Some of the earliest customer complaints rolling into Finra’s customer call center should send chills up and down the spines of advisors—and their compliance officers.

Mixed in with early reports of outright Covid-19 related fraud and what would be considered unsavory sales practices in any market are a smattering of early customer complaints about hold recommendations from their advisors.

In a few instances “investors complained about recommendations that investment professionals made, for example, to hold a position even as its value declined or a failure to follow instructions, like moving a client to a more conservative portfolio,” said Gerri Walsh, senior vice president of investor education at Finra.

“But our call centers have told me it is still early days and complaints of this nature may well take time to surface,” said Walsh, who spoke at a virtual SEC Investment Advisory Committee meeting.

“If history is any guide, the initiation of dispute resolution proceedings tends to follow periods of market volatility and market decline," she added.

Advisors and brokers should expect that once the height of the pandemic passes and life returns to normal, there’s going to be heavy scrutiny on how consumers were treated during the crisis, Maureen James, a partner in Summit Compliance Group LLC, said during a recent webinar for advisors sponsored by the National Association for Fixed Annuities (NAFA).

Many complaints may not even surface for a year or more, the consultant said. The complaint process tends to be long and it generally takes from one to three years from the time a product was sold for complaints to emerge,” James said.

“So just be aware if we get through these next three months and we don’t see complaints right out of the gate, it doesn’t mean it’s not coming. I’m not trying to [forecast] doomsday here, but you should expect that we are going to be scrutinized after the fact,” she warned.

That means sales and recommendations that may not have gotten a second look from clients or regulators in other times may come under far stricter scrutiny in the post-Covid world.

“Maybe you sold someone an investment and down the road they say, 'You know what? That wasn’t suitable,’ or ‘That client was encouraged to sell their assets at the very bottom. They sold lo.,’ We have to be extra diligent about what we’re doing, how we’re doing it and how we’re documenting it,” James said.

Advisors want to consider what it might look like in hindsight if they suggested that clients liquidate their 401(k)s at the bottom of market to purchase a product from the advisor, James added.

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