Dealing with Complaints PDF

Dealing with Complaints 8 CONTENT AREAS Client Complaints Reporting a Client Complaint More Serious Complaints Complaint Resolution Problem Clients LEARNING OBJECTIVES 1 | Ensure that a system is in...

Dealing with Complaints 8 CONTENT AREAS Client Complaints Reporting a Client Complaint More Serious Complaints Complaint Resolution Problem Clients LEARNING OBJECTIVES 1 | Ensure that a system is in place for handling customer complaints. 2 | Implement a system to record those complaints. © CANADIAN SECURITIES INSTITUTE 8 2 BRANCH COMPLIANCE OFFICER’S COURSE KEY TERMS Key terms are defined in the Glossary and appear in bold text when they first occur in the chapter. annual report © CANADIAN SECURITIES INSTITUTE  CHAPTER 8 DEALING WITH COMPLAINTS 8 3 INTRODUCTION In this chapter, we explain how the branch compliance officer (BCO) can ensure that client complaints are dealt with in a professional manner. As BCO, you will often have direct contact with clients, sometimes as the final decision maker on a complex financial problem and at other times with regard to a client’s complaint. Of particular concern to your role are complaints that could have disciplinary implications. The client service process starts with the first contact between the client and the sales representative. However, the relationship between the dealer and the client really starts with you, given that you are the only one at the branch with the authority to approve the opening of any client’s mutual fund account. A firm’s system to deal with client complaints is normally designed by head office but should be implemented by the BCO. The system should deal with recordkeeping policies and the maintenance of complaint files. Records of complaints must be available upon request by examiners from the provincial securities commission, the Mutual Fund Dealers Association (MFDA), the Ombudsman of Banking Services (OBSI), and the dealer’s internal auditors. CLIENT COMPLAINTS As BCO, you will have direct responsibility for dealing with client complaints and for making sure a system for doing so is in place. Such a system is generally set up in accordance with head office requirements. It should explain the steps to follow for recording client complaints, responding to them, explaining their disposition, forwarding them to the regional or head office compliance officer, and maintaining a compliance file for review by internal auditors and the securities regulators, including the MFDA. DID YOU KNOW? MFDA Policy No. 3 specifies the minimum procedures required for dealing with client complaints. Written client complaints, including those received by email, must be acknowledged in writing, and written notice must be provided to the complainants that they may be eligible for the independent dispute resolution service offered by OBSI. The results of an investigation into a client complaint must be conveyed in writing to the client in due course and must be handled by a qualified supervisor or member of the compliance staff. The registered salesperson involved and his or her supervisors should be made aware of the complaint. Senior management must be informed of complaints alleging serious misconduct and of all legal actions arising from such complaints. If a client is not satisfied with the dealer’s decision, or if the dealer does not provide their decision within 90 days after receipt of the complaint, the client may escalate their complaint to OBSI. In Quebec, mutual fund dealers have the following obligations: Establish a policy for handling complaints and claims and resolving disputes. Notify the complainant in writing, without delay, that they can ask for a copy of their file to be transferred to the Autorité des marchés financiers (AMF), which offers free mediation services. Transfer the file of any client who requests a transfer. File an annual report with the AMF outlining their complaint-handling policy, as well as the number and type of complaints filed. Instruct your sales representatives that all client complaints, both written and verbal, should be immediately routed to you. Your regional or head office compliance staff should be promptly advised of all complaints of a serious nature. As BCO, you must determine the nature of the complaint, the complainant’s expectation as to how it © CANADIAN SECURITIES INSTITUTE 8 4 BRANCH COMPLIANCE OFFICER’S COURSE should be handled, and whether the complainant alleges financial harm. Serious complaints include those alleging a client confidentiality breach, theft, fraud, misappropriation, or unauthorized trading. If you determine that a complaint does not meet any of these criteria, it must be handled fairly and promptly. It may be resolved through informal resolution, as long as that method is approved by the regional compliance officer and head office. Serious complaints are subject to additional complaint-handling requirements, including reporting to the MFDA. THE CAUSE OF CLIENT COMPLAINTS One or more of the events described below are generally the cause of client complaints: Improper handling of Errors made on order forms or redemption requests are common causes of client client instructions complaints. To minimize the potential for these incidents, instruct your sales representatives to repeat orders back to the client, particularly with telephone orders. A check box on the order form indicating