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Client Complaint Box - Preparing Dealers for the Workout Ahead

Published: 04/07/2010

By Jessica Zagar

More work for dealers is the result of the new complaint handling standards for Investment Industry Regulatory Organization of Canada ("IIROC") and for the Mutual Fund Dealers Association ("MFDA"). These new standards are designed to be a more investor-friendly approach to handling client complaints and a more structured regime for both IIROC and MFDA dealer members (collectively "Dealers"). The new IIROC rule, known as Dealer Member Rule 2500B – Client Complaint Handling (the "IIROC Rule") and the revised MFDA rule, Policy No. 3 – Complaint Handling, Supervisory Investigations and Internal Discipline (the "MFDA Rule"), translate for Dealers into a greater volume of complaints to acknowledge and investigate within tight timeframes.

Big Change re: Verbal Complaints

Both the IIROC Rule and MFDA Rule introduce the concept that any and all recorded or verbal expressions of dissatisfaction must be subject to "preliminary investigation" to determine whether the allegation has merit under IIROC and "handled fairly and promptly" under the MFDA. In the past, acceptable practice for verbal complaints by a client was to request that the client send their complaint to the Dealer in writing. Although many written complaints were difficult to understand, at least there was a starting point for the Dealer to seek clarification or perform an investigation. The new Rules not only substantially increase the number of investigations required but also place Dealers in the position that they will be throwing darts at a target in the dark as clients’ expressions of complaint are mostly unclear other than, of course, the fact that they lost money. The Dealers will be required to determine whether the complaint has merit based on a brief and unclear expression of dissatisfaction. The previously applied system of compelling clients to reduce their complaints to writing increased the likelihood that the Dealer would understand the complaint, investigate it properly and more accurately assess its merits.

Internal Complaint Policies and Procedures

In addition to the general requirement that Dealers establish policies and procedures to deal effectively with all client complaints, Dealers are also required to facilitate client access to its complaint handling process by making available on an ongoing basis a written summary of the firm’s complaint handling procedures. Under the new Rules, not only must the Dealer continue to deliver the IIROC-approved complaint handling process brochure or the MFDA-approved copy of the Client Complaint Information Form ("CCIF") at the time of account opening, but the Dealer must also provide all new clients with a clear and easily understandable written summary of the firm’s complaint handling procedures. The written summary, which must be accessible to clients on an ongoing basis, must also provide the contact information for complaint submission. Under the IIROC Rule, the written summary must also provide the contact information for the firm’s Designated Complaints Officer ("DCO"), someone appointed by each member with knowledge, experience and authority to manage the complaint handling process of the firm and to liaise with IIROC.

Deadlines

When a complaint is received, the IIROC firm has only five business days to send an acknowledgment letter, which must include specific information. Similarly, the MFDA member’s initial response must be provided within "a reasonable time," generally within 5 business days of receipt of the complaint. The IIROC firm has ninety calendar days and the MFDA member within "the time period expected of a Member acting diligently in the circumstances," which in most case will be within 3 months, to investigate the complaint and provide the client with a substantive response. The substantive response must be presented in a manner that is "fair, clear and not misleading to the client." The problem that we have encountered is that client complaints are often unfair, misleading, extremely unclear and even untruthful, alleging almost anything about the advisor to convince the Dealer to reimburse the clients for losses that were suffered more so as a consequence of the market and less so as a result of the advisor.

If the firm is unable to provide the response within the deadline, the IIROC firm must explain the reason for the delay to the client and to IIROC. The MFDA firm must advise the complainant of the reasons for the delay and provide its best estimate of the time by which it will provide its substantive response. Should the client be dissatisfied with the final response of the Dealer, the IIROC Rule requires the Dealer to adequately inform the client of all of the subsequent options available to them, including arbitration, litigation and regulatory complaints. Where the client does not accept the MFDA member’s substantive response, the MFDA member must continue to reasonably respond in a fair and timely manner until the client has provided no new information or settlement proposal. Some of these requirements are not new, but we have always wondered how many other professional associations mandate these types of requirements.

Manage Client Expectations

The best recourse for Dealers wishing to keep the effects of a more regulated and demanding client complaint process in control and keep their complaint box manageable is to promote more effective communication between advisors and their clients and encourage advisors to be accessible and responsive to their clients needs. Investing time in client management at all stages of the relationship equates to less complaints and thus less resources spent on complaint handling and less sleepless nights for advisors and senior officers at Dealers.