OBSI swamped with complaints

The number of complaints against the financial services industry has soared in the past year, with a 48% increase in new cases opened by the Ombudsman for Banking Services and Investments (OBSI).

“In 2009, OBSI reviewed more complaints than ever before in its history,” wrote Douglas Melville, who was appointed Ombudsman in August 2009. “The global economic crisis, coupled with sharp declines in financial markets, gave rise to record volumes of consumer inquiries and complaints.”

The annual report from the Ombudsman’s office reported 990 new cases were opened in 2009, and that there was a 200% increase in total case files opened over the past three years.

“Ever-growing year-over-year complaint volumes have been a consistent reality for OBSI,” Melville said. “Industry complaint handling continues to mature as more retail consumers and small businesses are being made aware of their right to have their complaints reviewed by their firms and OBSI.”

The report suggests that firms are doing a better job of instructing clients how to file a complaint, resulting in more complaints, but that there is still room for improvement.

“As in previous years, too many clients are telling us that their firm did not tell them about OBSI and their right to bring their case to us,” the report says. “We are looking forward to the day when we are confident that every customer of a participating firm knows they can bring their complaint to OBSI if they are not satisfied with how their firm responds to it.”

The largest increase in cases stemmed from complaints against the investment industry, which were up 73% to 599 cases, while the banking industry saw cases rise by 21%, to 391.

OBSI recommended compensation in 71 banking case files and in 151 investment case files, with all recommendations being followed by the firms involved. OBSI sided with firms in 558 cases, while seven cases were withdrawn by the clients.

Investments The increase in investment-related complaints was expected, as severe market volatility tends to breed investor distrust. While the number of complaints rose, the percentage of cases that resulted in recommended compensation remained steady at 35%.

The majority of OBSI’s investigations were focused on the suitability of investment advice.

“In some cases, the investment advisors did not fulfill their ‘know your client’ obligations,” the report says. “In other cases, in particular those involving complex investment products, advisors did not properly explain the risks and characteristics of the investments they were recommending.”

This drives home the importance of not only providing full and plain disclosure of relevant facts and features, but also necessity of documenting that disclosure. If a client signs off on the disclosure documents, it is difficult for them to claim later that the product was not explained.

Another common complaint concerned the fee structure of some mutual funds. As investors rushed to exit equity funds, some said they were surprised to find they were subject to deferred sales charges.

“In some cases we found that the fund was not unsuitable and that the advisor had adequately disclosed the DSC fees at the time of purchase,” the report says. “In others, funds with DSCs were unsuitable or DSCs were not adequately disclosed and we recommended compensation.”

Among IIROC firms, TD Waterhouse Canada was the subject of the most cases (46), while BMO-related firms (BMO InvestorLine Inc., BMO Nesbitt Burns Inc. and BMO Nesbitt Burns) were the focus of 44 cases.

On the MFDA side, Investors Group Financial Services Inc. was the subject of 29 cases, followed by WFG Securities of Canada with 24.

Banking Among the most common complaints in the banking sector were those regarding pre-payment penalties charged to customers seeking to refinance their mortgages. In most of these cases, OBSI found that the charges were explained in the mortgage documentation.

TD Bank saw the greatest number of banking-related complaints (102), followed by Scotiabank (79) and CIBC (48).

Overall, a disproportionate percentage of complaints came from Ontario clients, accounting for 57.8% of complaints, but only 38.8% of the country’s population. British Columbians (13.3% of population) made 13.2% of complaints, while Quebec (23.4% of population) made only 12.5% of complaints.

“The proportionately lower number in Quebec reflects the fact that the caisses populaires Desjardins do not participate in OBSI for banking services,” OBSI notes.

For the full OBSI report, click here.

(06/29/10)