A case study recently published by the Ombudsman for Banking Services and Investments (OBSI), as well as a regulatory notice (Notice) issued by the U.S. Financial Industry Regulatory Authority (FINRA), serve as important reminders to registrants that they need to be forthright with their customers when the customer’s representative leaves the firm.

The OBSI Case Study: P had a managed account with an investment firm and paid monthly fees. His adviser, A, carried out various option strategies for P. In early 2017, the firm advised A that he would be terminated and advised P that he would be assigned a new adviser. P made it clear that he would follow A to his new firm. In the meantime, P was assigned a new adviser (B), who contacted him but did not manage his accounts or make any investment recommendations. B abandoned the options trading strategies that P had originally agreed to. P complained that he had lost the opportunity to make money on options and asked the firm to stop collecting management fees because he was receiving no services. The firm told him that the fees were based on an automated process that couldn’t be stopped. P requested full reimbursement relating to his lost opportunity and fees. The firm offered partial reimbursement, saying that P should have known that he could have stopped the fees if he had cancelled his Investment Management Agreement (IMA). P turned to OBSI, which concluded that, although B wasn’t obliged to recommend option strategies to P (because they weren’t part of his IMA), the firm and B should have informed P how to stop being charged fees when he first complained. OBSI recommended (and the firm agreed to) full reimbursement of the fees paid from the time A left until P’s accounts were transferred to the new firm.

The FINRA Notice: Although the Notice is most relevant to FINRA-regulated firms, its discussion of how firms should communicate when a client’s representative departs also may be of interest to Canadian registrants. In particular, FINRA notes that, consistent with privacy and other legal requirements, these communications may include, when asked by a customer:

  • Clarifying that the customer can choose to retain their assets at the current firm and be serviced by the newly assigned representative or a different representative, or they can transfer their assets to another firm; and
  • Providing reasonable contact information (such as the phone number and email or mailing address of the departing representative), if the representative has consented to such disclosure.

FINRA also emphasized that firms should have policies and procedures reasonably designed to assure that the customers serviced by a departing representative are aware of how the customer’s account will be treated by the member firm, including how and to whom the customer may direct questions and trade instructions following the representative’s departure and, if and when assigned, the representative to whom the customer is now assigned at the member firm.