Customers may be dissatisfied with their account status or the service they receive. A customer might call and express frustration (sometimes loudly), but securities regulators generally do not treat a verbal outburst as a formal “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 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 messages can trigger these requirements, many brokerage firms restrict how representatives 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 address the issue and attempt to resolve it for the customer.
Member firms must keep a separate file of all customer complaints for at least four years, with files created within the last two years being readily accessible*. These complaint files are maintained at the firm’s Office of Supervisory Jurisdiction (OSJ).
FINRA requires the following information be maintained on record for each complaint:
Modern communication can complicate complaint protocols, especially with social media. If a customer complains in a tweet or posts a complaint on Instagram, does it count as a complaint? In general, FINRA applies its normal rules similarly with social media. A tweet may seem informal, but it’s still “in writing,” which can require the firm to follow the protocols above.
FINRA Rule 4530 requires member firms to file complaint-specific reports. Complaints alleging theft, misappropriation of funds/securities, or forgery must be reported to FINRA within 30 calendar days of receipt. Firms must also file summary and statistical reports related to all complaints received by the 15th calendar day after the end of the quarter in which the complaints were received. For example, a summary and statistical report for all complaints received in Q1 (January 1st - March 31st) must be filed with FINRA by April 15th.
These required filings can be made on the FINRA Gateway, the regulator’s primary “compliance portal”. A copy of any complaint involving theft, misappropriation of funds/securities, forgery, or other criminal actions must be filed. Otherwise, only a summary of statistical information is required (no need to file a copy of the complaint if it does not involve the situations listed above).
Ideally, valid complaints are handled responsibly and ethically, which may include fee reimbursements or restitution if wrongdoing occurred. In practice, a customer may still be dissatisfied with the firm’s handling of a complaint*. If a dispute remains, three options are available:
*Although this chapter primarily covers aggrieved customers against firms, it goes both ways. A firm could pursue a lawsuit (if no arbitration agreement is signed), mediation, or arbitration against its customer(s) as well.
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 them, but firms can make arbitration agreements 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 the two sides (customer and firm) are willing to negotiate. Mediation is a voluntary process involving a mediator (a neutral third party) and is typically more cost-efficient and informal than arbitration (discussed below). The mediator’s role is to help both sides communicate their positions and work toward an amicable resolution.
An outside mediator can be appointed or chosen from FINRA’s roster of experienced mediators. If no mediator is selected, FINRA’s Director of Mediation will appoint one. Regardless of how the mediator is appointed, both sides must agree to the mediator selection.
FINRA’s Code of Arbitration Procedure, which provides protocols and procedures for both arbitration and mediation, allows either party to represent themselves or be represented by a third party (in mediation or arbitration). In many circumstances, an attorney is hired for representation. However, anyone can provide representation services if they are not suspended/barred from FINRA membership or are prohibited from providing representation services by state law.
If both sides reach an agreement, it may include monetary compensation. Any agreement made 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 (the mediator).
If no agreement is reached in mediation, arbitration is the only remaining option to resolve the dispute. The process and key rules related to arbitration are covered in the next chapter.
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