Recent Dividend Aristocrats Additions Reveal Leeway in the Rules

Frank Mix from GA posted over 3 years ago:

Mandatory Arbitration Clauses are designed to greatly favor the corporation over the individual. The arbitrator is typically paid by the corporation and too many decisions against the corporation may cost the arbitrator future business. For this reason I prefer mandatory clauses be illegal. Using an arbitrator is fine if both parties agree. Thanks.

Nancy V from CA posted over 3 years ago:

Mandatory arbitration clauses should be outlawed in our opinion. The arbitration sessions are usually held at the location chosen by the corporation, and the arbitrator is selected by the corporation. Mediation (in which the mediator's opinion is optional) should be tried first, and the right to sue should be an option. Too often, people don't read the boilerplate contract language, and don't realize their legal rights are being forfeited. Also, companies are usually not willing to strike this language. Another more concerning item that we are seeing in contracts is an Indemnification Clause. We are currently in the process of negotiating new client documents with a new broker/dealer (through our existing advisor), and are appalled to find language that holds them harmless from even negligence and willful misconduct. While we could opt to not move to this broker/dealer if they won't modify the wording, we are concerned that more companies may adopt something similar. We urge AAII to advocate for the protection of clients' right to sue in both situations. Thank you.

Ira E from Florida posted over 3 years ago:

I am unalterably opposed to mandatory arbitration clauses. They seek to deny individuals their rights under the law in a way that is non-negotiable. While arbitration may make sense in many instances, it should be undertaken only with the voluntary informed consent of both parties and not forced on one party by the other as the price of a financial advisory agreement.

Tim from NY posted over 3 years ago:

Please work hard to outlaw mandatory arbitration clauses and any other legal concept in any retail consumer transaction that puts the individual at a disadvantage when pitted against any large corporation they transact with. The individual should have special protections under the law designed to incentivize corporations providing consumers a good or service to self regulate in favor of consumer protection.

Craig Howard from Colorado posted over 3 years ago:

Many of the earlier comments reflect an incomplete or mis-understanding regarding how arbitration is handled in the financial services industry.  With very limited exceptions, FINRA (see finra.org) regulates all trading in equities, corporate bonds, securities futures, and options.  All US financial services companies (i.e., investment banks & broker-dealers, but NOT commercial banks) and their agents are required to register with and follow FINRA rules and regulations.  When a customer files a claim against a broker-dealer for example, FINRA assigns an arbitrator or arbitration team to conduct a hearing and make findings. I am a FINRA Arbitrator.  I don't know about how arbitration is handled in other business areas, but, I can attest to FINRA's singular focus on maintaining the integrity of the arbitration process for all claims filed against financial services companies. My personal experience has been that FINRA arbitrations are handled in a very tightly controlled, fair, professional manner. The training and selection of arbitrators by FINRA are rigorous. And, the documentation required of arbitrators is substantial. I'd note that being a FINRA Arbitrator is not a profession/vocation from which I believe one can earn a living. My experience has been that cases are few and far between. And, the fees earned are nominal given the time required to prepare for and attend an arbitration hearing. This is fine with me, as I'm a retired US Army officer with other interests that keep me busy. I do have 45 years of personal investing experience with a number of brokerages, but I have never worked for any financial services company, nor has any immediate family member. Having said all of the above, I believe customers should have a choice between agreeing to have disputes settled by arbitration or filing a lawsuit.  But, given the huge differences in the costs associated with litigation versus arbitration, the financial services company should also have the right to charge higher fees to those customers who want to retain the right to pursue litigation.

Bill Dornbush from Tennessee posted over 3 years ago:

I am opposed to mandatory arbitration clauses. It could be that arbitration serves a purpose but I feel I should have the choice to use it or not. Even though arbitrators say they do their best to be neutral, we must recognize that they also want to be paid and since the company usually pays, the arbitration would tend to favor the company. I would never want to use an arbitrator recommended and paid by the company against which I have a complaint.

