Consider yourself warned on message archiving

The rapid development of social media as a means of communication has greatly in-creased the burden of tracking, monitoring and archiving exchanges between financial advisers and their clients. Until use of the internet became widespread, most communication between an adviser and client occurred by phone or mail. A phone call usually generated a follow-up letter confirming the details, which could be easily archived. Now advisers must archive not only any letter, but any communication by email, text, twitter, Facebook, LinkedIn or any other social media network. Despite the warnings by regulators such as the Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission, many firms are struggling to adequately archive even their emails. Part of the problem is that by now, email has been around so long that many people, if not most, don't give it a second thought. Advisers are probably in the same camp, but this kind of thinking — or lack of thinking — is problematic if they have not given enough attention to policies and procedures around archiving all the emails that flow in every day.

SCOTTRADE FINE

Finra recently fined Scottrade Inc. $2.6 million for failing to properly retain emails and put in place a suitable supervisory system. If a firm as technologically savvy as Scottrade is failing to do an adequate job, the problem will be a difficult one for smaller or less sophisticated firms. The action against Scottrade is a warning that regulators regard communication retention as a serious issue. Firms may have to spend more money and more management time upgrading their archiving systems, and they will have to improve their methods for monitoring and auditing those systems. Some financial firms hand the records-retention problem to companies that specialize in archiving communications, but they cannot completely wash their hands of the issue. They still will have to ensure their vendors are doing an adequate job. Large firms that decide to tackle the problem internally will likely need the assistance of experts in identifying and plugging any holes in their current retention systems. Whichever approach is taken, advisers and financial firms of all stripes will have to stay on top of the problem, because social media as a way to communicate with clients will only continue to grow.