10 FAQs on How to Handle Customer Complaints

Aside from the obvious benefits, careful attention to customer complaints can help your firm manage risk. Consistent reviews can flag account holders who may not be a good fit for the firm, emphasize issues before they become problems, and highlight areas in which additional compliance efforts may be prudent.

Case in point – in FINRA’s recent disciplinary action notice, a firm from St. Louis, Missouri was “censured, fined $40,000, and ordered to certify in writing that it has reviewed its systems, policies and procedures governing its review, analysis and disclosure of customer complaints.” The firm must also confirm that it has established and implemented systems, policies and procedures that are reasonably designed to achieve compliance with applicable FINRA rules and by-laws.

The findings stated that the inaccuracies in the firm’s Form U4 filings resulted from a misunderstanding by some of its associates about the applicable requirements for disclosing customers’ complaints. This case exemplifies the need for firms to educate their staff on not only what is considered a customer complaint but also the process in which to disclose that incident to compliance or Web CRD.

In this article, we’ll highlight some frequently asked questions (FAQs) when it comes to identifying and reporting customer complaints.

Q: When must a customer complaint be filed?

Registered representatives must report complaints on their Form U4s, pursuant to Question 14L, and disclose any investment-related customer or consumer-initiated complaints involving one or more sales-practice violations where the customer claimed $5,000 or more in damages, or where the complaint was settled for $10,000 or more. In addition, representatives must report any allegation involving forgery, and any misappropriation or conversion of funds or securities. Non-sales practice customer complaints are reportable quarterly pursuant to FINRA Rule 3070.

Members firms must provide the amount of alleged compensatory damage in the complaint for sales practice complaints. If a specific amount is included in the compliant, it must be used. When a specific amount is not included, members are required to make a good faith estimate.

It may not always be obvious whether a particular statement is a complaint, or non-reportable “regular customer correspondence (i.e., customer inquiries or observations).” Whether a piece of correspondence is categorized as a complaint requires the exercise of judgment and the application of several factors. One way to attempt to find the line between complaints and “inquiries or observations” is to consult the list of problem codes that FINRA publishes on its website.

To read FINRA’s full list of product/problem codes, click here.


Q: Are text messages and tweets received from member firm customers complaining about the member firm or its associated persons subject to reporting under FINRA Rule 4530?

Yes. Received text messages and tweets are in a written format. Thus, a member firm must report text messages and tweets received from firm customers expressing complaints about the firm or its associated persons consistent with the requirements of FINRA Rules 4530(a)(1)(B) and 4530(d). For example, if a firm customer sends a tweet to the firm alleging that an associated person sold him unsuitable securities, the firm must report it pursuant to FINRA Rule 4530(d).

Q: What if a registered representative at my firm is also an insurance agent that was recently the subject of a written complaint from an insurance customer in connection with the sale of a fixed annuity. While the representative had recommended some securities to the insurance customer when he sold the annuity, the individual decided not to purchase any securities. Does the member firm have to report the complaint under FINRA Rule 4530?

No. For purposes of FINRA Rules 4530(a)(1)(B) and 4530(d), a person with whom a member firm has sought to engage in securities activities is considered a customer of the firm. However, the firm is only required to report any securities-related written grievance by such person under FINRA Rule 4530(d) and any written complaints alleging theft or misappropriation of funds or securities, or forgery involving the firm or an associated person under FINRA Rules 4530(a)(1)(B) and 4530(d). 

Q: What if a customer recently submitted a written complaint to FINRA alleging that a member firm sold him unsuitable securities and FINRA forwarded a copy of the complaint to the firm. Is the firm required to report the complaint?

Yes. The firm is required to report the complaint notwithstanding the fact that FINRA forwarded the complaint to the firm. Moreover, the answer would be the same if another regulator, such as the SEC, were to forward a copy of a written customer complaint to the firm.

Q: What if a third party informs the member firm that the firm is the subject of a written customer complaint alleging theft of funds but the firm does not have a copy of the written complaint. Is the firm required to report this information?

No. However, under such circumstances, FINRA expects member firms to request a copy of any written customer complaints and, upon reviewing them, determine whether they are required to be reported under FINRA Rules 4530(a)(1)(B) or 4530(d).

Q: What if my member firm intends to use a third-party service provider to conduct a customer satisfaction survey. Would either the ratings or comments resulting from such a survey be considered a written customer complaint for purposes of FINRA Rule 4530?

In general, ratings of a member firm’s services resulting from a survey would not be considered written customer complaints for purposes of FINRA Rule 4530. However, with respect to written comments in customer surveys, member firms have an obligation to review them and determine whether any of them amount to a reportable complaint for purposes of FINRA Rules 4530(a)(1)(B) or 4530(d).

Q: What if my member firm received a written customer complaint alleging that the firm engaged in securities fraud but then later that same day, the customer withdrew the complaint? Does the firm have an obligation to report the complaint?

Yes. A written customer complaint subject to FINRA Rules 4530(a)(1)(B) or 4530(d) must be reported within the prescribed timeframe, regardless of whether the customer subsequently withdraws it.

Q: Does my firm have to wait until the end of the quarter to report a customer compliant?

No. Member firms may report statistical and summary information regarding a written customer complaint at any point after receiving it, but by no later than the 15th calendar day of the month following the end of the calendar quarter in which the complaint was received.

Q: Is my member firm required to report that it has not received any customer complaints during the applicable quarter?

No. Member firms are not required to report that they have not received a written customer complaint during the applicable quarter.

Q: When reporting written customer complaints, when should Problem Code 23-Poor Performance be used versus Problem Code 12-Poor Recommendation/Poor Advice or Problem Code 4-Suitability?

Member firms should use Problem Code 23-Poor Performance when reporting a written customer complaint that makes allegations concerning the poor performance of the customer’s account, but does not allege specific sales practice violations, does not attribute damages to a research analyst recommendation, and is not otherwise reportable under Problem Codes 20-Research, 21-Product Origination/Investment Banking, or 22-Trading.

Member firms should use Problem Code 12-Poor Recommendation/Poor Advice when reporting a written customer complaint alleging that a recommendation to purchase, sell, exchange, or hold a security constituted poor advice, but does not link the alleged poor quality of the recommendation or advice to the customer’s investment profile or raise other suitability-related concerns. In addition, member firms should use Problem Code 12 when reporting a written customer complaint alleging poor advice based on the absence of a recommendation.

Problem Code 4-Suitability should be used when reporting a written customer complaint alleging that a recommended transaction or recommended investment strategy involving a security or securities was not suitable. This includes complaints concerning the three main suitability obligations.

The appropriate Problem Code is to be selected based on what the customer alleged in the written complaint, not on an assessment of additional information known to the firm or the firm’s disposition of the complaint. In addition, when a customer makes multiple allegations in a written complaint, the firm is to report the most egregious Problem Code. To read FINRA’s full list of product/problem codes, click here.

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