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April 27, 2020 at 09:00 AM
One lesson to be learned from history is that history repeats itself. Following the dot.com meltdown or “tech-wreck” of 2000, we saw a significant increase in customer complaints and securities arbitration filings.
After the 100-year flood, followed by the perfect storm, also referred to as the Global Financial Crisis of 2008, we saw a significant increase in customer complaints and securities arbitration filings. And now we expect to see a surge in customer complaints and securities arbitration filings stemming from the “Corona Crash” of 2020.
This surge in customer complaints not only will be the result of the sudden, steep decline in the markets, but also will be due to today’s unprecedented market volatility.
To address this important matter, I consulted with my partner, Brian Carlis, who has successfully handled both typical and complex complaints and arbitration matters throughout the country for almost 30 years.
In recent years, Brian has seen a growing trend in customers’ sending less formal letters of complaint, seeking a pre-filing, amicable resolution, before commencing a formal securities arbitration proceeding. Brian cautions that RIAs should be careful in responding to these less formal complaint letters.
There will be circumstances when a “less is more” approach will be the favored response. In certain circumstances, a substantially detailed reply may be warranted. Regardless, the wording of any response should be carefully considered.
If these less formal customer complaints cannot be amicably resolved, or if the customer simply proceeds to a formal arbitration filing, RIAs will find themselves named as a respondent in a securities arbitration proceeding.
If the RIA’s business model is a hybrid, it is quite possible that the RIA, or the investment advisor representative, will be subject to mandatory FINRA jurisdiction for the arbitration of the dispute.
One major difference we have seen since 2008 is that American Arbitration Association arbitrations have become far more prevalent with the RIA business model.
Since 2008, a significant amount of customer investment assets have moved from the traditional, commission-based broker-dealer model, to the fee-based RIA model. For this reason, we anticipate that the volume of AAA arbitrations involving RIAs will increase substantially.
