Bear market sparks rise in complaints

“Increases were experienced in both banking services and investment files,” said Ombudsman David Agnew, adding industry efforts to make clients aware of OBSI likely contributed to the jump in complaint files. That’s not necessarily a bad thing, though, since it can save court costs and hassles for both parties.

Alex Popovic, vice president of IIROC’s enforcement department, says 845 client complaint files were opened in 2008, up sharply from 651 in 2007. “We saw a significant increase in the last three months of 2008,” he said, “That trend seems to be continuing through January and I suspect given the economic situation that we’ll see this for a foreseeable period.”

Agnew is also predicting a hectic year. “With the volatility of the markets, and the downturn in the economy, we expect a busy 2009,” he said.

In terms of complaint types, Popovic notes data collected by the Toronto regional office shows 26% of files opened in 2008 relate to unauthorized discretionary trading activity (compared with 22% in 2007). Next up are suitability and misrepresentation complaints, each at 11% in 2008 compared with 9% the prior year. Service-related issues accounted for 4% of complaints in 2008, from 5% in 2007.

OBSI’s report found suitability concerns led the pack, with 59 cases opened; followed by leverage, misrepresentation and fees. OBSI notes suitability complaints stem from a disconnect between a client’s stated investment objectives and the securities recommended or purchased by an advisor. On the banking side, loans and transaction accounts were the top sources for complaints investigated.

Resolution rates remain solid. The ombudsman says it closed 93% of 2008 files within 180 days — beating its own internal performance metric of 80% within that time period. During 2008, OBSI says it facilitated settlements for clients in 91 cases and made 64 recommendations for compensation after doing a full investigation.

From a qualitative perspective, it’s not yet clear how the rise in complaints in the final quarter of 2008 will shake out. Many of the files are still being reviewed by IIROC’s case assessment team. IIROC expects its case assessment staff to complete 80% of files within 75 days of receipt. Case assessment staff is expected to gather all reasonable information and documentation needed for the assessment, which may include the conducting of interviews, and the demanding of reports or results of internal investigations from IIROC firms. Based on all that information, the staff will conduct an analysis of the facts before recommending a matter be considered for investigation.

“Sometimes unsophisticated clients don’t know if the losses are the result of market conditions or if there was something that happened that the IA should have preempted or that he or she actively did something that was inappropriate,” says Popovic. “It’s better for us to hear from the clients and assess whether it’s a market condition or not; especially for the clients who can’t tell.”

Popovic adds human nature plays into the complaint process. If an IA makes an unauthorized trade and the client makes money, a client may be less inclined to complain. If that same trade type loses money for the client, he or she may be more likely to scrutinize statements closely and discover discrepancies, or may be more inclined to complain. “They’ll be less forgiving if it doesn’t make money,” says Popovic. “However, it doesn’t make it right either way.”

(02/05/09)