I know we're required to file an amended U4 (or U5) when we receive a customer complaint against an associated person, but what exactly constitutes a "complaint?" We often get letters or emails from clients "complaining" about declines in their account or problems in the overall economy, but I don't think these are the types of "complaints" we're required to report, right?
W.M., Houston
Question 14I of the Form U4 asks whether the associated person has "ever been the subject of an investment-related, consumer-initiated complaint, which alleged [that the individual was] involved in one or more sales practice violations, and which was settled [for certain specified amounts]." Question 14I also asks whether the associated person has, within the past 24 months, been the subject of such a complaint that contained a claim for compensatory damages of $5,000 or more. Note that the question indicates that "if no damage amount is alleged, the complaint must be reported unless the firm has made a good faith determination that the damages would be less than $5,000." In addition, complaints alleging forgery, theft, misappropriation or conversion of funds or securities must also be reported.
Putting aside those specific instances of misconduct, the question can be broken down into two parts. The first is whether the "complaint" alleged a "sales practice violation." In the situations you raise, where clients are just complaining in general about declines in their accounts without making a specific reference to anything they think the representative did wrong, I don't think you have a reportable complaint. On the other hand, if the customer is alleging that the rep put him or her into unsuitable investments, then you have an allegation of a "sales practice violation."
The second part of the test relates to the monetary aspect of the complaint. This element also seems clear. You either settled the complaint for the specified amounts, or the customer is asking for compensation. Most customers don't "complain" without asking for something. It could be a break on commissions or an outright demand for reimbursement of losses, but either way, if they want more than $5,000, you've got a reportable complaint on your hands.
I was recently fined by FINRA for a so-called "minor rule violation." Although I disagree with the result, since the amount is relatively small, I'd rather not spend a lot of money on an attorney. Someone suggested I contact FINRA's Office of the Ombudsman. Do you think they can help or am I wasting my tim?
T.M., Florida
It's unlikely that you will get any satisfaction through the Ombudsman's Office. That's not to say that they don't want to help. It's just that the limits of what they can do are not well understood.
As indicated on the FINRA website, the Ombudsman "does not participate in or replace already existing FINRA processes or programs. Where established procedures currently exist regarding the application of rules, policies, procedures or interpretation, the Ombudsman's Office will direct the complaint to the appropriate department and monitor the outcome." Because the Ombudsman can point you in the right direction and explain the existing rules and procedures to you, it's cheaper than calling a lawyer to get the same information.
However, other than monitoring the process to make sure it's working correctly, the Ombudsman will not get involved in the issue. It does not have the authority to overturn decisions made in disciplinary proceedings. Even in an egregious situation, the only thing it could really do would be to bring any problems to FINRA management and recommend ways to see that they don't happen again. Unfortunately, that's little comfort to someone who may have gotten a raw deal in a disciplinary matter.
Alan J. Foxman is an attorney with the law offices of Rita G. Dew, P.A.
and a senior consultant with National Compliance Services, Inc.
in Delray Beach, Fla. He can be contacted at:
