Navigating Client Complaints to Minimize Legal and Regulatory Risks

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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:

  1. 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.
  1. 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.
  1. 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.
  1. 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.
  1. 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.