James D. Keeney, Esq.

4830 Shadyview Court

Sarasota, Florida 34232

(941) 928-3378

July 14, 2015

Office of Regulations and Interpretations

Employee Benefits Security Administration 

Attn: Conflict of Interest Rule, Room N-5655 

United States Department of Labor 

200 Constitution Avenue NW. 

Washington, DC 20210

Re: DOL Fiduciary Conflict of Interest Regulation RIN 1210-AB32

I write as a Florida attorney who has represented individual retirement 

investors in hundreds of disputes with securities broker-dealers and their associated 

persons over the last 25 years. I am also an active FINRA arbitrator who has 

served on FINRA customer arbitration panels including in the role of chairperson 

in cases involving investor disputes with RIA’s, financial advisors, securities 

brokerage firms and their associated persons. I am a former Trustee of the Public 

Investors Arbitration Bar Association (PIABA), a national group of 400 attorneys 

who specialize in representing securities investors. Typically, these investors have 
lost their retirement savings and seek to recover these losses in arbitration against 

their financial advisors and securities brokerage firms.

I strongly urge DOL to amend the proposed regulation so as to prohibit a 

“best interest contract” from “requir[ing] that individual disputes be handled 

through arbitration.” Otherwise, the “best interest contract exemption” will 

effectively swallow the entire proposed regulation, making its well-intended new 

protections for retirement investors mainly illusory.

Allowing financial institutions to require mandatory arbitration of customer 

disputes will undercut the well-intended retirement investor protections in this 

proposed regulation because arbitrators are not required to follow federal or state 

statutes or regulations, including this one. Both state and federal courts routinely 

hold that even the most outrageous refusals of arbitrators to follow the law are not 

sufficient grounds to vacate or modify an arbitration award.

The “private right of action for breach of contract” contained in the “best 

interest contract exemption” is plainly intended to allow individual retirement 

investors to hold their fiduciary advisers accountable for failing to act in their 

customers’ best interests. Allowing securities brokerage firms to include 

mandatory arbitration provisions in their customer agreements, however, renders 

this “private right of action” provision worthless and illusory. This is a huge 

loophole that must be shut. Historically since 1987, FINRA rules and court 

decisions have allowed brokerage firms to include mandatory arbitration 

provisions in their customer agreements. Nearly all securities firms now do so, 

routinely forcing their retail customers to submit “all disputes” to mandatory 

FINRA arbitration. The securities industry controls FINRA, and that control is 

reflected throughout the FINRA arbitration process, especially in the final results. 

This practice serves the industry well, but it is not in the best interest of the 

retirement investor.
The United States Supreme Court has held[1] that mandatory pre-dispute 

arbitration clauses in securities industry contracts are not unlawful and will be 

enforced, but that does not ipso facto make inclusion of such arbitration clauses in 

the best interest of a securities firm’s customer. On the contrary, mandatory 

arbitration is almost never in the customer’s best interest, because in arbitration 

there is no way to be sure that DOL regulations or any other form of law will 

actually be applied. In practice, mandatory FINRA arbitration virtually insures that 

a true fiduciary standard will NOT actually be applied to resolve customer 

disputes. 

Mandatory arbitration clauses are always, by their very nature, contrary to 

the best interest of the retirement investor. This is true regardless of the rules of the 

arbitration forum, the backgrounds of the arbitrators, or anything else. Arbitration 

clauses necessarily require all parties to give up their legal rights, substituting in 

their place the decision of a panel of arbitrators who are not required to follow the 

law. If a customer is not given the right to have disputes with her stockbroker 

decided according to law, she is thereby denied the right to have DOL regulations 

and other protective provisions of state and federal law applied to her dispute. In 

arbitration, no one can insure that a fiduciary standard will actually be applied to 

the facts, regardless of what any statutes and regulations may say. Arbitrators are 

not required to follow the law. They are generally not even required to give 

reasons for their decisions. Frequently, they choose to ignore the law in favor of 

“common sense” or rules of thumb they have learned or developed based upon 

nothing more than their own personal philosophy or experience. Their decisions 

are not subject to any form of appeal and cannot be overturned by any court 

regardless of even the most obvious and outrageous failures to follow the law. A 

long line of cases has clearly established that short of proving that an arbitrator 

actually took a bribe, there is virtually no way for a disappointed party to vacate or 

even obtain modification of an arbitration award. 
FINRA arbitrators are not required to follow the law in rendering their 

decisions. Therefore, they will be free to ignore the entire proposed fiduciary 

standard regulation, just as they already often effectively ignore the presently 

existing fiduciary standard requirements when deciding cases involving RIA’s or 

insurance agents.

Class actions are allowed to proceed in court pursuant to statutes, rules and 

regulations as the sole exception to mandatory arbitration under FINRA rules 

regarding customer agreements. This proposed new DOL regulation will therefore 

actually affect class action cases. Very few such actions are filed, however, 

because FINRA arbitration discovery rules generally prohibit disclosure of the 

identities of other customers placed into the same unsuitable securities by the same 

broker or his firm. Accordingly, few plaintiffs alleging financial advisor 

negligence or malfeasance can meet the basic class action requirements of 

“commonality, typicality, and numerosity” to get into court. Moreover, in 

securities class action cases, it is well known that individual investors rarely 

recover even a significant portion of their losses. Instead, brokerage firms and 

lawyers who specialize in such cases almost always settle the cases on terms that 

provide for attorney fees, but no admissions of liability that could be used by other 

customers in arbitration, and only tiny returns to individual aggrieved investors.

Since this proposed fiduciary standard conflict of interest regulation will 

therefore not materially improve net recoveries of losses caused by conflicts of 

interest and suffered by retirement investors---not in individual arbitrations nor in 

class action cases---it is almost worthless to individual retirement investors as 

presently proposed.

The essential change required to improve this proposal so as to meaningfully 

protect retirement investors is to treat the action of including a mandatory 

arbitration provision in a customer agreement as what it is: a conflict of interest per 
se. Simply change the proposed regulation to state that a “best interest contract” 

CANNOT (instead of “may”) require that individual disputes be submitted to 

mandatory pre-dispute arbitration.

Respectfully,

/s/

James D. Keeney

[1] American Express vs. McMahon (1987).

James D. Keeney

4830 Shadyview Ct.

Sarasota, FL 34232

Phone (941) 928-3378

email: jim.keeney@gmail.com