Steven R. McCarty
Do you have a way
of preventing client
disputes? Go to
and tell other advisors
what you’re doing.
FINRA statistics reveal that 2,135 cus- tomers filed arbitration claims against securities brokers in 2015. FINRA also
says arbitration cases typically take about
14 months to resolve with advisors liable for
damages about 40 percent of the time. Now,
does the prospect of worrying about a client
dispute for 14 months, dealing with attorneys,
having outsiders poke around in your business
and potentially incurring sanctions and fines
sound appealing to you? I didn’t think so. And
I’m certain insurance-licensed producers and
investment advisors would agree.
A better alternative? Pre-empt client
disputes before they become arbitration or
legal cases and before you need to get your
errors-and-omissions insurer involved. And
if the disputes enter “the process,” manage
them expertly in order to limit damage to your
finances or reputation.
Regarding prevention, the most important
point is to pay close attention to the emotional temperature of your clients. Watch for
signs of anger, agitation, disappointment,
disengagement, or frankly, anything that is
atypical for that particular client. If you notice
any sign of discontent, intervene promptly.
Ask probing questions to see if you can smoke
out the source of the problem and remediate
it before it becomes a formal complaint. Most
importantly, avoid the natural tendency to
ignore client discontent until it becomes unavoidable. Paying attention now will prevent
you from having to spend a lot more time on
the matter later.
Now once it appears the problem isn’t going
away, give prompt notice to your errors-and-
omissions insurer. Then file all required claims
forms and supporting documents in order to
initiate an errors-and-omissions insurance
claim. While your insurer sets up the claim,
do your best to manage your emotions. Don’t
lash out in frustration at a client who is filing
a lawsuit or arbitration claim against you.
Although such situations are aggravating,
keeping a level head will help your E&O
insurer and appointed attorney resolve the
dispute to your best advantage.
While this process plays itself out, here are
few other things to keep in mind.
• If and when you speak with your aggrieved
customer, never admit wrongdoing. However, it’s OK to sympathize with the person.
And never defend yourself to the person or
provide documents that prove you’re right.
• Also, don’t admit that you have E&O insurance. But don’t deny this if directly asked. In
any event, never share language from your
E&O policy with an aggrieved client or with
that person’s attorney. Always refer information requests to your insurance company and
to your attorney.
• Never try to “cover your tracks” by plugging
holes or fixing errors in the customer’s file, as
it will make you appear “guilty.”
• Don’t give money to the client in order to
settle the dispute. This holds true even if the
payment is small. And never discuss settlements yourself; always refer this to your
• Don’t give a written or recorded statement
to the client’s attorney without the approval
and involvement of your own attorney. This
also holds true if the statement request
comes from the client’s insurance company
or investment provider.
• Don’t try to “project manage” the case day
to day. This is something your errors-and-omissions claims a djuster is well trained to
• Finally, don’t discuss your claim with anyone
other than your claims rep, defense attorney
or staff members directly involved with the
Because when all is said and done, working
through client disputes can be a nasty, brutish
and long experience. Don’t go there if you
can help it. But if you have no choice, keeping
your wits about you will help minimize the
E&O no: How to ease the pain
of client disputes