While interacting and conducting business with difficult people can be tedious (and at times frustrating), clients are the lifeblood of every broker's business. It is important for brokers to know how to diffuse a potentially volatile situation and to make certain that clients remain happy with their services. Unfortunately, sometimes that's easier said than done. In this article, we'll give you some ways to prevent problems and disagreements from arising, and show you how to handle them if they do.

See: Swim With The Sharks As A Stockbroker

Two of the Biggest Client Issues
Let's face it, there are two things that clients constantly fret over. The first is their brokers' performance and the second is the fees and/or commissions the brokers will charge, or have charged, as part of managing their accounts. (To read more about investors and fees, see Don't Let Brokerage Fees Undermine Your Returns and Paying Your Investment Advisor - Fees Or Commissions?)

Preventing Issues Before They Arise
With that in mind, a terrific way to prevent potential disagreements is to draft a commission schedule at the onset of the relationship, review it with the client and have both parties sign it and retain copies. That way, the client knows exactly what to expect on every trade.

In addition, the broker should provide the client with some literature at the onset of the relationship, describing the investment style, performance goals and anticipated investment time horizon (to see results) the broker intends to use. Finally, the client should be provided with a benchmark with which to evaluate the broker's performance (whether it is the S&P 500, or some other well-known index or standard).

Some may see this attention to detail as overkill, but memories tend to fade over time, which makes it extremely important to document all agreements and conversations on paper and, if possible, in front of a witness. In addition, investors have the right to receive information related to the firm, an advisor's background, copies of all account forms and agreements, and more. A refusal to provide a client with these items could result in losing your license and/or your job and will mar your work history.

Giving your clients as much information as possible at the onset of the relationship will limit friction by letting them know not only what to expect in terms of expenses, but will also provide a tangible benchmark against which to measure their portfolios' performance.

Talk About Trade Authorizations
According to the Financial Industry Regulatory Authority's (FINRA) statistics of the more than 2,979 complaints the regulatory body received in 2011, 804 individuals were either suspended or barred from the securities industry. While FINRA does not break down the statistics any further, a quick review of the monthly regulatory enforcement actions (against both individuals and firms) reveals that a large number of the complaints revolve around inappropriate trading activities. In these cases, the advisor allegedly traded in a client's account without his or her knowledge, or invested the client in securities that were unsuitable given his or her investment profile. (See Monthly Disciplinary Actions for more on previous cases, and NASD Statistics for their updated statistical review.)

For this reason, it is important to discuss with the client (again at the outset of the relationship) whether he or she prefers to be contacted before each trade is made, or if full trading authorization would be preferable. Incidentally, make sure that this discussion takes place for each and every account the client maintains at the firm and, as always, back up your client's decisions with signed documentation.

In short, this simple conversation can help stem a host of problems and accusations down the line.

Keep In Touch With Your Clients
The relationship between the broker and the client should in many ways resemble that of a marriage, particularly when it comes to communication. To that end, the broker should communicate with the client by phone (and in person if possible) any planned changes in investment style, or occurrences in the market that could impact the client's account. In addition, the broker should routinely inform the client of any new research that has been disseminated by the firm's research department.

The idea is to involve the client in investment decisions as well as to let the client know what you (the broker) are thinking at all times. Again, communication is the key to a successful broker/client relationship.

Attack Problems Head On
Some brokers choose to ignore problems in the hope that they will disappear on their own. Unfortunately, they rarely do and, over time, problems tend to grow. Therefore, if a broker senses a client's discontent, he or she should thoroughly discuss the situation with the client and see if some middle ground can be found.

For example, if a client voices his concern that a particular commission or fee is too high (even though it is in line with the initially agreed upon commission schedule), the broker might resolve the situation by discounting a future commission, especially if it is a loyal client who is currently investing a large sum of money.

Some brokers never do this because they feel either that they are in the right, or that their clients will take advantage and continue to seek discounts for as long as the relationship exists. However, refusing a discount may be a mistake because unless the client's mind is put at ease, fees will always be an issue and will eventually cause the relationship to break down. In short, it's not worth the argument, especially if it's only over a few dollars.

Confront problems and see whether middle ground can be found. In the long run, you will be happy that you did.(For related reading, see Tips for Resolving Disputes With Your Financial Advisor.)

Take Notes
Any time a broker is communicating with clients, whether in person or over the phone, he or she should be taking notes. Specifically, a broker should log any investment recommendations that he or she made during the discussion as well as the client's response.

Why is note-taking so important? Because notes can be used to refresh a broker and/or a client's mind down the line as to what was said. In addition, the notes can be used as evidence in case a disagreement with a client ever winds up before an arbitration panel.

However, while these notes may be used by a broker (during an arbitration hearing) to bolster his or her case, they may also be used against the broker. In other words, brokers should think about what they are writing as well as how it might be used against them at a later date. This does not mean you should alter notes to shine a favorable light. If you notice something is amiss with a conversation you had with a client, that client should be contacted and the misinformation corrected before an issue arises.

Conduct Client Reviews At Least Quarterly
Brokers should meet with and review each of their clients' accounts and their performance at least quarterly. The purpose of these meetings is to allow the broker to continue building a rapport with the client, as well as demonstrate that adequate thought is going into the management of the client's account. In addition, a quarterly discussion is yet another opportunity for the pair to discuss and settle any problems or concerns that might have arisen since the last meeting.

In short, this type of hand-holding will go a long way toward building a fruitful and long-lasting relationship.

The Silver Lining of Arbitration
While maintaining an open channel of communication with clients may serve to quell some discontent, there are times when a broker may have no choice but to have a disagreement explored in front of an arbitration panel. In fact, in some cases, having a conflict heard at an arbitration hearing may actually be a good thing.

For one, if a client is continually making accusations about a lack of performance and/or is constantly suggesting that the commissions being charged are too high, an arbitration panel will help by deciding once and for all whether any rules have been broken and/or if the client has been treated fairly.

A hearing may put an end to the relationship entirely, but it might be worth it, just to put the issue to rest.

Avoiding Arbitration
It is also important to note that are times when it makes sense to avoid an arbitration hearing. Although a broker may be in the right, an arbitration hearing can be a time-consuming and sometimes costly venture (particularly if the broker has to hire a private attorney to defend himself). To that end, in some cases it might make sense to make the client a settlement offer, or to find a way to transfer the client to another broker. In short, it can also be beneficial to find ethical alternatives to a hearing, depending on the facts of the disagreement itself.

Bottom Line
While it is impossible to guarantee that a broker will never have to deal with a difficult client, following the actions suggested above will help to nip potential conflicts in the bud. (To find out how to deal with clients who continue to be a problem read: Managing (Seriously) Dysfunctional Clients.)

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