Customer complaints

Customers are sometimes unhappy with the status of their accounts or the service they’re receiving. They may call and express dissatisfaction, but that isn’t automatically treated as a formal complaint. Under the rules, a complaint is criticism or dissatisfaction submitted in writing.

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

This distinction matters. If verbal complaints triggered the same rule, firms would struggle to operate. Representatives would need to record and submit essentially any negative comment for supervisory review. In many customer-facing jobs, you hear frequent complaints - some valid, some not. When a customer takes the time to put something in writing, it’s more likely to signal a serious issue that needs formal handling.

“In writing” can include a mailed letter, e-mail, text, or instant message. Because of this, many brokerage firms limit how representatives communicate with customers. For example, if your firm doesn’t allow you to share your personal phone number, this is often part of the reason.

Modern communication creates additional complications, especially with social media. If a customer complains by tweeting or posting on Facebook, does it count as a complaint? Generally, FINRA applies its normal rules in the same way with social media. A tweet may feel informal, but it’s still “in writing,” so the firm must follow the same protocols.

Ideally, valid complaints are handled responsibly and ethically. If wrongdoing occurred, that could include fee reimbursements or restitution. In practice, that doesn’t always happen. If the firm’s response doesn’t satisfy the customer, three options remain: a lawsuit, mediation, or arbitration.

A lawsuit may occur only if the customer did not sign an arbitration agreement*. This is rare because most firms require an arbitration agreement as a condition of opening an account. Customers aren’t legally required to sign, but firms can make signing a requirement to open the account. If an arbitration agreement has been signed, the investor must take the dispute 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 customer and firm are willing to negotiate, mediation is often the first step. Mediation is a voluntary process that’s usually more cost-efficient and informal than arbitration. The parties mutually choose a mediator, who helps them work toward a negotiated agreement to resolve the dispute. If they reach an agreement, it may include monetary compensation. Any agreement is private and doesn’t require public disclosure. However, either side may withdraw from mediation at any point, and no agreement is legally binding. Mediation is essentially a negotiation facilitated by a neutral third party.

If mediation doesn’t produce an agreement - or if either side refuses mediation - arbitration is the remaining option. Arbitration is a formal process similar to a lawsuit. Instead of a judge, FINRA-provided arbitrators hear the arguments and review the facts presented by both sides. Once arbitration begins, neither party can withdraw. The arbitrator(s) issue a decision that is legally binding and cannot be appealed. The hearing itself is private, but the results are made public on FINRA’s website.

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

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