Banks should consider offering restitution to disgruntled mutual fund customers instead of letting disputes escalate into arbitration claims, a thrift compliance executive warned.
Full or partial adjustments can be preferable even when a bank believes it has complied with all suitability and disclosure standards, said Daniel C. Caneva, director of compliance for Glenfed Brokerage Services, a unit of Glendale Federal Bank, Glendale, Calif.
It's not a matter of right or wrong, Mr. Caneva said at the Bank Securities Association's recent national compliance meeting. "It's just a business situation."
Bankers are facing more claims than ever as investors' losses pile up in the wake of this year' s market volatility, industry observers say.
As a result, financial institutions should consider setting up reserves for claims involving securities sales, Mr. Caneva said, and used to settle disputes involving less than $2,500, which are "generally. not worth it to fight" because of lawyers' fees and other costs.
Other situations, especially those that can generate bad word- of-mouth, are apparently worth considering as well.
Brokerage executives should factor in the customer's connections in the community, and the kind of money that person has on deposit, Mr. Caneva said.
Bank brokers can also find themselves undermined by their own peers and left with little choice but to settle. In one incident, a bank manager "coached a customer on a complaint so he could get the money back and open a CD," Mr. Caneva said.
Banks could also consider acquiescing when the compliant involves a sales representative who was subsequently fired for cause.
But executives should dig in their heels and fight obviously bogus claims, Mr. Caneva said.
People facing divorce or other financial difficulties may use unfounded claims to push for refunds, Mr. Caneva said.
"Don't be afraid to fight that kind of stuff," he advised bankers.
Indeed, banks can take steps to bolster their positions and minimize customer complaints, compliance officers said.
For instance, periodic surveys can gauge customers' satisfaction with their investments, and also serve to reiterate disclosures, said David S. Neel, Jr., corporate counsel at Compass Bank, Birmingham, Ala. [TABULAR DATA OMITTED]
