Preventing FINRA Complaints: Risk Mitigation Strategies for Investment Advisers

A single mismanaged customer complaint can lead to stressful and costly FINRA scrutiny, and can damage reputations and even put one’s ability to practice at risk. This is why proactively mitigating the risk of FINRA complaints should be a priority for every firm.

This article highlights fundamental risk mitigation strategies to prevent customer complaints before they arise.

Clear and transparent Client Communication
Establish a foundation of trust and transparency with a client right from the start.

• Use clear and understandable language to explain financial products, fees, and account terms.
• Set realistic expectations regarding investment performance and risks

• Communicate via approved channels and document all client communications, including phone calls and in-person meetings.

Transparency builds trust and can significantly reduce misunderstandings that often lead to complaints.

Document Investment Recommendations
One of the most common bases for FINRA complaints is unsuitable investment recommendations. To mitigate this risk:

• Maintain and follow client investment profiles that clearly outline the client’s risk tolerance, and investment goals.
• Provide documentation for the reasoning behind investment recommendations.
• Regularly update client profiles to reflect changes in their investment goals or financial circumstances.

Implement Strong Supervisory Procedures
Firms should establish and enforce strong supervisory procedures to ensure compliance with FINRA rules, including conducting routine internal audits, providing ongoing training, and establishing internal protocols to handle client concerns before they escalate into formal complaints.

Proactive Client Education
Educated clients are less likely to feel misled or confused. Firms and advisers should:

• Provide clients with educational materials about investment products and market dynamics.
• Host informational webinars or meetings.
• Encourage questions and provide timely, clear answers.

Informed clients are better positioned to make sound decisions and are less prone to file complaints based on misunderstandings.

Preventing FINRA complaints is a continuous process that requires diligence, transparency, and a commitment to best practices. By focusing on communication, documentation, supervision, and education, financial advisers and firms can prevent FINRA complaints, enhance client satisfaction, and maintain compliance in an increasingly complex regulatory environment.