FINRA statistics reveal that 2,135 customers filed arbitration claims against securities brokers in 2015. FINRA also says that arbitration cases typically take about 14 months to resolve, with advisors liable for damages about 40 percent of the time.
Now, does the prospect of worrying about a client dispute for 14 months, dealing with attorneys, having outsiders poke around in your business, and potentially incurring sanctions and fines sound appealing to you? I thought so. And I’m certain insurance-licensed producers and investment advisors would agree.
A better alternative? Preempt client disputes before they become arbitration or legal cases and before you need to get your errors-and-omissions insurer involved. And if the disputes enter “the process,” manage them expertly in order to limit damage to your finances or reputation.
Regarding prevention, the most important point is to pay close attention to the emotional temperature of your clients. Watch for signs of anger, agitation, disappointment, disengagement, or frankly, anything that is atypical for that particular client. If you notice any sign of discontent, intervene promptly. Ask probing questions to see if you can smoke out the source of the problem and remediate it before it becomes a formal complaint. Most importantly, avoid the natural tendency to ignore client discontent until it becomes unavoidable. Paying attention now will prevent you from having to spend a lot more time on the matter later.
Now once it appears the problem isn’t going away, give prompt notice to your errors-and-omissions insurer. Then file all required claims forms and supporting documents in order to initiate an errors-and-omissions insurance claim. While your insurer sets up the claim, do your best to manage your emotions. Don’t lash out in frustration at a client who is filing a lawsuit or arbitration claim against you. Although such situations are aggravating, keeping a level head will help your E&O insurer and appointed attorney resolve the dispute to your best advantage.
While this process plays itself out, here are few other things to keep in mind.
- If and when you speak with your aggrieved customer, never admit wrongdoing. (It is OK to sympathize with the person.) Additionally, never defend yourself to the person or provide documents that prove you’re right.
- Also, don’t admit that you have E&O insurance. But don’t deny this if directly asked. In any event, never share language from your E&O policy with an aggrieved client or with that person’s attorney. Always refer information requests to your insurance company and to your attorney.
- Never try to “cover your tracks” by plugging holes or fixing errors in the customer’s file, as it will make you appear “guilty.”
- Don’t give money to the client in order to settle the dispute. This holds true even if the payment is small. And never discuss settlements yourself; always refer this to your attorney.
- Don’t give a written or recorded statement to the client’s attorney without the approval and involvement of your own attorney. This also holds true if the statement request comes from the client’s insurance company or investment provider.
- Don’t try to “project manage” the case day to day. This is something your errors-and-omissions claims adjuster is well trained to handle.
- Finally, don’t discuss your claim with anyone other than your claims rep, defense attorney, or staff members directly involved with the client account.
Because when all is said and done, working through client disputes can be a nasty, brutish and long experience. Don’t go there, if you can help it. But if you have no choice, keeping your wits about you will help minimize the pain.