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  • Laura Bewick Howitt, CFA, CIPM, MBA

Handling Client Complaints

Updated: Apr 17, 2023

Effective compliant handling is vital to maintaining investor confidence in the financial markets and ensuring that the industry operates in a fair and transparent manner. This article includes a general overview of complaint-handling regulations followed by tips for handling complaints escalated to the independent ombudsman.


THE REGULATORY FRAMEWORK


The Canadian securities industry is primarily governed by the province’s or territory’s Securities Act or other applicable Acts and regulations, the self-regulatory organizations (SRO) and Canadian Securities Administrator (CSA) rules and regulations, and industry standards. CSA rules or regulations are largely harmonized as either National or Multilateral Instruments and are adopted as local subordinate legislation under each Canadian province’s or territory’s Securities Act.


National Instrument 31-103 (NI 31-103) covers the Registration Requirements, Exemptions an Ongoing Registrant Obligations and has been adopted by all provincial regulators. National Instrument 31-103 covers the primary complaint handling obligations for firms registered as portfolio managers and exempt market dealers.


According to section 13.5 of NI 31-103 “A registered firm must document and, in a manner that a reasonable investor would consider fair and effective, respond to each complaint made to the registered firm about any product or service offered by the firm or a representative of the firm.” Firms have 90 days from the initial complaint to provide the client with a final substantive response. Therefore, firms must have an efficient process to move the complaint through the various levels of review or investigation.

When a registered firm receives a complaint from a client, the firm must, as soon as possible, provide the client with a written acknowledgement of the complaint that includes a description of the firm’s complaint-handling obligations and details of the independent dispute resolution service that the client may contact if they are not satisfied with the firm’s response. As per section 13.5 of NI 31-103: “If a registered firm decides to reject a complaint or to make an offer to resolve a complaint, the firm must, as soon as possible, provide the client with written notice of the decision.” The final response must again include the steps the client can take to file a complaint with the independent ombudsman and contact information for the ombudsman. Clients have 180 days to escalate their complaint to the ombudsman and firms should also notify clients of this requirement.


THE ROLE THE OMBUDSMAN


If the firm has not provided its final substantive response within 90 days or the client is not satisfied with the response, the client can escalate their complaint to the Ombudsman for Banking Services and Investments (OBSI). OBSI is the national, independent, not-for-profit organization designated by the Canadian securities regulators to provide dispute resolution services for consumers and small businesses. OBSI is funded by its participating firms and its dispute resolution service is free of charge to investors. OBSI’s role is to investigate complaints and make recommendations for resolution. OBSI can recommend up to $350,000 in compensation though the vast majority of its recommendations are for significantly less.


TIPS FOR FIRMS AT EACH STAGE OF OBSI’S PROCESS


Many firms we have dealt with have little or no experience with OBSI. Below are some tips that you and your employees could consider at each stage of the OBSI process.


Stage 1: Intake


Investors who wish to make a complaint to OBSI can do so by completing an online complaint form or by contacting OBSI by phone or email. When OBSI receives a client inquiry, it will first take steps to ensure that the complaint falls under its mandate, as outlined in parts 5 and 6 of OBSI’s Terms of Reference. This includes things like confirming that the complaint is regarding a participating firm, that the firm has been given an opportunity to investigate the complaint and that the complaint was brought to OBSI within 180 days of receiving the firm’s final substantive response.


If the intake team determines that the complaint is within OBSI’s mandate, it will ask the client to sign a consent form and provide all relevant documents including any written complaint and the firm’s response. The intake team will then send the relevant documents to the firm and ask the firm to provide all of its documents and evidence. There are some instances where your firm may disagree with OBSI’s initial mandate decision.


The following are two common examples where the mandate decision may be in dispute:


1. Complaint not made within 180 days of firm response

Clients have 180 days to escalate their complaint to OBSI after receiving the written response from the firm. However, OBSI may decide to investigate a complaint even after the 180 days has elapsed if it believes it is fair to do so. For example, OBSI may determine it is fair to investigate if the firm failed to notify the client of their right to escalate the complaint to OBSI within 180 days.

2. Matter already decided

OBSI will not investigate a complaint where the same complaint has already been decided by a court, tribunal, arbitrator or other independent dispute resolution body or where the firm and client have already agreed to a settlement.


Firm tips:


  1. Provide clear notice: Be sure to provide clear notification to clients of their right to escalate to OBSI and the 180-day timeline both in the initial acknowledgement letter and the final response. If OBSI does not see clear notice to the client, it may proceed with an investigation even if the client contacted OBSI after the 180 days had already elapsed.

