It appears that individuals registered with the Financial Industry Regulatory Authority Inc. are now becoming targets of the variety of ongoing investigations by securities regulators focusing on the unauthorized use of electronic communications systems like text messaging or WhatsApp.
Finra on Monday fined and suspended Ariel Rivero, an individual registered rep working at Jefferies in Miami at the time of his violations of industry rules regarding communications. Finra has taken a handful of similar actions against individual brokers the past couple years.
"Between November 2020 and January 2022, Rivero used WhatsApp Messenger, a mobile phone application used to send and receive encrypted messages, to communicate with six firm customers about securities-related business," according to Finra. "Because WhatsApp was not one of Jefferies’ approved electronic communications channels, the firm did not preserve Rivero’s WhatsApp communications."
Rivero was fined $15,000 and suspended from working in the securities industry for six months, according to the settlement, which the broker agreed to without admitting to or denying Finra's findings in the matter.
Rivero did not return a phone call Wednesday to his new firm, Insigneo Securities, to comment. According to Finra, Rivero also broke industry rules when he borrowed $500,000 from a client in 2020 without Jefferies' approval and again in 2021 when he attempted to settle a client complaint without telling his firm.
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 interacted 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.
The Securities and Exchange Commission has been hitting firms with severe fines over the issue of not monitoring or storing financial advisors' text messages or WhatsApp communications. In February, the SEC smacked 16 firms with $81 million in penalties related to its investigation of how the financial advice industry at times mishandles electronic communications, including personal texting, among employees and financial advisors.
Finra has previously penalized firms and individual financial advisors over personal text messaging with clients, but the regulator's focus may be sharpening in the wake of the SEC's investigation, one attorney said.
"It appears now that Finra may be picking up the SEC's scraps and focusing on this as intensely as the Commission has for the past few years," said Andrew Stoltmann, a plaintiff's attorney. "This also could be the regulators using text messages and WhatsApp violations as an add-on issue to other bad behaviors, like a broker borrowing money from a client without telling his firm."
Despite a lighter regulatory outlook and staffing disruptions at the SEC, one compliance expert says RIA firms shouldn't expect a "free pass."
Carson has fully acquired another firm in Florida, while Simon Quick Advisors finds its third perfect-fit partner in a Las Vegas-based boutique.
FINRA has been focused on firms and their use of social media for several years.
The model has surged in popularity thanks to its fiduciary appeal, but the show is far from over for no-fee and commission-based arrangements.
Asset managers filing to launch dual share-class mutual funds, creating an ETF sleeve for existing strategies, could end up eroding key benefits of the wrapper.
How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave
From direct lending to asset-based finance to commercial real estate debt.
