Welcome to the fifth edition of Nightmare on Compliance Street.
This is where I leverage my more than 30 years of experience in compliance and supervision in the financial services industry to address some of the scariest and challenging compliance questions submitted anonymously by Wealth Solutions Report readers.
I receive a large volume of queries each month, and please know that I do my best to read through each question, and to spotlight the inquiries that have the most widely applicable relevance to the broader wealth management industry.
This Week’s Question
Dear Sander –
I am a registered representative with a broker-dealer, and I got my first customer complaint today. She is complaining that her investments lost value and that I am responsible. I am an honest person. I told her all about the products before she agreed to purchase them. I can’t predict the markets or the future. Is there anything I could have done that might have prevented this complaint?
Saddened in Sarasota
Sander Ressler’s Advice
Dear Saddened –
Thank you for the question. I spend a large part of each week helping to resolve disputes between registered representatives and their clients. I think that there are fundamental practice management steps that every financial professional should take when interacting with a customer. These steps may seems well – basic – and they are, but I believe that they can prevent many future misunderstandings. So, let’s go back to basics.
- First – Each client should have a definable goal for each account. Make sure a time period is set for the goal. Determine what amount of money is needed to reach each goal. Clearly define the risks need to be assumed in order to reach the goal. Most of this information will be detailed on your firm’s New Account Form.
- Second – Meet with each client at least annually. Discuss the goal that was previously agreed upon and give an update as to whether the account is on pace to achieve the goal. If not, discuss what needs to be done to get the account back on track. Make sure you end each client meeting with a clear understanding of whether in your opinion the client should stay the course or change the course. And if change is needed, the client needs to understand what needs to happen and what are the risks.
- Third – Honesty is of course great, but it’s not enough on its own. You need to thoroughly understand the products you are selling. Products such as annuities, non-traded alternatives and private placements are highly complex products and, if you haven’t already done so, make sure you understand them completely – not just the good parts, but the bad parts too. I know the temptation is to only discuss the parts of the product that will help the client, but it’s imperative to discuss potential downside risks as clearly as possible. This includes covering issues like surrender charges, illiquidity, pricing, and risk in the conversation.
- Fourth – Be the first to communicate bad news. If something negative happens with a product or the marketplace, pick up the phone and communicate the bad news personally. On these calls, the clients always ask, “What should we do now?” The worst answer is to hold and wait until the price comes back. Sometimes this may be true, sometimes it’s not. If the price drops further, the customer will now hold you doubly responsible for the loss. Have a well thought-out action plan for the client on each and every call. Sometimes taking a loss now is better than taking a bigger loss later.
- Lastly – keep your books and records up to date. Make sure the information on your client is accurate. Take good, clear notes on each conversation. Document what everyone says for future reference. Follow up with your clients by sending them a letter after each meeting. Outline the discussion and the action plan so there won’t be any misunderstandings later. Take a bit of time now to protect your practice by ensuring you have good, concise, accurate information in writing. This will prevent a lot of client misunderstandings that lead to customer complaints.
And for those non-industry people who are clients of these brokers – I’m not letting you off the hook. This is your money! Learn a bit about investing, understand the products being recommended to you and read your statements!! Make sure you understand what is happening in your account and ask your broker questions – that’s what they’re there for!
That’s it for today. Enjoy your summer and thank you for joining me today. Also, thank you to Wealth Solutions Report for the opportunity to speak to each of you. Keep those questions coming.
Until next month, this is Sander Ressler, reminding our readers that there are no bad questions – just bad behaviors.
Have a compliance dilemma that doesn’t align with a black-and-white answer? Sander can help you navigate the gray areas of compliance – Submit your anonymous queries here: