Ameriprise bracing for $50 million penalty over messaging

Ameriprise Financial Services is the latest major broker-dealer to reveal that it's expecting a significant penalty from regulators as a result of unapproved electronic communications by financial advisors and employees, disclosing last month that it's preparing to book up to a $50 million expense to resolve the issue with the Securities and Exchange Commission.

Ameriprise is next in a long line of firms to either reveal that they had paid fines and penalties to the SEC to resolve the communications issue or were preparing to do so.

LPL Financial also reported last month that it was on the hook for a $50 million settlement and penalty from the SEC over compliance failures in keeping records of financial advisors’ and employees’ electronic communications, such as text messages and apps.

The dollar amount of the potential penalty facing Ameriprise stands out, particularly as the SEC penalized 16 wealth management firms a total of $81 million, also in February, over mishandled electronic communications, one compliance executive noted.

Ameriprise Financial Services, the broker-dealer arm of Ameriprise Financial Inc., "has responded to SEC document and information requests regarding the preservation of certain business-related communications sent on electronic messaging platforms that have not been approved by the company," according to the firm's 2023 annual audited financial statement, or Focus report, filed February 23 with the SEC.

"During 2023, the company recorded a $50 million accrual for this matter, which is reflected in the statement of financial condition in other liabilities," according to the filing. "The company has reached an agreement in principle with the {SEC} staff, subject to commission approval, that it believes resolves this matter."

An Ameriprise spokesperson did not comment about the matter by deadline.

The stiff penalties are a clear call to firms regarding failures in monitoring communications and record keeping, and a message that the SEC wants marked and immediate improvement, one attorney said.

“The SEC and its staff warned industry people about this, with the SEC making statements about communications in sweeps and exam priorities,” said Jay Gould, special counsel at Baker Botts. “Chief compliance officers at firms are being told they have to stay on top this, and then they don’t address it."

Ameriprise ended last year with more than 10,000 financial advisors. The wealth management business has been the biggest contributor to Ameriprise’s recent growth, with the $901 billion in client assets at the end of last year a record figure for the firm, up 19 percent from the $758 billion it saw in the fourth quarter of 2022.

Such significant dollar penalties from the SEC over electronic communications failures at firms left one senior industry executive scratching his head about the matter.

"It's a bit of a black box at the SEC over this," said the executive, who spoke privately to InvestmentNews. "There's no rhyme or reason regarding how these penalties are determined, as far as I can see."

"Fifty million dollars from both LPL and Ameriprise," the executive said. "That’s a lot of money. The conduct doesn’t look that terrible. It's a record-keeping issue, but nobody knows how the SEC is referencing these penalties."

The use of unmonitored messaging apps by financial advisors and employees at wealth management firms has been on the rise in the wake of the Covid-19 pandemic, which reshaped how advisors interact with colleagues and clients.

Messaging apps like WhatsApp and email platforms like Gmail are beginning to play an oversized role in advisor communications, a trend that could increase as more clients choose to communicate via their smartphones.