  2. Obtain a signed release: When paying compensation, you may opt to have clients sign a fair, full and final release acknowledging acceptance of the resolution. Ensure that the release includes factual information about the subject matter of the complaint. If it is not clear that the settlement relates to the subject matter of the complaint, OBSI may choose to investigate.

  3. Notify OBSI if a decision has already been rendered: OBSI may not be aware of a prior court or arbitrator’s decision on a complaint. If the matter has been decided, you will need to notify OBSI. Again, the decision must relate to the subject matter of the complaint. OBSI would not consider a complaint out of mandate unless it is clearly related to the prior complaint.

  4. Keep a complete file: All parties investigating the complaint on behalf of your firm should keep a complete file of its investigation and all evidence reviewed. This will be requested in both a regulatory audit, and help to ensure that you can send OBSI the required information in a timely manner when it requests a copy of the firm file.


 

Step 2: Investigation


Once your firm provides the requested documents, OBSI assigns an investigator to review the complaint and complete its investigation. The investigator will generally want to interview the advisor and may wish to interview other parties who might have relevant information. The investigator assigned will contact the firm to schedule the interview.


In the course of an investigation, OBSI may request additional documentation and may discuss the complaint with the Chief Compliance Officer (CCO) or other senior members of the complaint-handling team. OBSI may seek to promote a resolution at any time during its investigation. Firms must respond to these requests in a timely manner and should be prepared to discuss an early settlement.


Firm Tips:


  1. Designate a firm employee: When OBSI initiates its investigation, be sure to designate a firm contact who has both knowledge of the case and sufficient authority to discuss the matter. A single point of contact is critical to ensuring effective communications and timely responses. If OBSI proposes a settlement, the individual you appoint should have sufficient authority (or direct contact with the appropriate decision-makers) to make a settlement offer.

  2. Prepare employees for the interview: Employees being interviewed, should prepare ahead of time by reviewing all relevant evidence and preparing to respond to potential interview questions. Your firm’s CCO or other experienced staff, that are independent of the complaint, may assist with the review and preparation. While not a requirement, some firms choose to hire outside counsel or consultants to assist with the interview or interview preparation. During the interview your firm representatives may provide guidance, assistance or clarification, but they should not obstruct or respond in the interview process. The purpose of the interview is to gather information from parties with direct knowledge of the complaint. It is not the time to argue the merits of the case, though you could have this type of discussion at the end of the interview or at another scheduled time.

  3. Be open to settlement: If OBSI provides your firm with an early opportunity to settle the matter, you should consider it carefully. Participating in an in-depth investigation can be time-consuming and resource-intensive. Even if you believe there was no firm error or fault, it may be more cost-effective to settle (particularly when the amounts involved are nominal). Settling the matter early may also help your firm preserve the client relationship.



Step 3: Investigation Outcome


Once the investigation is complete, the investigator will evaluate the complaint and determine whether it has merit. If the investigator determines that there is no basis for a recommendation, the investigator will send a formal written response to the customer explaining the reasons for the decision. OBSI will send your firm a copy of its decision and close its investigation.


If the investigator determines that the complaint has merit and that the client has suffered loss, damage or harm as a result, the investigator will recommend a fair and reasonable resolution. OBSI will initially attempt to facilitate a settlement. This may be through informal discussions, an email or a more formal written facilitated settlement proposal. Firms have an opportunity to respond and may accept or reject the proposed settlement. Firms can also make an alternate settlement offer, which OBSI may present to the client if it deems the offer to be “reasonable”.


Firm tips:


  1. Review OBSI’s settlement proposal carefully: Carefully review the settlement proposal to determine if there are any errors or omissions. This includes carefully reviewing OBSI’s analysis and loss calculations. Notify OBSI promptly and in writing of any errors in its report or conclusions. It is appropriate at this stage to clarify or address any apparent errors. However, you should also consider whether the error or omission affects the overall conclusions or recommendation. In other words, correct minor errors, but don’t nit-pick or use the minor error as a pretext to refuse the settlement proposal.

  2. Consider client responsibility and mitigating factors: In reviewing the findings, you should consider whether there is a basis to allocate a percentage of responsibility to the client for the loss, damage or harm. For example, if the client failed to take reasonable steps to review documentation or ask questions or if the client had a clear opportunity to limit (mitigate) losses and failed to do so. While OBSI considers these factors in making a recommendation, it may not have placed sufficient weight on certain evidence. OBSI may be willing to consider its conclusions further at this stage of the investigation.

