What You Need to Know about Handling Complaints for the Series 7 Exam
It’s bound to happen sooner or later, no matter how awesome you are as a registered rep: One of your customers is going to complain about something (like unauthorized trades, guarantees, and so on). Complaints aren’t considered official unless they’re in writing. FINRA wants you to follow the proper procedure for handling complaints. The following discussion covers formal and informal proceedings.
Code of procedure (litigation)
The code of procedure is FINRA’s formal procedure for handling securities-related complaints between public customers and members of the securities industry (broker-dealers, registered reps, clearing corporations, and so on). The public customer has the choice of resolving the complaint via the formal code of procedure or the informal code of arbitration.
In the code of procedure, the District Business Conduct Committee (DBCC) has the first jurisdiction over complaints. If the customer or member isn’t satisfied with the results, he can appeal the decision to the FINRA Board of Governors. Decisions are appealable all the way to the Supreme Court.
Code of arbitration
The code of arbitration is an informal hearing (heard by three arbiters) that’s primarily conducted for disputes between members of FINRA. Members include not only broker-dealers but also individuals working for member firms.
For example, if you (a registered rep) have a dispute with the broker-dealer that you’re working for, you can take the broker-dealer to arbitration. If a customer has a complaint against a broker-dealer or registered rep, the customer has the choice of going through code of procedure or code of arbitration, unless the customer has given prior written consent (usually by way of the new account form) stating that he will settle disputes only through arbitration.
Simplified industry arbitration (between two members) and simplified arbitration (between a member and a customer) is available for disputes of $50,000 or less. In this case, the hearing will be before one arbiter rather than three.
The decisions in arbitration are binding and nonappealable, so they’re less costly than court action.
If an investor and/or broker-dealer are looking for a more informal way to handle disputes, they may voluntarily decide to go to mediation. Disputes settled through mediation are heard by an independent third party. Unlike arbitration, mediation is nonbinding.