Wall Street: Where The Customer Is Always Wrong

By Brian Bloch AAA

The financial industry has an extremely poor record of fairly and appropriately handling complaints. Given the large sums of money that can potentially be claimed in damages when things go wrong, this is not surprising, but it does not justify complaint mismanagement or even render it necessarily beneficial for the firms or brokers. In this article, we will take a look at complaint handling from a service-recovery perspective.

Service Recovery in Reverse
The objective of service recovery, a standard marketing concept, is to identify customers with issues and to address them satisfactorily, so as to retain the customers. The problem in the financial services industry is that the size of the damages may result in the real aim of the firm or broker being to evade liability by any means at their disposal.

The underlying zero-ethics philosophy exists because customers are unlikely to ever find out, and even if they do, it's better that they know how unlikely they are to get any money back from a tough firm. Conversely, the firm may fear that if it does handle a complaint fairly and pay up, others will find out and claim damages as well. The fact that such behavior is not uncommon, tends to reinforce the view that this is the way to go and that integrity and honesty just do not matter and do not pay. (For related reading, see Tips For Resolving Disputes With Your Financial Advisor.)

Industry and Organizational Culture
Genuine and good-faith service recovery can only flourish if the ethos of the industry and that of the firm are supportive. In other words, there needs to be a culture of honesty, integrity and fairness.

On the one hand, all major economies have comprehensive regulatory environments that are supposed to minimize the number of unhappy customers and unresolved or mismanaged complaints. However, this works significantly better in theory than in practice. When firms are faced with a major and often even a minor complaint, they tend to reject it automatically with a denial of everything) using a series of obviously and less-obviously invalid arguments, the details of which will not be considered here. (For more, see Research Report Red Flags.)

Doing the Right Thing Can Pay Off
Despite the problematic culture described above, firms are taking a chance by mismanaging complaints. If word does get around or the bad behavior hits the media, the damage to a firm's reputation is likely to exceed the value of a fair offer to the complainant. Bad word of mouth can travel fast, and one never knows how many potential clients are lost due to a lack of personal recommendations. Damaged reputations are notoriously difficult to rectify and the financial industry is heavily dependent on perceptions of trust.

Furthermore, market research demonstrates that customers who encounter a service failure which is resolved quickly are significantly more loyal to the company than others. All in all, complaint "mismanagers" may get away with it a lot less successfully than they think.

Being Fair
This is at the core of service recovery. But what is fairness in this context? It means that the firm must consider all the issues raised by the customer with an open mind and determine whether there really was mismanagement or bad advice, and if there was, an offer of compensation must be made. It may be possible to negotiate an offer at a level that satisfies both parties. But a total refusal to admit anything, irrespective of the merits, will lead to a client who is more than dissatisfied and downright angry. Furthermore, large losses can really jeopardize the investor's financial future, causing severe distress and genuine hardship. (For more, check out Understanding Dishonest Broker Tactics.)

Prevention Is Better Than Reaction
This is the real solution. Once the allegedly unnecessary losses are there, the situation is likely to be pretty unpleasant for both sides and difficult to resolve satisfactorily. The best way to take customer recovery seriously is to make sure that things are done right in the first place. Know your customer, sell only what they really need and want, keep all service promises, make sure the documentation is accurate, understandable and understood, and so on.

Policies and Procedures
Fairness comes from the top. If we are talking about a large company, the message from senior management must be that everything possible be done up front to ensure no misselling or other misdemeanors and that, if things do go wrong, it will not be a process of "lie and deny" all the way to the courtroom. Management must also convey the message that service recovery is necessary and mutually beneficial. After all, in the automobile industry, there are sometimes major product recalls, and there is no reason why the same should not apply to the financial industry. (Read Find The Right Financial Advisor for more.)

Regulation and a Culture of Integrity
The industry has to abandon its horror of paying money back to clients. Up to the present, the mere thought of giving money back seems to be anathema. This must stop. If clients have indeed lost money through some form of mismanagement, and if they are really entitled to damages or compensation, this must be admitted and paid. The industry itself has to get its act together and so must the regulators. At the time of writing, this is just not the case.

Conclusion
Customers do count - every one of them. They need to be treated appropriately and fairly from start to finish. If things go wrong, the firm or the broker must deal with the situation openly and with integrity. This is the only way for the industry to develop a culture of trust, which is undoubtedly mutually beneficial in the long run, even if it may be painful at times.

The frantic efforts of firms to evade even one dollar of liability, regardless of the nature and level of complaints and the associated mismanagement, must become a thing of the past. Unless this happens, the reputation of the financial services industry will remain a dubious one. (For more on this topic, see Is Your Broker Acting In Your Best Interest?)

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