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It is unnerving for an RIA to receive a complaint from a client because they can lead to litigation, monetary losses, and regulatory investigations that can harm the business and its reputation. Yet, how complaints are handled makes a big difference as to whether the situation spirals out of control and results in legal and/or regulatory risk for the RIA. As an attorney, I’ve consistently seen that effectively handling client complaints requires adopting a well-crafted game plan and avoiding common pitfalls.
In this article, I outline five common mistakes RIAs make when addressing complaints and outline best practices for crafting an effective game plan to handle them.
Common mistakes
These are the five most common mistakes advisers make when handling client complaints:
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Failing to notify senior management: Before addressing the substance of a client complaint, notify senior management. They can provide guidance on how to respond to the client and initiate the game plan for handling the complaint.
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Delays in responding: It can be unnerving for RIAs to receive a complaint, but procrastinating in communicating with the client can make things worse. It’s important to consult senior management, but prior to receiving their guidance, RIAs can send a note to the client acknowledging receipt of the complaint and communicate that the firm is looking into the situation and will be back in touch as soon as possible.
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Inadvertent admissions: To appease an unhappy client, advisors may unintentionally admit fault. Be empathetic without making statements that could be construed as admissions of wrongdoing before a full investigation has been conducted.
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Failing to consult legal counsel: It’s the unknowns that can create legal and regulatory risk for an RIA when handling complaints. Therefore, legal counsel should be consulted so the advisor can get a full understanding of the ramifications that can arise if a client complaint is escalated to litigation.
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Failing to get a release: Resolving a complaint without obtaining a proper release can leave advisors vulnerable to future claims. Without a release, clients can still file a lawsuit despite a handshake agreement with the adviser to resolve the dispute.
What does an effective game plan look like?
An effective gameplan for handling client complaints should encompass the following critical elements:
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Communication strategy: Timely and transparent communication with the client is essential throughout the complaint resolution process. Delays in responding will only make things worse. Establish a communication plan that includes regular updates on the investigation's progress and any actions being taken to set the client’s expectations for resolution of the matter. This hopefully helps maintain trust and keeps the client informed.
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Communication protocols: When it comes to addressing the substance of a client’s complaint, don’t let emotions get the best of you. Approach the situation with empathy and professionalism, ensuring the client feels heard and understood. Defensiveness only makes things worse. On the other hand, as noted above, inadvertently admitting wrongdoing to appease the client can compromise the firm’s potential legal defenses for any future legal claims.
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Investigation protocols: A thorough investigation is the cornerstone of effectively handling a complaint. Advisors should have a clear process in place for gathering and analyzing all relevant information. This could involve reviewing transaction records, client communications, and any other pertinent documentation.
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Protocols for resolving the complaint: Be sure to involve legal counsel in handling complaints to help understand their risks and strategize on whether corrective action should be taken. Work with legal counsel to explore the appropriate remedies, if any, to resolve the matter including whether any compensation should be provided to the client. Finally, work with counsel to craft a release that the client must sign to protect the adviser from future legal claims arising out of the dispute.
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Training: Train employees to communicate effectively with clients when handling complaints because the emotions often involved can cause employees to deviate from the game plan when faced with a live complaint.
Conclusion
While an effective game plan will not guarantee that a dispute with a client will be resolved amicably, it can often be effective at minimizing the legal and regulatory risks that advisors face when such complaints arise.
Richard Chen is a managing partner with Brightstar Law Group, a law firm that serves investment advisory firms by providing proactive business-minded solutions pertaining to corporate and securities law-related matters. Among other things, our firm provides counsel with respect to securities and compliance matters (including representation in SEC examinations), private fund formation, corporate formation and structuring, business transactions (including M&A and joint ventures), contract drafting and negotiation, employment law matters, operational due diligence, and succession planning. For more information, please visit our website at www.brightstarlawgroup.com or call us at 917-838-7398.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.