Customers are sometimes dissatisfied with the status of their accounts or the service they receive. An upset customer might call and voice their displeasure (and may even yell or scream), but securities regulators generally do not treat that kind of verbal feedback as a “complaint.” FINRA Rule 4513 defines a complaint as:
“Any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member or a person associated with the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer”
FINRA treats expressed customer dissatisfaction as a complaint only if it is in writing (including emails, text messages, and direct messages). Once a written complaint is received, member firms and their representatives must follow specific protocols (discussed below). Because written communications can trigger these requirements, many brokerage firms limit the ways representatives may communicate with customers. For example, if your firm doesn’t allow you to share a personal email address, this is often the reason.
When a representative receives a complaint, they must forward it to their assigned principal (supervisor). The principal then works with the registered representative to resolve the issue on the customer’s behalf. Member firms must keep a separate file of all customer complaints for at least four years. The file must include records related to resolving the complaint, including any action taken and any additional correspondence with the customer.
If the rule applied to verbal complaints, firms would have a difficult time operating. Registered representatives would need to document and submit virtually any negative comment for supervisory review. In many service settings, customers complain frequently (whether warranted or not). When a customer puts dissatisfaction in writing, it more often signals a serious issue that needs formal attention.
The modern digital world adds complexity, especially with social media. If a customer complains in a tweet or posts a complaint on Instagram, does it count as a complaint? Generally, FINRA applies its normal rules similarly with social media. A tweet may seem casual, but it’s still “in writing,” which can require the firm to follow the same protocols described above.
In a perfect world, all valid complaints would be handled responsibly and ethically, potentially leading to fee reimbursements or restitution if wrongdoing occurred. In practice, that doesn’t always happen. If the firm’s handling of a complaint doesn’t satisfy the customer, three options remain:
A lawsuit may occur only if the customer did not sign an arbitration agreement. This is exceedingly rare; virtually all financial firms require an arbitration agreement to open an account. Customers are not legally required to sign one, but firms may make signing an arbitration agreement a condition of opening an account. If an arbitration agreement has been signed, filing a lawsuit in the U.S. court system is prohibited.
Assuming an arbitration agreement has been signed, mediation may resolve the conflict if both sides (the customer and the firm) are willing to negotiate. Mediation is a voluntary process that’s typically more cost-efficient and informal than arbitration (discussed below). Both sides agree to appoint a mediator, who helps them negotiate an agreement to resolve the dispute. If the parties reach an agreement, it may include monetary compensation. Any agreement reached is private and requires no public disclosure. However, either side may withdraw from mediation at any point, and no agreement is legally binding. In other words, mediation is a structured negotiation facilitated by a neutral third party.
If mediation doesn’t produce an agreement, arbitration is the remaining option to resolve the dispute. 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, and the arbitrator(s)’ decision 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 focused on disputes between firms and customers, arbitration can also 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 registered representatives from filing lawsuits against each other. Except for complaints relating to sexual harassment and discrimination*, disputes within the securities industry are handled through FINRA’s binding arbitration system.
*Representatives may file lawsuits related to sexual harassment and discrimination.
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