Barry from TX posted over 3 years ago:

Thank you Derek for your continuing vigilance over the AAII Dividend offering. There are several key lessons in Charles’ “Message from Garcia”-like posting. (1) Diversification trumps time. (2) We “dumb money” folks are not that dumb. 100 % of comments see through this Trojan Horse ploy. Any arbitration clause will favor the institution against the investor. They will choose the arbitrator. They will pay the arbitrator. They will show up with a lot more evidence. Arbitration is very similar to “Let’s Make a Deal.” The host – the fund owner – knows where the payoffs are and will steer the session, so the investor always gets the goat, not the prize. Count on this outcome since THEIR lawyers will write the arbitration agreement that you MUST accept to play the game by their rules.

Claude Y Paquin from Georgia posted over 3 years ago:

In the course of my career as a lawyer, I was invited to participate in securities arbitrations conducted by a panel of three arbitrators. One of the three had to be from the “industry.” Not all disputes involve customers: some disputes are between brokers, or between a broker and an employee. Hearings were scheduled in hotel meeting rooms booked for a half day. The presentations involved voluminous documents which the arbitrators could not take the time to examine carefully. So much time was used up by the lawyers presenting their case that very little time was left for any review and meaningful discussion among the arbitrators, who were all strangers to each other and understandably not eager for late-afternoon overtime. It was a rush-rush world of jumping to conclusions and getting the job over with, and that’s not how justice ought to work. A better solution, it seems to me, would be for the SEC to appoint Administrative Law Judges, like the IRS does for tax court judges or Social Security for benefit claimants, who would be adequately trained (and supervised), properly compensated, and would take the time to review all the evidence and prepare a written opinion in support of a decision that could be appealable. There should be no mandatory arbitration clauses in investment advisory agreements unless the arbitration system is demonstrably fair, properly supervised, and with a possibility of appeal beyond a reasonable financial threshold. (Hey, it’s hardly an “agreement” if it’s mandatory!)

Al Morgan from Indiana posted over 3 years ago:

Arb Clauses do have some advantages to both sides. However, I agree as Yogi once said, In theory there is no difference, in practice there is. And its generally in the favor of the companies. But I would think a possible compromise would be, do arbrituation for $ amounts less than $10k..$5k..something like that. Or chosen arbritration judges must be proven neutral (ie. must be limited to a 40% to 60% in favor of company on record). Arbritration judges must come from an association of judges (again neutral) but randomly chosen (from a field of no less than 3 cognizant in disputed case). Arbritration must allow for redo/rearbritrate for new evidence, by appeal, proven (either statistically or directly) judge bias, by new council). The redo/rearbritrate must be done to a different (but independent) org than what was used for orig arbritrate. If many (several?) arbritrations are/have arisen due to same issue/problem/incident/company (as tracked by independent arbritration org) then it will automatically be allowed to go to US suit...doesn't have to, but allowed. If plaintiff wants he can pay for arbritration...if plaintiff wants he can put together many cases(from other plaintiffs) as one case if to a reasonable degree of same nature - as judged by independent association. Companies must freely/electronic/internet/widely publish their arbritration cases statistics and specifics as to $, what was disputed, specific service or fund or stock, resolution (in favor of company, in favor of plaintiff, compromise) every year.

Alan Jones from Ohio posted over 3 years ago:

I feel mandatory arbitration should be outlawed as a "requirement". Most, if not all firms are requiring mandatory arbitration as a requirement to do business with them. The fact that most or all firms have this requirement, limits or eliminates the choices we have as individual investors. We no longer can go to another firm, since most/all have this close. "Competition" is eliminated from a dispute resolution standpoint. If we would like to settle a dispute in a court of law, we cannot. To me, this is an industry monopoly, and should be illegal. Arbitration should be an option if both parties agree. We should not give up the constitutional right to a fair trial in order to do business with an industry. Again, it's an industry that restricts this because most/all require it.

Bruce Nickerson from California posted over 3 years ago:

Mandatory arbitration allows financial firms to charge investors less because of less litigation expense. Some claims are valid and others not so much so an arbitrary 50% in favor of either group may not be valid. If investors want the right to sue then they can use more expensive firms that do not arbitrate.

David Greenbaum from New Jersey posted over 3 years ago:

I won't give up my legal rights to do business with anyone. Mandatory arbitration clauses are bad because once a company can limit their exposure to malfeasance, they will eventually see it as profitable. Let's not forget that the raison d'être for any company is making money.