Your Broker Has a Customer Complaint on BrokerCheck. Now What?
Choosing a broker to manage your nest egg is one of the most important decisions you will make as an investor. BrokerCheck, a free online database provided by the Financial Industry Regulatory Authority (FINRA), provides a wealth of background information about brokers to help make that decision easier.
Complaints by customers against brokers are included in the background information. Brokers have to notify FINRA of customer complaints that allege misconduct related to the sale of financial products — even if the allegations are without merit.
Knowing what to do with that information is another story — and some of the trickiest pieces of data to interpret are the customer complaints that sometimes pop up in these background reports. Here are some things to look for when a customer complaint shows up in your broker’s history.
- Is it the only complaint on the report? If not, are there other, similar complaints that suggest a pattern? It is helpful to consider how many complaints a broker has received, and over what time period. Two complaints in a two-year career may be more cause for concern than two complaints in 30 years — but it’s important to review the details of each complaint, including its resolution, before drawing any conclusions.
- How was the complaint resolved? A broker and her firm may decide that the customer’s complaint is unfounded and determine to “deny” the complaint. In such cases, the disposition on BrokerCheck will reflect "denied." A customer may then decide to seek compensation for damages by filing a claim in arbitration. Alternatively, a broker and her firm may determine to settle a complaint by, for example, paying compensation to the customer. The existence of a complaint does not mean the broker did anything wrong. Similarly, a denial of wrongdoing by the broker does not always mean a complaint was unfounded.
- If the complaint was settled, how much (if anything) did the broker contribute to the settlement? How does the settlement amount compare to the amount of damages originally claimed by the customer? A $1 million claim settled for $750,000 is likely to be very different from a $1 million claim settled for $25,000. The same considerations should be given to civil litigation and arbitration awards.
- What are the specific allegations within the complaint? It’s important to consider whether the claim alleges specific acts of misconduct by the broker (e.g., unauthorized trading), or the unexpected failure of a particular investment product. The unexpected failure or decline in value of a particular investment product could lead to numerous complaints tied to that product against a broker. Some customers might feel that the broker didn’t tell them all that they needed to know about that investment. But a slew of complaints doesn’t necessarily mean that the broker engaged in misconduct.
- What does the broker say? When a broker reports a customer complaint, they are given an opportunity to provide comments about the matter. You may want to consider those comments as they can shed additional light on the nature of the complaint and provide some insight into the broker’s side of the story.
For investment advisers, you can check out the U.S. Securities and Exchange Commission’s Investment Adviser Public Disclosure, or IAPD, for more information.
If you’ve reviewed the background of a broker or investment adviser and still have questions, the best thing to do is simply to ask him or her — or the firm’s compliance department — about anything that concerns you. Don’t hesitate to ask questions before you entrust your money to someone.