It can be unsettling to receive a letter of complaint from a customer or be served with an arbitration filing. For direction on how advisors should address these matters, I spoke to my partner, and chair of our Securities Arbitration Group, Brian Carlis.
He and his team have successfully defended advisory firms throughout the country in securities arbitration and other types of regulatory matters for decades. In addition, when called upon by an RIA, Brian has also successfully prosecuted damages claims on behalf of an RIA's client against rogue brokers and other investment professionals.
The good news is that many such complaints lack merit, Brian advised. Still, regardless of your assessment of the merit, or lack thereof, any complaint you receive should immediately be reported to your errors and omissions carrier. Failure to report a customer complaint or arbitration filing in a timely manner can lead to a denial of coverage.
Also, most policies permit insureds to request appointment of legal counsel, who can assist in dealing with any customer complaint you might experience. In recent years, we have seen a growing trend in customers sending less formal letters of complaint, seeking a pre-filing, amicable resolution, before commencing a formal securities arbitration proceeding.
Still, RIAs should seek assistance in responding to these less formal complaint letters. There will be circumstances where a "less is more" approach will be the best method of responding. But in certain circumstances, a substantially detailed response may be warranted.
Regardless, the wording of any response should be carefully considered.
If these less formal customer complaints cannot be amicably resolved, or if the customer simply proceeds to a formal arbitration filing, the advisory firm will find itself named as a respondent in a securities arbitration proceeding. If the RIA's business model is a hybrid, it is quite possible that the RIA, or the investment advisor representative, will be subject to mandatory FINRA jurisdiction for arbitration of the dispute.