that the sales representative repeated the order back to the client is a useful reminder and control. Errors should be handled in accordance with the policies of the mutual fund dealer and the financial institution. For example, at some financial institutions, errors are directed to the head office for resolution. Inform the client of the actions taken. Poor trade execution Another source of complaints is poor trade execution or service, including orders that are or inadequate service not transmitted promptly and therefore miss the execution deadline for that day. Point out to your sales representatives that orders should be transmitted immediately if possible. Instruct them to advise clients about the dealer’s policies on order execution. For example, at most dealers, trades received before 4:00 p.m. Eastern Time are transmitted to head office and executed at that day’s net asset value per unit (NAVPU). However, the policies may differ at some dealers. You should be familiar with your own financial institution’s policies on order transmittals and execution. Furthermore, extenuating circumstances such as power outages sometimes delay order transmittal past the day’s deadline, so clients should be informed of this possibility. Sales representatives should be instructed to advise clients as to the date on which a transaction should be processed, particularly when a client places an order after normal business hours or on a day that is not a normal trading day. For example, the Toronto Stock Exchange often closes early for Christmas, and orders for mutual funds must be received by the manager by the time it closes to get the NAVPU determined on that day. Unauthorized trading Complaints may arise from unauthorized discretionary trading by sales representatives – that is, trading in a client’s account without the client’s permission. Although it is a much more common practice in the securities business, your sales representatives should still understand that unauthorized trading is a forbidden practice that could (and probably will) lead to dismissal. The fact that securities regulators respond harshly to such cases should be stressed at your regular sales or information sessions with your staff. © CANADIAN SECURITIES INSTITUTE  CHAPTER 8 DEALING WITH COMPLAINTS 8 5 Excessive or Sometimes a complaint is due to unreasonable demands by a client. Such a complaint unreasonable account may reflect a client’s inadequate understanding of fluctuating mutual fund values, the service and trade forward pricing of NAVPUs, or other such considerations. execution demands For example, a client might complain that an order was filled at the closing NAVPU of by clients the day rather than the NAVPU that appeared in the paper the following morning. A straightforward discussion with the client about mutual fund characteristics and pricing policies may be sufficient to clear up the matter. More onerous is the unscrupulous client who attempts to subvert the system. An example is a client who constantly complains about the service and repeatedly invokes the two-business-day withdrawal option. Such clients are typically not welcome at the branch, and the mutual fund dealer may wish to refuse their business in the future. You should discuss the matter with the regional compliance officer (RCO) before making this decision. You should be the one to inform the client of your decision rather than the sales representative. Mutual fund managers can choose not to accept a purchase order or switch instructions from such clients. Mutual fund A common cause of complaint is related to the performance of a client’s mutual funds. If a performance specific fund has performed poorly, possibly by underperforming the averages or declining in value, clients may register complaints. For example, they may complain that they were never told that a fund’s NAVPU could drop or that their investment’s value was not guaranteed. Your first step should be to discuss the entire disclosure process with the sales representative to make sure that disclosure requirements were met. If you are satisfied that the client was fully informed, then have a polite and open discussion with the client in which you show them how the disclosure was made. They should know that distributions by mutual funds often result in a decline in NAVPU. Reinvesting the distributions would not alter the client’s net position (assuming that income taxes are not considered or do not apply), but because the NAVPU has declined, they would have more units. Order refusals If a trade is both unsuitable and unreasonable for a client, it should be refused. Frequent traders are also often refused. However, refusing to accept an order will likely lead to a client complaint. As the BCO, you, and not the sales representative, should inform the client that the order was refused and note the reasons for the refusal in the account file. If the client complains, which they likely will, ask them to put the objection in writing, place a copy in the file, and send a copy to the RCO. Tax or legal advice Providing clients with tax or legal advice may result in a client complaint. Sales representatives are not in the business of providing such advice, and both the sales representative and the dealer may incur personal liability if they do so. Where tax or legal advice is needed, you should instruct your sales representative to direct the client