Plan in advance to handle customer complaints

Customer complains are a fact of life for financial advisors of all stripes. Sometimes, they can be seen from a mile away. Other times, they come out of nowhere. But in either case, regulators expect advisors to have policies and procedures in place for handling client disputes.

According to Ara Jabrayan of RIA Compliance Group, advisors should first define their definition of "complaint." Then, a disagreement with a client falls within the parameters of that definition, it should trigger a formal complaint handling procedure.

Step one should typically involve informing the firm's chief compliance officer that a client complaint is "on the table." Formal notice should include either at the outset or soon after submission of all relevant documents relating to the client dispute. The involved parties in the firm should also submit description of the disagreement as well as events leading up to the conflict.

Once all files and explanations have been filed, the chief compliance officer should fully investigate the matter and then attempt to resolve it to the satisfaction of all parties. At the same time, the COO should notify the firm's E&O insurance carrier of a potential claim.

After the COO decides how to resolve the complaint, he or she should formally notify the client and all parties involved within the firm.

As part of overall firm supervision, the COO should also keep detailed records of all complaints and firm responses. The rationale for the recommended complaint resolution should be documented in writing.

Now, perhaps the most important aspect of handling client complaints is how to prevent them in the first place. According to the National Ethics Association, advisors should adhere to the following five guidelines:

1. 1. 1. Do everything by the book. Make sure your marketing and sales practices are locked down tight. Know your administrative procedures cold, especially regarding filling out forms and dealing with client funds.
    2. Do business with professionalism. Part of this depends on you knowing your stuff. The other part depends on you acting with integrity. If you're not sure what that means, review the Codes of Ethics of the professional groups to which you belong.
    3. Meet and hopefully exceed client expectations. You can do a great job for your clients, but if they're expecting something more, watch out. So always be sure to set—and reset— client expectations as needed.
    4. Become "the great communicator." Reach out to your clients frequently. Ask them how they're feeling about their product or service—and about you! If they're not happy, find out why and fix the problem immediately.
    5. Always do what's best for your clients. Never forget that it's about them, not you. Whatever your business or license type, adopt the mindset of a true fiduciary.