Investors Beware Rigged Broker Contract

Talk about “rigged” outcomes. How many investors know the brokerage contract requires “arbitration” of disputes with crappy advisors & the hand-picked hearing officer may be more expensive than 10 worthless lawyers?

At least, so suggests the WSJ’s “Markets Are Crazy Enough Without This Kind of Fight.” According to author Jason Zweig, “battling with a financial adviser who has wronged you is wildly expensive and the fight will almost certainly happen in secret … [it can] be a mess you wouldn’t wish on your worst enemy.” That’s because the usual “advisory agreement” you signed designates one of two organizations to resolve any claims of wrongdoing: the not-for-profit American Arbitration Assn or the private Judicial Arbitration and Mediation Services. Forget the “non-profit” tag, he notes, since either entity can be “bloodcurdlingly expensive,” i.e., “some arbitrators charge up to $1,950 an hour to hear cases” and the “projected cost of using only a single arbitrator at AAA or JAMS can easily exceed $60,000.” (Parties are usually required to “split” that cost and guess who can best afford to?)

On top of that, arbitrator decisions are typically not made public, Zweig says. “So, you could bankrupt yourself trying to recover the money you’ve already lost. And, often, nobody else can tell that a particular advisor has a history of getting dragged into arbitration.” Put another way, even incompetent politicians are in more danger of being held accountable by voters if not an honest DA.

Davd Soul