to consult an independent professional tax or legal adviser. Sales representatives are required, however, to alert clients of tax consequences associated with any transaction resulting from their investment recommendation. Client complaints can be challenging for mutual fund representatives in your branch, and they cannot always be prevented. With the increasing availability of information, clients are becoming more sophisticated and knowledgeable and, as such, are more likely to file a complaint. The most important thing is to ensure that mutual © CANADIAN SECURITIES INSTITUTE 8 6 BRANCH COMPLIANCE OFFICER’S COURSE fund representatives follow established policies and procedures, keep good notes and supporting documentation, and maintain a high degree of professionalism when dealing with complaints. ACKNOWLEDGEMENT LETTER AND CLIENT COMPLAINT FORM All written client complaints must be acknowledged in writing. For dealers that are members of the MFDA, an information sheet entitled Mutual Fund Dealers Association of Canada, Client Complaint Information Form should accompany the client acknowledgement letter. The complaint form outlines the steps a client can take if they have a compliant with the mutual fund dealer. REPORTING A CLIENT COMPLAINT The RCO should be immediately notified of any serious complaints, including those that involve allegations of negligence or failure to comply with securities laws, threats to go to the media or securities regulators, and threats of legal action. Provide the RCO with copies of all correspondence with the client and notes of any conversations. Members of the MFDA also have reporting responsibilities related to client complaints through an electronic reporting system provided by the MFDA. If you have decided on behalf of your branch to cease dealing with a client because the client has been difficult, for example, by trading excessively in mutual funds, you should immediately inform both the RCO and head office, in writing, of your concerns related to the client. MORE SERIOUS COMPLAINTS If compliance problems related to a customer complaint develop at your branch, you should immediately notify the RCO, especially regarding complaints about improper conduct by a sales representative. Such complaints may involve unsuitable trading, discretionary trading, or violations of internal policies or regulations. A copy of all correspondence with the client should be included in the notification to the RCO. Complaints being investigated by the RCO or the head office compliance department require the cooperation of and timely feedback from the entire branch personnel involved. Any client complaint that alleges improper conduct should prompt an immediate investigation. Discuss the situation with the sales representative to determine whether the matter is a simple misunderstanding on the part of the sales representative or a more serious allegation. Review the sales representative’s other activities. Was the violation an isolated act, or was it a part of a continuing pattern of such transgressions? If the latter is true, a suspension of employment and an investigation will be required, which will probably be conducted by head office. It may be necessary to send positive or negative confirmations to other clients to confirm specific activities of the sales representative. The MFDA expects dealers to have established procedures to ensure that any breaches of regulatory or dealer requirements are subject to internal disciplinary measures. As the BCO, you may need to implement disciplinary procedures such as placing a sales representative on close supervision. You may also need to complete and send such reports to head office or the RCO. REGULATORY CONSIDERATIONS In some instances, the MFDA and securities regulators must be informed promptly of serious complaints. Head office or the RCO should advise the MFDA or the securities regulators (or both) if the complaint includes suspected forgery, theft, or misappropriation of funds. The sales representatives, BCO, and other branch staff should not contact the MFDA or securities regulator unless directed to do so by the RCO or head office compliance. All © CANADIAN SECURITIES INSTITUTE  CHAPTER 8 DEALING WITH COMPLAINTS 8 7 registered dealers must make sure that an independent dispute resolution or mediation service is made available to the client at the dealer’s expense to resolve all complaints about trading or advising activity. LITIGATION A client may retain a lawyer to assist them with their complaint. Any statement of claim received by the branch should be directed to the immediate attention of the branch’s legal department. OMBUDSMAN FOR BANKING SERVICES AND INVESTMENTS Unresolved complaints about financial services firms from individuals and small businesses are investigated by OBSI. The organization is independent of the government, the financial services industry, and the MFDA. Clients who wish to use OBSI’s dispute resolution services must first attempt to resolve their disputes directly with the dealer. If a client disagrees with the resolution proposed by the dealer, they may escalate the matter to the OBSI, who will then investigate the complaint and recommend a course of action. Requests for information from OBSI are usually handled by the head office compliance department or the RCO (or both). COMPLAINT RESOLUTION Once a dispute is resolved, as the