It’s been 14 years since the Congress gave the SEC its blessing to clamp down on mandatory arbitration clauses in registered investment advisors’ contracts – and it is now considering what to do about that, albeit just before a change in administrations that will likely be unfriendly to any such restrictions.

The Securities and Exchange Commission’s Investor Advisory Committee met on Tuesday to discuss mandatory arbitration clauses used by RIAs in client contracts, comparing practices in the broker-dealer and state-registered RIA worlds. The hearing detailed findings of a year-and-a-half-old report from the SEC to Congress on that topic – among those were that six in 10 RIAs use mandatory arbitration. Further, most firms using it place limits on the forums and locations for arbitration, which investor advocates have said makes it expensive and burdensome for people to bring claims.

“The inclusion of these types of restrictive clauses … like claim limitations, damage limitations … are most likely harmful to clients,” said Stacy Puente, ombudsman at the SEC. “It’s difficult to imagine a situation where a limitation on claims or damages would be beneficial to the client.”

That means that even RIAs as fiduciaries using mandatory arbitration would seem to violate fiduciary duties to clients, Puente said.

Most agreements specify that private forums are used for hearing claims, most commonly the American Arbitration Association. About 60 percent also require arbitration in a certain state, in almost all cases without regard to where a claimant lives, according to the SEC.

That can mean that an investor who lives in Hawaii would have to fly to New York, if that is where an RIA is based and mandates that the arbitration be held there, said Adam Gana, president of the Public Investors Arbitration Bar Association, speaking to the SEC committee.

“Investors should have the choice to arbitrate or litigate their claims and choose the forum,” Gana said. “Currently, RIA arbitration is a disaster for investors. And the current system is a disaster for the industry at large, because it is too expensive and inconsistent.”

Gana detailed an instance in which a client challenged an arbitration decision in state court in California, which put the matter back into arbitration under one association’s “consumer rules” set. Later the arbitrator decided the claim should be moved to the more RIA-friendly “commercial rules” set, which is what was contested in court, Gana said.

“That level of inconsistency is abhorrent,” he said. That process did not reach a resolution after two years, he said.

While consumer rules arbitration can cap the costs of bringing a claim significantly, fees can reach tens of thousands of dollars under commercial rules, he said. And that alone has a chilling effect on investors bringing claims, as what they might be able to recover can be less than the costs of arbitration.

In another instance, an arbitrator charged a claimant for 40 hours of work at $600 an hour to file a three-page motion to dismiss, Gana said.

“Arbitrators act as judge and jury of a client’s case.”

Also problematic are “hedge clauses” in arbitration agreements that seek to limit a company’s liability – that might ask a client to waive their rights to pursue punitive damages or certain claims, he said.

“All RIAs are fiduciaries, yet they can limit their liability at the time the contract is signed,” he said.

Unlike Finra arbitrations with broker-dealers, those in the RIA world have little to no public visibility. Those are not required to be posted in an ADV for example, but they should be, Gana said.

Still, arbitration can benefit both clients and the industry, provided that it is a fair system, panelists told the SEC council.

“It would be a terrible idea to ban arbitration clauses,” said Kevin Carroll, deputy general counsel for litigation and private client at SIFMA. “If you want to make sure that nothing gets arbitrated, then ban arbitration clauses. Then everything will go court. I don’t think many folks think that is a recipe for fairness for retail investors.”

Regardless, one of the SEC’s two Republican commissioners, Hester Peirce, indicated opposition to limiting arbitration agreements, in prepared comments she delivered at the beginning of the meeting. SEC Chair Gary Gensler is stepping down from the commission next year, at the beginning of President-elect Donald Trump’s second term. The commission will all but certainly be Republican-leaning, and Trump has nominated former Commissioner Paul Atkins to lead it.

However, the imbalance in power between investors and RIAs in arbitration isn’t going anywhere without action, Puente said. Under the 2010 Dodd-Frank Act, passed in the wake of the financial crisis, the SEC can limit mandatory arbitration by RIAs, though the agency has not taken action on that.

“It’s probably the most important issue relating to investor justice,” Puente said.

While the SEC’s enforcement division pursues charges against firms, it doesn’t bring cases on behalf of individual investors – something that many people may not know, she said.

“That leaves investors really on their own to advocate for themselves,” she said.