitration panels.  As a result, the brokers and advisers who have exploited their clients have enjoyed a de facto immunity.

“Mandatory pre-dispute arbitration agreements are pervasive in the financial services industry, yet investors either don’t see these clauses, don’t understand them, or are powerless to object if they want help with their investments.  If a dispute arises, the arbitration forums often chosen by firms—especially investment advisers—can harm investors in many ways, subjecting them to industry-biased panels, charging exorbitant filing and hearing fees, and imposing limits on the types of recovery that are available.  And under the law governing arbitration, investors have no right of meaningful appeal, no matter how badly the arbitration panel may have ignored or misapplied the law.  While arbitration in a fair forum and under fair rules can at times be useful for investors, especially those with small claims, it should be a matter of investor choice, not forced upon them before any dispute arises.

“The bottom line is that these harmful contract provisions should be banned, and the SEC has the power to do just that under the Dodd-Frank Act.  The time is right, as the SEC is also being urged to shine a light on the especially deplorable use of mandatory arbitration clauses by investment advisers.  We call on the SEC to exercise its long-dormant authority to better protect the countless American investors who are currently being forced to resolve disputes regarding the investment of their hard-earned money—often representing their retirement nest eggs—in an unfair arbitration system that is stacked against them.”

The full joint letter, led by Better Markets and Public Citizen and signed by 15 other prominent public interest organizations, is available here.


Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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