BCO, you may have to convey the information to the client and indicate that no further action is contemplated. Include the letter in the client’s file and send a copy to the head office compliance department or the RCO, or both, for record retention and audit purposes. In some cases, head office may elect to settle a client complaint in the form of a cash payment, the forgiveness of a debt, or some other form. Sales representatives should never enter into settlements with clients without the consent of the dealer. All documentation regarding the complaint, investigation, and dispute resolution should be maintained at head office, with a copy held in the client file at the branch. PROBLEM CLIENTS Occasionally, you will encounter a client who is abusive or dishonest. If you wish to refuse that client’s business in the future, you should discuss the matter with the RCO before making the decision. CLIENTS WHO ABUSE THE RIGHT OF WITHDRAWAL A fund can suspend or defer a unitholder’s right to redemption under highly unusual circumstances, as specified in the declarations of trust or bylaws of the mutual fund. Such circumstances might include events such as a suspension in trading on an exchange where securities representing more than 50% of the value of the fund are traded. An exchange may be required to close by a governmental authority for reasons such as a terrorist incident or natural disaster. Although suspensions are extremely rare, you should be able to explain to a customer the conditions under which one might occur. As discussed in Chapter 2, clients have the right to withdraw from an agreement to purchase mutual funds within two business days of receiving the fund facts. Sales representatives must understand that the two-day clock begins to run only when the fund facts document is given to the client. The right of withdrawal can cause problems if branch staff fail to deliver the fund facts to the unitholder when account is opened (or when the offering documents are amended or renewed) because the right of withdrawal remains intact. © CANADIAN SECURITIES INSTITUTE 8 8 BRANCH COMPLIANCE OFFICER’S COURSE If a client wishes to exercise the right of withdrawal, you should consult your mutual fund dealer’s guidelines or refer the matter to the head office’s legal or compliance department. Although most clients have good intentions, the possibility of abuse should not be overlooked. An unscrupulous client might withdraw an order simply because market conditions have changed adversely. If you believe a client is abusing the right of withdrawal, notify your RCO immediately. You may accordingly decide that you will decline the client’s business. If the client is to be notified in person, you, as the BCO, should do it, not the sales representative. FREQUENT TRADER CLIENTS Another serious problem is clients who buy and redeem funds very frequently, sometimes as often as daily. Overly active trading, particularly if it involves transactions in large amounts, can disrupt the normal course of portfolio management and distort the NAVPU calculations. For that reason, the business of frequent traders (sometimes called “hot money” traders) is not welcome at some mutual fund dealers. In 2004, Canadian securities regulators became concerned about the impact of frequent trading on mutual funds and undertook an extensive investigation. It was alleged that market timers stripped profits out of the funds to the detriment of other unitholders. A number of mutual fund managers and dealers agreed to pay millions of dollars for failing to properly monitor and limit the activities of frequent traders. Mutual fund dealers have varying policies on frequent traders. Consult your head office’s compliance department or your RCO if you believe a client is a frequent trader. The fund facts and prospectuses of the mutual funds your dealer sells (which must be made available upon request) should include the managers’ policies regarding frequent trading. If you have decided on behalf of your branch to cease dealing with a problem client such as a frequent trader of mutual funds, you should immediately inform both the RCO and head office, in writing, of your concerns. © CANADIAN SECURITIES INSTITUTE  CHAPTER 8 DEALING WITH COMPLAINTS 8 9 SUMMARY Now that you have completed this chapter, you should be able to meet the following objectives: 1. Ensure that a system is in place for handling customer complaints. Branch compliance officers are responsible for dealing with client complaints and must have a system for doing so in place. The complaints system is generally set up in accordance with head office requirements. More serious complaints require additional supervisory review and investigation, as well as reporting to the MFDA. All client complaints, written or verbal, including any electronic communication, should be immediately routed to the BCO by sales representatives. All written client complaints must be acknowledged in writing. 2. Implement a system to record those complaints. The system must explain the steps to follow for the following processes: « Recording customer complaints « Writing replies to the client « Explaining the disposition of complaints « Forwarding complaints to the RCO and head office compliance department « Maintaining a compliance file for review by securities regulators, including the MFDA, and internal auditors © CANADIAN SECURITIES INSTITUTE