RIA Arbitration Attorneys
RIA Arbitration Team Lead
Former DOJ Trial Attorney
Contact John directlyRegistered investment advisors, or RIAs, face legal threats all the time. Many of them can get funneled into arbitration. Just because the disputes are arbitrated rather than litigated, though, does not mean that they are trivial. Losing a case in arbitration can still lead to substantial penalties for an RIA firm or an individual investment advisor.
The RIA lawyers at the national law firm Oberheiden P.C. have extensive experience as securities litigation attorneys, and have defended numerous regulated securities professionals, including RIA firms and investment consultants, from allegations of wrongdoing and securities fraud. They know that arbitration can be the first step in a long legal process. Winning authoritatively in arbitration can put out the fire because it grows too big to contain.
RIAs Can Require Arbitration in Their Client Contracts
There are several differences between a registered investment advisor (RIA) and traditional broker-dealers. RIAs provide individualized consulting about how to best invest assets for a given financial goal, while broker-dealers actually make the securities transactions. Broker-dealers generally have to register with the Financial Industry Regulatory Authority (FINRA), while RIAs typically have to register with the U.S. Securities and Exchange Commission (SEC) or with state regulators.
That difference in registration carries great significance for how these two occupations can manage their dispute resolution processes. FINRA requires that their regulated professionals use FINRA’s dispute resolution forum if an investor asks for it, and forbids certain limitations on the process, such as a waiver of class action rights or a specification of where the hearing will take place.
RIAs are not subject to these rules because they are not members of FINRA. This means they can include arbitration provisions in their client contracts and dictate the terms of the process. While there has been some pushback on these practices, and while the Dodd-Frank Act expressly allows the SEC to impose certain limitations on them (15 U.S.C. § 78o(o)), a skilled RIA compliance professional can craft arbitration provisions that follows the letter and the spirit of the law while still protecting RIAs from dangerous legal threats.
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Common RIA Arbitration Provisions
Being able to control the dispute resolution process is essential for RIA stakeholders that want to insulate their firm from legal predicaments and minimize the costs of fighting off baseless allegations of misconduct. A few of the common provisions that RIAs include in their customer contracts regarding arbitration include:
- Mandating arbitration of disputes
- Requiring the client to waive their ability to join a class action
- Choosing which arbitration forum will be used
- Selecting an arbitration firm to hear the case
- Setting the location for the hearing, generally in the jurisdiction where the RIA has its principal place of business
Each of these tools and provisions can drastically increase the benefits of arbitration.
Benefits of RIA Arbitration
For the RIA firm and its stakeholders, mandating arbitration of customer disputes and stipulating how the process will work has numerous benefits. For example, arbitration can:
- Provide an additional impetus for the firm and the disgruntled customer to resolve their dispute outside of a courtroom
- Reduce the costs of resolving the dispute by avoiding all of the court fees and the costs of hiring a securities litigation defense lawyer
- Avoid the negative publicity that can come with defending the allegations in court, where the process is done in the public’s eye
- Ensure that the evidence in the case is not made public
- Add a step to the dispute resolution process, which can deter vengeful customers from filing knowingly frivolous and baseless claims that are meant to do nothing more than damage the RIA’s reputation
First and foremost, though, arbitration is a cost-saving technique. Litigation is expensive. Arbitration can effectively resolve most of the claims that would have gone through litigation, at a fraction of the cost to the RIA firm.
Parties That Often File Claims Against RIAs
Numerous different parties can file claims of misconduct or securities fraud against RIAs and the investment consultants that work for them, including:
- Clients and customers
- Investors
- Securities issuers
- Whistleblowers
- FINRA investigators
- SEC regulators
Importantly, arbitration provisions generally only apply to the RIA’s clients and customers. This means they are not a completely effective bar to litigation. They will not impact claims filed by people who did not sign a client contract. If the SEC discovers signs of securities misconduct, for example, it can pursue its claims in whatever forum it chooses.
While they are not a perfect insulation to legal threats against the RIA, arbitration provisions are still a very effective and popular tool to use.
