Skip to main content
Open this photo in gallery:

Some investors may file a complaint against an advisor or their firm not because they’ve done something wrong, but simply because they’re unhappy and looking for someone to blame, says an expert.fizkes/iStockPhoto / Getty Images

Sign up for the new Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.

The investment industry is bracing for a potential surge in client complaints amid the ongoing market volatility that has many investors re-examining what’s in their portfolios.

A spike in complaints is normal when markets drop, particularly in areas such as investment suitability and a perceived lack of communication, experts say.

“Nobody’s going to complain about being put into an inappropriate investment if it goes gangbusters, so you’re not going to see as many complaints when markets are doing well,” says Alexander Cobb, partner in the litigation practice at Osler, Hoskin & Harcourt LLP in Toronto, who works with advisors.

“The longer the period of uncertainty lasts, the more likely you are to start seeing a significant uptick in complaints.”

The Ombudsman for Banking Services and Investments (OBSI) says it’s too soon for its data to show a potential increase in investor complaints amid the recent market downturn, but it’s expected if the volatility persists.

“Normally, when markets decline, we would expect to see [investment] suitability complaints rise,” says Mark Wright, OBSI’s director of communications and stakeholder relations, adding that complaints are a lagging indicator of investor behaviour.

When markets dropped during the pandemic, they recovered fairly quickly, and service issues became the driver of complaints, Mr. Wright says.

“With the recent decline, if it becomes a more sustained drop, we would expect suitability cases to increase and likely lead to investment complaints once again,” he says.

That would show up in OBSI’s data in the next three to six months.

Mr. Wright notes that the OBSI opened and closed a record number of cases for its year ended Oct. 31, 2021, even more than during the global financial crisis in 2008-2009.

Among investment products, Mr. Wright says complaints related to common shares were the leading investor concern, up 59 per cent from the previous year. That was driven mostly by complaints about do-it-yourself (DIY) investor platforms. He says service issues saw a 38-per-cent increase, replacing suitability as the most common complaint for the first time since 2004.

But while service was a leading issue as of Jan. 31 this year, the mix has balanced out in the latest data available between DIY and more traditional non-DIY dealers.

Complaints against advisors

Mr. Wright says some of the top service complaints among non-DIY dealers included interactions with advisors, as well as investors feeling they weren’t provided with updates or information that they felt they should have received from their advisor.

Mr. Cobb of Osler says some investors may file a complaint against an advisor or their firm “not so much because they’ve done something wrong, but simply because they’re unhappy and looking for someone to blame.”

He says the best advisory teams work proactively to prevent that by communicating clearly, transparently and regularly with clients about their portfolio and how it aligns with their financial plan.

He likens it to working with a general contractor when renovating your home.

“If your general contractor isn’t on site, and you know why they’re not there, you’re less likely to be mad than if they just don’t show up one day,” he says.

And while advisors can’t always beat the market, Mr. Cobb says they can often provide value by ensuring their clients stay on track with their financial plans, especially when markets drop.

“Even if a client is unhappy with the performance of their portfolio, if they understand why, then they’re much less likely to place the blame on their advisor,” Mr. Cobb says.

Advisors should also keep good records of their conversations with clients just in case their decisions are questioned.

“Document the most innocuous communication and make it a habit to have regular touchpoints with your clients,” Mr. Cobb says. “Reach out to your clients and make sure they’re getting the advice they need – even if they haven’t asked for it.”

Fees and miscommunication with clients

Jonathan Heymann, president of Wychcrest Compliance Services Inc., a Toronto-based consulting firm specializing in securities compliance and registration, says fees are also a common complaint during market volatility.

“Clients want to feel they’re getting value for money; that the fees they’re paying are justified in response to the service they’re getting,” he says.

Still, he says suitability remains a key concern as well with investors, who sometimes wonder if they should even be in a particular investment their advisor has recommended.

“Did my advisor have enough information about my financial situation to make that evaluation?” Mr. Heymann says is a question investors may ask.

Miscommunication is also a common complaint, he says, specifically if a client feels a disconnect between what they expected their advisor to do with their investments and the actions taken.

Mr. Heymann says it’s up to advisors to explain properly to clients what they’re doing with their money as well as what they have no control over, such as a broad market downturn.

“It’s all about the advisor managing the expectations of the client because they cannot predict the future,” he says. “One thing that never changes is advisors need to keep open lines of communication.”

Mr. Heymann also cites similar treatment for all clients, regardless of their age and stage in life.

“Usually, what concerns one client will concern all clients,” he adds.

For more from Globe Advisor, visit our homepage.

Your Globe

Build your personal news feed

Follow topics related to this article:

Check Following for new articles