Financial Reform Could Affect Stockbroker Arbitration

Washington, DCWith financial reform fast approaching, some of the key provisions of the proposed bill would regulate stockbroker arbitration.

Currently, most brokerage agreements have a clause that locks consumers into a binding arbitration if they have a dispute with their stockbroker, according to USA Today. The new regulation could give the Securities and Exchange Commission the power to ban or limit such clauses, which would allow investors who feel they have been wronged to take their claims to court.

The financial reform bill would likely do more to protect consumers against unscrupulous stockbrokers. One of the legislation's provisions could end up holding brokers to higher standards.

Brokers are supposed to act in their clients' best interests, even if that means directing customers to stocks that give the brokers a smaller return. Part of the bill would commission a six-month study into the issue to ensure that the practice is occurring.

Some consumer advocates are excited about this provision in particular.

"Six months is a short wait after pushing for decades for this reform," Barbara Roper, director of investor protection for the Consumer Federation of America, told the news source.

House and Senate negotiators recently agreed on the bill but have not passed it yet.