Insights | 12.13.18
Client Complaints? Bank Brokerage Compliance Officers Channel the Maytag Repairman
Industry pundits cite concerns about regulatory compliance, customer complaints and reputation risk as reasons why some financial institutions are backing off of wealth management and client investment services. But new data from Kehrer Bielan indicates that bank compliance officers might be like the Maytag repairman in the vintage TV commercials, brushing off the cobwebs and bemoaning that no one ever calls.
According to Kehrer Bielan’s proprietary database of 201 banks and credit unions covered by its annual benchmarking surveys, financial institutions had only 2.9 formal written client complaints last year for every 10,000 client investment accounts. Bank broker/dealers (B/Ds) and the third-party B/Ds (aka TPMs) that partner with banks and credit unions are required to track any formal written client complaint.
Of course, many clients have multiple accounts with their advisor, so a better measure of the incidence of client complaints is the number of complaints per client household. That complaint rate is only 4.3 complaints per 10,000 client households.
Another measure of the compliance risk in client investment services is the incidence of complaints per advisor. Here, again, the complaint rate is very low — one written complaint per year for every fourth advisor.
The client complaint rate in financial institutions is even less significant when one considers that most customer complaints are about administrative gaffes, such as incorrect beneficiary designations, garbled addresses or phone numbers, paperwork delays, etc. Last year, only 43 percent of formal written securities complaints in banks and credit unions were concerned with sales practices. So, cut those complaint rates above in half to assess the risk in offering investment services to a financial institution’s clients. A greater focus on financial profiling and planning, expanded advisor training, employing highly ethical advisors and a culture of compliance are the best ways to ensure that client complaints remain low.
The bottom line: Either the securities compliance skeptics are exaggerating the compliance risk of the business, or advisors, compliance professionals and firms are doing a great job of keeping the business clean.