We are now officially in an era in which poorly chosen financial adviser text messages can cost $100,000.
Recently, the SEC fined a wealth management firm this amount because the firm’s employees and affiliated financial professionals allegedly sent and received business-related text messages on personal devices. The texts included pricing information on securities, order sizes and the timing of trades. In addition, these texts were apparently not captured and archived, as an unrelated SEC investigation subsequently determined, and the firm was unable to produce the texts upon demand.
Should we be surprised texting is increasingly a focus for regulators? The world produces about 200,000 texts each second. Financial advisers and their firms aren’t immune to shifting digital communications preferences.
After all, smartphones are ubiquitous and texting is convenient. And there is considerable anecdotal evidence suggesting that end clients increasingly prefer texting for quick communications with their financial advisers, rather than emails or phone calls.
But for broker-dealers and RIAs, keeping up with consumer preferences for digital communication means keeping up with data management expectations among regulators.
Here are the top three best practices for wealth management firms seeking to protect themselves and their financial advisers from text message-related regulatory and compliance penalties:
1. Recognize that firms have no excuse with regulators for being unable to retain and produce business-related text messages of any kind. Rule 17a-4 of the Securities Exchange Act stipulates member firms must preserve all business-related communications for at least three years. (It also covers a wide range of other important data.) The rule explicitly states that “communications” includes sales scripts and telephone call recordings. In the $100,000 fine this year, the SEC cited Rule 17a-4 as pertaining to text messages.
Broker-dealers and RIAs must store the data as either micrographic or electronic media. At this point nearly all firms opt for electronic storage. The SEC requires firms to use electronic storage media that is neither rewritable nor erasable, with accurate organization and indexing features. Firms must provide such data for regulators promptly upon request.
2. Create easy-to-follow written supervisory procedures. When drafting your firm’s WSP, the record-keeping section should clarify whether financial professionals are allowed to use text messaging for business purposes. In general, a total prohibition on text messaging tends not to work, since texting has become human nature. As such, the WSP should explain how employees and affiliated personnel can safely engage in business-related texting.
Detail the devices and carriers the firm approves for use, the kinds of text messages professionals can send, whom they can text and under what circumstances. Much of this depends on the level of risk associated with specific aspects of your firm’s business. For example, a firm doing fee-based financial planning for millennials might allow advisers to text with clients about their portfolios. A firm specializing in commission-based products for retirees, however, might only allow financial professionals to text each other, and not about sales or trades.
3. Adopt software that automates and streamlines record keeping. It’s one thing to follow all the rules, regulations, policies and procedures so your firm and its financial professionals avoid costly disciplinary actions. It’s equally important to do so in a way that is scalable, cost-efficient and accurate, so adopting the right technology tools from third parties -- rather than attempting a homegrown or “all hands on deck” manual solution -- is crucial.
When choosing a third party to handle these tasks, look for features that apply to your business. Make sure the platform has its roots in the wealth management space and is compatible with your firm’s mobile devices, carriers and apps. Watch a demo or test the platform’s text message capture, archiving and search functions before committing.
When it comes to texting for financial advisers, the SEC is making it clear through heavy fines that it is watching. It’s up to the wealth management firms that support financial advisers to get the message.
Marianna Shafir, Esq., is corporate counsel and regulatory advisor at Smarsh, a communications compliance technology firm.
Medicare scam, pandemic benefit theft, offshore tax evasion — federal prosecutors are casting a wide net.
Report finds that pension income acts as a financial lifeline for retirees facing late-life shocks and raises urgent questions about the DC-only future.
Nine-month electronic trading freeze and share lending program at the center of dismissed claim.
Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.
With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline
