Advisors Are Texting, But Are They Compliant?
December 18, 2015
Text messaging. We’re all doing it. In a recent Pew Research Center study, researchers found that 97% of smartphone owners send text messages. Not only is text messaging easy to do from a mobile phone, it’s a highly effective and efficient way to communicate — and financial services companies can’t ignore it.
But opening up a new communication channel for financial advisors isn’t easy, especially from a compliance standpoint. With regulators paying closer attention to compliance infractions via text messaging, firms need to have the proper supervision over their advisers’ activities on this channel.
What the Law Says
Regulations issued by the FINRA and the SEC require that all electronic communications sent from advisers, including text messages, be supervised and recorded for compliance. Specifically, Finra Rule 3110 requires member firms to have a system to supervise the activities of each registered representative, registered principal and other associated person, and that the system must be reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable Finra rules.
Additionally, Finra Rule 3110 requires a broker-dealer to retain e-communications made by the firm and associated persons who relate to the firm’s business as such. Finra is increasingly bringing disciplinary actions against firms that fail to enforce supervisory oversight over e-communications in violation of Finra Rule 3110.
Until now, comprehensive compliance solutions for text messaging did not exist in the market and firms have tried to address the compliance requirements in a variety of ways that have exposed some of the unique challenges of managing text message communication. For example, some advisors are prohibited outright from text messaging for work purposes, while others use cellular carrier-based systems to capture text messages. Still others have company-issued devices like BlackBerrys that not only have controls which limit the ability to text, but often burdens advisors with having to operate and carry two separate devices.
As mobile devices become an essential part of daily life, there’s now a growing trend toward having a BYOD (bring your own device) policy, even at the big wirehouses. BYOD policies can further blur the lines because advisors are able to conduct both personal and business communications from a single device, further opening up the risk for crossing the line and breaking policy. This year alone, there have been a number of disciplinary actions for failure to supervise e-communications.
If there’s a failure to appropriately supervise company-issued devices, the frequency of violations will only increase as more companies migrate toward BYOD policies. It is not a matter of if, but when. Enforcement actions will be taken for text messaging violations either against the company, an employee or both.
In this digital age, advisors need to have as many tools and communication channels as possible to build and deepen relationships with clients and prospects — including text messaging. Companies must be able to provide this technology with the right controls in place. How can they bridge the gap?
It starts with employee education. Representatives of the firms must understand the appropriate use of text messages and when to use another communication method (i.e., in person). Employees should also be educated on policy and process early and often, and companies should include attestation from these employees that they understand the rules and company policies.
Companies must also supervise communications and keep complete records. Failure to do so can result in hefty fines and policy changes that have a significant impact on the business. There are a variety of ways in which organizations can not only manage, supervise and control adviser text messaging but also provide the ability to archive activity; they include third-party technology platforms that enable them to do all this within one dashboard.
Text messaging also poses some consumer privacy risks. Companies should consider monitoring text messages for personally identifiable information communicated via text message to ensure security of all parties’ private information. For example, an organization may want to monitor lexicon terms so they can set up controls and alerts based on the types of messages advisers are sending.
As regulators increasingly crack down on e-communication infractions, the onus is on firms to educate the field about relevant rules and regulations for new channels. Firms must take the appropriate measures to control and supervise texting and still enable advisors to grow their businesses.
This article originally appeared in InvestmentNews.
- Delivering Innovative Compliance Solutions to Our Customers
- New Universal Supervision Experience Streamlines Compliance Workflow
- Hearsay Social Receives Two Patents for Technology That Advances Social Media Compliance and Security
- Announcing Hearsay Messages and the Predictive Omnichannel Suite