Legal Allegations that RIAs Can Face
Like other securities professionals and brokerage firms, RIAs can be the target of a wide variety of allegations, including:
- Breach of contract
- Charging excessive fees or using deceptive fee structures
- Market manipulation
- Conspiracy, such as by conspiring with a broker-dealer to churn client accounts to share the benefits of the resulting increase in transaction fees
- Breaching fiduciary duty to a client
- Omitting or misrepresenting material information
- Other types of securities fraud
When there is evidence of an intent to defraud investors, these allegations can be pursued through criminal charges. If convicted, individual RIAs can face prison time and staggering criminal fines.
The Importance of Making a Vigorous Defense in Arbitration
Getting customer complaints and disputes like these into arbitration is just the first step in the process, though. RIAs still have to successfully defend against those claims before the arbitrator. While consumer and investor advocates claim that the RIA’s ability to choose the forum means that the outcome is a foregone conclusion, that is far from the case. Arbitrators rely on their reputation for impartiality and resolving claims justly.
Presenting an effective defense in arbitration is essential, especially when RIA firms use client contracts that explicitly state that the arbitrator’s findings will be final and binding. If the RIA does not take its defense at this stage seriously and the arbitrator rules in favor of the claimant, overturning that resolution will be extremely difficult to do.
Frequently Asked Questions About RIA Arbitration and How Oberheiden P.C. Can Help Your Firm
Is There a Movement to Regulate the Use of RIA Arbitration Agreements?
RIAs use of arbitration has attracted some media attention lately because it can be done in predatory ways. Some RIA firms go to great lengths to channel as many types of claims into arbitration, make arbitration as costly as possible to customers, and tilt the playing field in ways that make it virtually impossible for complainants to win. Some of these firms also do not disclose the presence of these binding arbitration provisions in their client contracts.
This predatory behavior arguably violates the fiduciary duty that RIAs have for their clients. It has also created some movement in Congress to bypass the SEC and directly regulate the use of arbitration by RIAs and other securities professionals. However, the bills that have come from this movement, such as the Investor Choice Act of 2021, have not garnered anywhere near enough support to pass Congress and become law.
What Sets Oberheiden P.C. Apart from Other RIA Law Firms?
Oberheiden P.C. is different from other law firms and RIA compliance service providers in that we have both compliance professionals and experienced securities litigation attorneys under one roof. The diversity of experiences that our staff has obtained effectively enhances both the legal and compliance services that we can provide to RIAs and their stakeholders.
For example, our securities litigation defense lawyers have seen, first-hand, how bad compliance protocols have failed and how they have exposed regulated securities professionals to significant legal jeopardy. That experience helps our compliance professionals craft better internal regulations for our clients.
What is a “National Law Firm”?
Oberheiden P.C. calls itself a national law firm because, while our main offices are located in Dallas and Houston, Texas, we have other law offices scattered across America in nearly every major U.S. city. No matter where your RIA firm is located or where its principal place of business is, there will be compliance and legal professionals from Oberheiden P.C. nearby to provide whatever help you need.
When Should I Hire a Lawyer?
RIA firms that have learned that a customer has filed, or is about to file, a complaint should seriously consider hiring an experienced securities litigation defense lawyer or RIA attorney right away. Delaying only makes it more likely that compromising evidence is disclosed that can bolster the complaint, and only makes it more difficult for the attorney that you do hire to build a successful defense for the arbitration hearing.
Why Doesn’t Oberheiden P.C. Call Itself the Best RIA Defense Firm?
Because that is something that means far more when others say it about the services that we provide. Read the testimonials from our prior clients to get a better sense of what you can expect when you hire Oberheiden P.C.
RIA Arbitration Defense Lawyers at Oberheiden P.C.
Arbitration is an opportunity for RIA firms to aggressively counter unsubstantiated client disputes at little cost to the firm. Creating this opportunity through carefully crafted client agreements is essential, and then dismantling those groundless disputes in front of the arbitrator is paramount for protecting the RIA firm’s future.
The RIA compliance professionals and securities litigation defense lawyers at Oberheiden P.C. can help on both of these fronts. Contact them online or call their national phone number at (888) 680-1745 to get started.
