Expressions of dissatisfaction: How to effectively respond when a client complains

Every day, thousands of Australian consumers voice their dissatisfaction about the services they receive (or fail to receive, as the case may be) from the professionals they deal with, across a broad range of industries. The financial services industry is certainly not immune from such discontent – in fact, some might argue that client complaints are one of the biggest threats facing financial planning businesses at the moment.

Statistics published by the Financial Ombudsman Service (FOS), indicate that it accepted more than 1200 investment related disputes in the 2012-2013 financial year (note 1). Given the spotlight shone on the issues facing several large dealer groups of late, this number is likely to increase in the near future.

While advisers and Australian financial services licensees (AFSLs) alike can take a variety of steps to minimise the likelihood of receiving complaints, there is no guaranteed way of being completely insulated from a client complaint. What you do have control over, however, is the manner in which you deal with the complaints you receive – this may, in some cases, have a significant impact on how a complaint turns out and by implication the effect it has on your business.

The importance of good procedures

AFS licensees are required by law and the Australian Securities and Investments Commission (ASIC) to have in place a dispute resolution system that consists of:

(a)        Internal dispute resolution (IDR) procedures that meet the standards or requirements made or approved by ASIC; and
(b)        Membership of one or more ASIC-approved external dispute resolution (EDR) schemes.

While ASIC provides detailed guidance on what it expects AFS licensees to take into account when putting together their IDR procedures, it nevertheless leaves the detail of those procedures to the discretion of individual AFS licensees. In fact, ASIC expects AFS licensees to personalise their IDR procedures by taking into account (amongst other things), the size of their business, the nature of their client base, the range of financial products or credit activities they offer and the likely number and complexity of disputes they may receive (note 2).

This gives AFS licensees a great amount of flexibility to tailor make their IDR procedures to reflect the circumstances and needs of their individual businesses thus allowing them greater control over how they manage the complaints they receive (within the parameters set by ASIC’s guidance).

Appropriateness of process

It is against this background that AFS licensees should examine the appropriateness of their IDR processes against their business and its needs. For example, how quickly does your process allow you to start investigating a complaint after it is initially received? Are there any ‘roadblocks’ in your current IDR process that cause you delays in commencing the said investigations (e.g. is a complaint letter spending too much time languishing in someone’s inbox rather than being acknowledged immediately and dealt with in an effective manner)?

Another important consideration for AFS licensees in this respect is also how well its internal stakeholders (especially its authorised representatives) understand and follow its IDR procedures. There is little benefit in having a robust process if no one understands or follows it. Remember, at the end of the day it is still the obligation of an AFS licensee to deal with a complaint, even if the complaint is lodged with its authorised representative(s). Accordingly, AFS licensees need to not only ensure that they have robust processes in place, but that their staff and authorised representatives understand and follow those processes.

Dealing with client complaints

It is imperative that AFS licensees acquaint themselves with the conditions of their Professional Indemnity insurance policies (PI) to the extent they relate to informing the PI insurer about a client complaint. Potentially voiding one’s PI policy due to failing to notify an insurer of a possible claim within the insurer’s requisite period would be a disastrous outcome for any AFS licensee.

As a general rule, it is best to remove emotion from any complaint related equation – dealing with disputes requires a level of objectivity that will be difficult to achieve should it be afflicted by paralyzing and irrational emotional responses. To the extent possible, it is usually a good idea to have in ‘independent’ party within the AFS licensee (i.e. someone besides the adviser the subject of the complaint) to deal with and respond to the complaint. Where this is not possible (e.g. in smaller dealer groups or AFS licensees) at the very least it may be worth getting a ‘fresh set of eyes’ to look through the complaint and your proposed response (e.g. a trusted peer, a professional services consultant etc.).

Get ahead of the complaint and don’t let it linger. Remember, most complaints are triggered by an emotional response to an event that a client has experienced (e.g. a client discovers that their recommended portfolio has lost a substantial amount of value) so any perceived failure to deal with the complaint within a reasonable amount of time or in a less than professional manner is only likely aggravate an already volatile situation even further.

Significant benefits

Effectively engaging with the effected client(s) throughout your IDR process can yield significant benefits including making it easier to obtain crucial further details from the client(s) and in some cases assist in managing a client’s expectations regarding the outcome of the complaint.

Consider your options and the best possible commercial outcomes that may be available in the circumstances. Remember, EDR schemes charge fees to deal with disputes and Court cases can be very expensive (in terms of both time and resources) to defend – in this context it can be worth thinking about whether or not it may be beneficial to wrap up the complaint before it progresses any further. Of course, prior to making any decision in this respect, speak to your PI insurer and if appropriate, obtain independent legal advice. In the event a complaint progresses to your EDR scheme, an effective strategy is generally to proactively engage with the EDR scheme’s processes (including providing detailed submissions coupled with documentary evidence addressing the subject matter of the complaint). EDR schemes generally also do not prohibit parties from trying to settle disputes on their own terms (where possible). Remember also that as an AFS licensee, serious misconduct and possible systemic issues are reportable breaches to ASIC – these are matters an AFS licensee dealing with a client complaint should also have regard to.

The new reality

Irrespective of our personal views on whether or not as a society we are becoming too litigious or if we indeed complain too much (as some commentators tend to suggest from time to time), the fact is that our industry is operating in times when a client complaint is not so much a possibility but rather a likelihood. Remember, a complaint can arise regardless of whether you have provided good advice or followed proper procedures. There are also services available to disgruntled clients to assist them in making and managing their complaint. It is an increasingly tougher world out there for advisers and AFS licensees. Nevertheless, the right preparation and approach remain the best tools available to your business to be able to meet this challenge as and when the need arises.