  3. Discuss the proposed settlement: Be prepared to have a frank discussion with the OBSI investigator about the proposed settlement. Keep the discussion calm and rational, ask clarifying questions and be prepared to provide clear and specific reasons why you disagree with the conclusions.

  4. Engage the appropriate parties early: Firms often rely on third parties to pay the settlement. This may include payments directly by the advisor, by the line of business or by your errors and omissions insurer. To avoid delays, these parties should be notified of the complaint and engaged early in the settlement process. OBSI will not allow the settlement process to drag on indefinitely, so its important to engage anyone who needs review or approve the settlement early in the process.


STAGE 4: RECOMMENDATIONS AND FINAL DECISION


If OBSI is not able to resolve the matter through a facilitated settlement, it will issue a report. Again, the firm will have a limited amount of time to review and respond to the report. OBSI will review the firm’s response and may amend its report or its conclusions based on the firm’s comments.


If the matter remains unresolved, OBSI will issue a final report. The firm then has a limited period of time to decide whether to accept or reject OBSI’s recommendation. OBSI’s recommendations are non-binding, but they are usually accepted by the participating firms. If the participating firm does not accept OBSI’s recommendations, OBSI is required to disclose the matter to its board of directors and to the relevant regulator. OBSI must also make public the refusal. As per OBSI’s Terms of Reference “Where OBSI makes a recommendation for resolution of a complaint but the Participating Firm refuses that recommendation, the Complaint and the Participating Firm’s reason for refusal will be escalated to the Ombudsman before OBSI publicizes the refusal.”


Firm tips:

  1. Engage your CCO and other relevant senior executives: If they are not already involved, be sure to engage your CCO and other relevant senior executives. Refusal of an OBSI recommendation can exacerbate potential regulatory action and can result in significant reputational damage if OBSI makes public your firm’s refusal to compensate the client according to its recommendation.

  2. Avoid reiterating the same arguments: You should avoid reiterating the same arguments you made during the settlement proposal process, unless you believe that OBSI has failed to give the arguments due consideration. Repeating the same arguments is unlikely to change OBSI’s conclusions. Instead, consider carefully whether you believe OBSI has missed anything relevant in reaching its conclusions. This may include errors in interpreting the evidence, missing important evidence, insufficient weight placed on client responsibility or mitigating factors, or errors in its loss calculations. These factors should already have been addressed during the facilitated settlement process, but you still have an opportunity to consider these matters if you have not already done so.

  3. Consider making an offer to settle: Whether or not you agree with OBSI’s conclusions, you and your firm should consider making an offer to settle the matter. You can offer to settle the matter for the amount OBSI recommended or you may choose to offer something less than OBSI recommended. Make the offer reasonable and ensure you have a reasonable basis for the offer. OBSI may consider that the firm’s offer falls within the range of reasonableness (e.g., if OBSI found that the client was 25% responsible for their losses and the firm has a reasonable basis to believe that the client responsibility is higher).


OVERVIEW OF OBSI RECOMMENDATIONS


As per OBSI’s 2022 Annual Report, 33% of investment cases result in monetary compensation and this includes cases that were resolved for substantially the same amount as what the firm already offered. While OBSI can recommend up to $350,000 in compensation, the median amount of compensation awarded in 2022 was $1,596 and the average was $8,985. The highest amount of compensation awarded by OBSI in 2022, was $242,931.


Except in the case of a firm refusal, OBSI’s investigations are strictly confidential. This means that neither OBSI nor the client can disclose OBSI’s investigation or its conclusions or use them in any subsequent legal action.


Effectively handling escalated client complaints can be stressful and time-consuming, but is nevertheless an important part of the Canadian regulatory framework. SGD Compliance Consulting can provide expertise in effective complaint-handling policies and working with OBSI during an investigation.


For more information, please contact us at: info@sgdcompliance.ca



© 2023 SGD Compliance Consulting Inc.


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This article was prepared for informational purposes only and is not intended to provide, and should not be relied on for specific advice. You should not act upon the information in this article without an independent assessment of the law or regulations applied to the facts of your situation.

SGD Compliance Consulting Inc. is not responsible for the content of websites and information resources that may be referenced in the article. Reference to these sites or resources does not constitute an endorsement by SGD Compliance Consulting Inc. of the information contained therein. Although we have endeavored to ensure that the information contained in this article has been obtained from reliable and up-to-date sources, the changing nature of statistics, laws, rules, and regulations may result in delays, omissions, or inaccuracies in information contained in this report

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