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FINRA Likely to Issue Regulatory Guidance on Text Messages

March 2, 2017

As a SIFMA strategic partner, we look forward to the SIFMA Social Media and Digital Marketing Seminar every year where we learn the latest and greatest from experts in social, digital and compliance, as well as connect with our customers, partners and friends.

This year, text messaging was a key discussion point.

Tom Selman, Executive Vice President and the Regulatory Policy and Legal Compliance Officer at FINRA, stated that FINRA will be paying closer attention to text messages and will likely provide more guidance on compliant texting between advisors and the public.

Since text messaging is a one-to-one communication, as opposed to social media being one-to-many, it is more difficult for regulators and financial services firms to have a good grasp of the realities of financial advisors texting prospects and clients. However, given the significance of mobile use for business – 52 percent of advisors and agents are texting for business purposes, and 90 percent of text messages are read within three minutes – there is a growing concern over how to protect investors on this communication channel.

The conversation around mobile started in the morning with Hearsay’s CEO, Clara Shih, whose opening keynote highlighted the effectiveness of text messaging for advisor-client communication:

While text messaging is clearly an effective communication channel, many firms are still looking for clarity on how to handle it from a compliance perspective.

According to FINRA’s Selman, financial advisors “can use text messaging for business purposes” as long as “you maintain a record of it.” This categorization brings us back to a common question: What is the difference between what makes something a personal communication versus a business communication? And, for example, are there topics which advisors can communicate with clients that are not deemed as business communication?

When asked whether managing by policy is sufficient for a financial services firm, Selman and the other panelists agreed that policy alone is not enough. Firms need to have not just policy but training and other adequate measures, such as technology, in place for compliance as well as for record-keeping of business communication.

Last year, there were a number of disciplinary actions by FINRA and the SEC with regard to principals or advisors communicating with clients via text messaging without the proper record-keeping of such texts. This year, FINRA has already fined a registered representative that communicated with eight customers concerning firm business, without the firm’s knowledge and the proper record-keeping systems in place. The individual sent 41 text messages and received 61 text messages from clients, none of which were retained or reviewed by the firm. The company only found out about this after the customers filed complaints with the firm regarding the registered rep.

Just as it was with social media several years ago, firms should be cognizant of the fact that advisors are texting with clients and prospects. Not only that, but shielding behind a policy that simply bans texting for business purposes will no longer be sufficient protection for firms. Now that there are technologies available for compliance-enabled texting, firms must embrace and enable their field force to effectively and compliantly communicate with clients through this growing channel.


Yasmin Zarabi

Vice President, Legal and Compliance

Yasmin is responsible for Hearsay's legal affairs including commercial, compliance, regulatory and privacy matters. She is a thought leader in compliance for financial services, has been published in industry press and speaks at events around the world.

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