March 19, 1990
TO: INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 8-90
BROKER/DEALER ASSOCIATE MEMBERS NO. 1-90
RE: INVESTMENT ADVISER NOT BOUND BY ARBITRATION CLAUSE IN
BROKERAGE AGREEMENT
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The U.S. Court of Appeals for the Seventh Circuit held that
an investment adviser was not covered by an arbitration clause
included in an agreement between the adviser's client and a
brokerage firm that administered the trading program recommended
by the adviser. The court stated that the arbitration clause in
the contract between the investor and the brokerage firm does not
apply to "anyone and everyone standing in an agency relationship
with [the brokerage firm]." The court further noted that the
client could have negotiated an arbitration clause in its
contract with the adviser but could not reasonably assume that
the arbitration clause in its contract with the brokerage firm
would compel the adviser to arbitrate all disputes it might have
with the investor.
A copy of the court's opinion is attached.
Amy B. Rosenblum
Assistant General Counsel
Attachment