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What is a Predispute Arbitration Clause?

Predispute Arbitration Clause Details

Unbeknownst to many customers, any contract with a broker or financial advisor likely includes a predispute arbitration clause. This clause limits your rights to pursue any potential claims against your broker or financial advisor in court. This means that your claims will not be heard by a jury and overseen by a judge. It also means that you will have extremely limited abilities to appeal any decision.

Instead, the predispute arbitration clause will mandate the arbitration forum where your claim is heard and the rules that any arbitration will follow. These rules include the procedure you will need to follow, the manner in which arbitrators (instead of judges and juries) are selected, and the limited rights the parties have after an arbitration award is made.

While there are a number of possible arbitration forums, the most common forums for cases against brokers and financial advisors are:

  • FINRA (the Financial Industry Regulatory Authority)
  • NFA (the National Futures Association)
  • AAA (the American Arbitration Association).

While many parties often sue in court to avoid arbitration and pursue their case in court, courts are reluctant to set aside arbitration agreements, and instead will usually require the parties to arbitrate a case whenever there is a predispute arbitration clause. Because of this, and because of the special rules and procedures of each different arbitration forum, it is critical that you hire an attorney that is experienced and knowledgeable about the arbitration forum where your case will be heard.

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