On a regular Tuesday toward the end of Q2, Ben was about to leave for a lunch meeting when the phone rang. It was a disgruntled customer complaining about an investment.
Ben was already running late, but he took the call. By the end of the conversation, the customer was no longer angry, and Ben believed that the issue was resolved. Ben headed to his lunch meeting, satisfied that he had served his client well.
Two months later, Ben received an email from Compliance. An official complaint had been filed with regulators against him and the firm by that same customer.
What went wrong?
Investment advisers, broker dealers, and others in the financial services industry are held to an incredibly high standard when it comes to serving their clients well. A customer complaint that is handled casually, or as a simple customer service issue can create regulatory, litigation and disclosure risks. That is why strict internal controls are critical to providing guidance to addressing a complaint. Having a consistent response process can help firms identify and address potential issues before they escalate. Retaining legal counsel to evaluate the different courses of action is highly recommended.
For instance, if the firm decides to settle the customer complaint, all factors of the complaint and proposed resolution should be reviewed by legal counsel including the settlement offer, the agreement, the release, and other waivers and documents, as the settlement alone does not necessarily eliminate the firm’s legal or regulatory obligations.
In the event of the escalation of a complaint, here are the practical steps to follow:
A Practical Cheat Sheet for Addressing Customer Complaints
1. Treat every complaint as a potential legal or regulatory issue: Even if the complaint appears unfounded, avoid dismissing it. Treat every complaint as potentially significant.
2. Escalate promptly and through pre-established channels: Notify the appropriate compliance personnel and, when appropriate, legal counsel.
3. Document and preserve the record: Retain the complaint, relevant emails and communications, account records, transaction documents, and other materials related to the matter.
4. Investigate before responding: Determine what happened, review the relevant documentation, and identify whether a policy, supervisory procedure, fiduciary obligation, or other regulatory requirement may be implicated.
5. Respond carefully: Responses should be professional, factual, and appropriately reviewed. Avoid making admissions, promises, or representations before the facts and potential regulatory implications are understood.
6. Determine cause and remediation efforts: Consider whether the complaint triggers any regulatory reporting or disclosure obligations and whether changes to policies, procedures, supervision, or training are warranted.
For more detailed information on types of customer complaints and best practices, read Common Causes of Customer Complaints and How Investment Advisers and Broker-Dealers Should Respond to Them.
If you are facing legal or regulatory issues related to customer complaints or would like to establish a clear internal protocol for addressing them, please contact us at 619.298.2990 or email [email protected].
