Customer complaints

Customers are sometimes unhappy with the status of their accounts or the service they’re provided. They may call you and voice their displeasure, but it’s not technically considered a complaint. By law, a complaint is defined as criticism or dissatisfaction submitted in writing.

When a representative receives a complaint, they must document and submit it to their principal (supervisor). Next, the principal works with the registered representative to resolve the issue on behalf of the customer.

If this rule were to apply to verbal complaints, firms would have a tough time doing business. Registered representatives would be required to note anything negative said by the customer and submit it to their supervisor for review. If you’ve ever worked a service job, you know how often some customers complain (warranted or not). When a customer puts something in writing, it’s usually a serious problem that needs to be resolved.

‘In writing’ could be in letter form sent through the mail, e-mail, text, or instant message. Because of this rule, many brokerage firms limit the ways their representatives communicate with their customers. If your firm does not allow you to give out your personal phone number to customers, this is probably why!

The modern digital world creates complications for many firms, especially with social media. If a customer complains by tweeting or posting a complaint on Facebook, does it count as a complaint? Generally speaking, FINRA applies its normal rules in the same way with social media. A tweet may seem harmless, but it’s technically in writing, which requires the firm to follow the same protocols discussed above.

In a perfect world, all valid complaints would be handled responsibly and ethically, potentially leading to fee reimbursements or restitution if any wrongdoing legitimately occurred. Unfortunately, that doesn’t always occur. If the firm’s handling of a complaint does not satisfy the customer, three options remain: a lawsuit, mediation, or arbitration.

A lawsuit may only occur if the customer did not sign an arbitration agreement*. This is very rare; most financial firms require an arbitration agreement to be signed in order to open an account. Customers are not legally required to sign them, but firms can make arbitration agreements a conditional requirement to open accounts. If an arbitration agreement has been signed, the investor will take their complaint to FINRA’s arbitration and mediation system.

*Think of arbitration as a “private court,” which tends to be more cost-effective and efficient. An arbitration agreement legally prevents an investor from filing a traditional lawsuit against a financial firm.

If the two sides (customer and firm) are cordial and willing to negotiate, mediation will likely be their first step toward resolution. Mediation is a voluntary process that’s usually more cost-efficient and informal than arbitration. A mediator is mutually chosen, who then works to help the two sides come to a negotiated agreement to resolve the dispute. Best case scenario, both sides come to an agreement, which may involve monetary compensation. Any agreement made is also private, requiring no public disclosure. However, either side may withdraw from mediation at any point and no agreement is legally binding. Mediation essentially is a glorified negotiation with a third party (the mediator) facilitating the process.

If no agreement can be made in mediation, or if either side does not agree to mediation, arbitration is the only remaining option. Arbitration is a formal process very similar to a lawsuit. Instead of a judge, FINRA-provided arbitrators listen to the arguments and facts presented by both sides. Neither party can withdraw from this process once started, and any decision made by the arbitrator(s) is legally binding and cannot be appealed. Additionally, the results are made public on FINRA’s website, although the hearing itself is private.

While we’ve discussed arbitration in terms of disputes between firms and customers, the same process can involve disputes between two or more firms, or firms and their employees. The Code of Arbitration applies to intra-industry disputes, which prevents firms and/or registered representatives from filing lawsuits against each other. With the exception of complaints relating to sexual harassment and discrimination*, all disputes within the financial industry are handled through FINRA’s binding arbitration system.

*Representatives may file lawsuits related to sexual harassment and discrimination.