Customer Complaints
Customer Complaints
By: Jane Abramczyk and Beverly Fetcko
When a firm receives a written complaint from a client who feels they have been treated unfairly by a brokerage firm, an investment advisor or a registered representative of the firm, the complaint must be reported to the appropriate regulator through the CRD/IARD system. These include any complaints from a client as well as a person acting on behalf of a client. They can be received either electronically or in the mail.
What should a firm do if the complaint is received verbally? Rule 3070 specifically refers to written complaints; however, every firm should have procedures as to how oral complaints are handled. It is a best practice when a client calls with a complaint for the designated principal to contact the client to discuss their concerns and ascertain if it is customer complaint, and if so, if the client would send a letter to that effect.
A client who contacts their representative saying “I didn’t get my dividend” would not be considered a customer complaint; however, if the client stated “you promised me an 8% quarterly dividend, and I haven’t received one dime!” qualifies as a customer complaint because of the alleged promissory statements made.
If a client indicates that their investment has decreased in value or that they have lost money does not necessarily mean that the representative or the firm has engaged in any misconduct as there is no guarantee that investments will always be profitable.
Examples of types of conduct that is prohibited are:
- Recommending the purchase or sale of a security that is unsuitable given the client’s age, financial situation, investment objective, and investment experience;
- Buying or selling securities when the investor did not specifically authorize the sale or purchase, unless written discretionary authority to effect transactions is on file or the broker was given price and time discretion;
- Switching from one mutual fund to another when there is not a legitimate investment purpose for the switch;
- Not disclosing material facts about an investment – i.e. charges or fees involved, risks of investing in a particular security or analytical information such as bond ratings;
- Removing funds or securities from an investor’s account without the investor’s prior authorization;
- Guaranteeing a client that they will not lose money on a securities transaction;
- Charging excessive markups, markdowns or commissions; and
- Buying or selling a security while in possession of material, non-public information about an issuer.
The designated principal in reviewing the complaint should ascertain whether the allegation would trigger an affirmative answer to a disclosure question on a Registered Representative’s or Investment Advisor’s Form U4 or U5. If so, the complaint must be reported on an amendment filing within 30 days of discovery (or 10 days if the complaint alleges misappropriation of funds or securities or forgery). When the status of the customer’s complaint changes, the Disclosure Reporting Page (DRP) on the Form U4, U5, or Form BD must be updated to reflect the current status and information.
FINRA investigates any complaints against brokerage firms and their employees, and they are empowered to take disciplinary action against representatives and the firms. Sanctions could include fines, suspensions, and even barring the representative from engaging in any securities activities. If FINRA feels it appropriate, they could also refer complaints to the SEC or other federal or state enforcement agencies for further action.
In addition to members’ reporting requirements through Forms U4 and U5 filings, statistical and summary information regarding customer complaints must be filed electronically via FINRA’s 3070 system within 15 days of the end of each calendar quarter. If the complaint alleges misappropriation of funds or securities or forgery, it must be reported within 10 business days after the firm knows or should have known of its existence. The 3070 system can be accessed directly through the web link https://RegFiling.FINRA.org. If there were no complaints received during the calendar quarter, no filing is necessary. Any filings made outside of these time frames will result in the firm being assessed a late filing fee.
All customer complaints must be reported to and reviewed by a principal of the firm. The firm must maintain a separate customer complaint file, even if it has not received any written customer complaints. If the firm’s file contains complaints, the file must state what action was taken by the firm, if any, and it must disclose the location of the file containing any correspondence relating to the complaint. Copies of all complaints must be maintained at an Office of Supervisory Jurisdiction (OSJ).
For more information on managing customer complaints, please contact your Compliance Partners Account Manager at 603-434-3594 (ext. 124 for Beverly and ext. 122 for Jane).