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Hearsay Responds to FINRA Request for Comment: FinTech Innovation in the Broker-Dealer Industry

FINRA recently requested comment on the provision of data aggregation services, supervisory processes concerning the use of artificial intelligence, and the development of a taxonomy-based machine-readable rulebook.
With nearly 20 comments submitted, these topics are clearly top-of-mind issues within the financial services sector. Hearsay provided its insights on data aggregation and AI within the context of electronic communications.

Why these topics?

Hearsay has deep experience in the technology challenges FINRA highlighted with data aggregation, specifically around the best method for 3rd party aggregators to use when collecting data.

FINRA solicited opinions on the methodology third party data aggregators can use to collect data, and its effect on compliance. Since Hearsay had to perform the same cost-benefit analysis when evaluating the efficacy of an API vs scraping strategy while building social media compliance workflows, it’s a topic we know well..  Robert MacCloy, Hearsay’s VP of Engineering explains:
“Social networks, with their balance of public and private sharing, have always been averse to letting companies take out data in an uncontrolled fashion, such as via a screen scraper or in-line proxy technology. In a post-Cambridge Analytica world, this concern has been redoubled. Screen scrapers work unreliably at best, and when they do work, organizations now need to be cautious to respect consumer privacy and meet the expectations and concerns of the general public. Using officially authorized APIs provides a method to get the necessary regulatory data in a way that social networks have signed up to support, and they provide the needed guardrails to keep companies out of hot water.”

What is scraping? a.k.a screen scraping; Consumers provide credentials to their accounts directly to an aggregator. Aggregators have the technical ability to collect any data they deem relevant. Despite contracts with the consumer, aggregators may collect more data than anticipated. Member firms may be held accountable in the case of data breach or mishandling of information, even if they are not the proximate cause.

What are APIs? APIs present a more balanced approach to information sharing. They allow allow member firms and custodians of information to determine the manner and method in which they share information with data aggregators. The potential downside to aggregators (and customers) is that information collected is limited to what has been defined in the API.

What is Hearsay’s POV?

Compliance should be holistic, not tactical. The best way to protect consumers is to examine behavior, not technology.

Hearsay believes FINRA should critically examine the methodology of data aggregation and the potential for data exploitation, as well as play an active role in defining principles and guidance on how member firms can balance the privacy of consumers against regulatory requirements of record keeping, rather than regulating specific technologies.

While FINRA’s Special Notice focused on the potential impact of Personal Financial Management portals (PFMs) and aggregation of financial data (think Intuit Mint, Personal Capital), there are now many more avenues where financial data may be shared, such as electronic communications.

The increasing popularity of messaging apps and texting, for example, has broker-dealers and consumers communicating on a more frequent basis. This increases the likelihood that financial data, including personally identifiable information, will be shared across potentially insecure channels. Because Hearsay deals with the intersection of advisor and client communications, and has seen dramatic growth in both touchpoints and the types of technology, regulating via principles instead of technology is the right way to protect consumers.

FINRA should push principles as the driver of this behavior: “prohibit, prevent and evaluate.”

Applying the principles that balance deterrence with remediation helps create a richer, more complete form of compliance. Aggregated data can “prohibit and prevent” potential consumer fraud by using the complete context of an interaction to determine the nature of the relationship between the broker-dealer and consumer. Aggregated data can also be used to “evaluate” the totality of the broker-dealer contact with a consumer. Although current compliance rules only demand monitoring of individual channels, data aggregation can “stitch” together these channels so that a conversation can be read entirely in context.

Read our full response for an example of “prohibit and prevent”, how data aggregation can provide interesting insights into compliance workflows, and more details on data aggregation for “evaluate.”

Does Hearsay’s POV resonate within the community?

Hearsay’s points of view are shared by other commenters in the financial services industry.

Other commentators echoed Hearsay’s position on approaching compliance from a principles based approach, instead of favoring certain types of technology.  For instance, SIFMA is also a proponent of principles-based guidance. SIFMA has long held the position that FINRA should define the ground rules and then allow the marketplace to develop technology, rather than continually reforming laws to react to the current technological landscape. As SIFMA notes in its comment, “Regulation and supervisory practices should be principles-based and technology agnostic to accommodate future innovation without requiring reforms each time a new technology is created.” Page 2 of the SIFMA Response.

FINRA has always taken a principles based approach and dovetails with Hearsay’s compliance roadmap.

The intersection of compliance and technology is an important topic, which Hearsay cares about passionately. Hearsay has been one of the pioneers of developing tailored, specific and effective compliance tools to assist member firms to enforce their communications policies on a variety of different channels. Data aggregation and artificial intelligence is simply the next frontier, which Hearsay has embraced. Hearsay was one of the first companies to offer risk mitigation features within advisor mobile telephony, and now Hearsay is assisting member firms in addressing compliance issues when integrating their technology stack into CRM.

When given the chance, Hearsay takes full advantage of opportunities to communicate with regulatory bodies to influence the conversation and speak on behalf of our customers.

Stay tuned for more thought leadership from Hearsay on this and other compliance issues.

The Business Case for Technology in Compliance

Right this moment, there are hundreds of millennials of growing means with smartphones in hand, looking up articles on investing, life insurance and other “adulting” matters, and weighing whether to test drive a robo-advisor.
What they are not likely to do at this moment is to call you – first, because we know from research they have an aversion to phone calls; and second, because they’ve never seen or heard from you on social media.
It’s ironic that in an industry built on relationships, we can’t figure out a way to communicate with an entire generation of customers. It’s an issue we can’t afford to ignore much longer: The oldest millennials turn 37 this year.
The direction our industry needs to move couldn’t be clearer. Eighty-five percent of millennials use social media, as do 75 percent of Generation X. For more than a third of them, it’s their primary source for news and information. When it comes to communicating, seven in 10 prefer to do it digitally rather than in person – mostly via texting.
This is a generation of people who would rather leave their wallets at home than forget their phones. Yet when it comes to harnessing the power of communicating through texting and social media, we’re not even close. Thirty-two percent of firms don’t use social media and among those that do, it’s only in a very limited “business card” capacity.
Our problem isn’t lack of awareness – I just made an argument you’ve heard many times before. It’s also not a lack of belief in the efficacy of the technology – I guarantee your sales and trading professionals are already using the platforms. What’s holding us back is our own refusal to embrace technology and commercialize our approach to compliance.
My firm, Compliance Risk Concepts (CRC), is now six years old. In that time, I’ve talked with hundreds of executives involved in compliance and risk management, from COOs in the largest firms to managing partners in the smallest, and in each case, the issue they’re struggling with is always the same. Behind closed doors, even executives from firms that publicly present themselves as technology-forward admit that, when it comes to compliance, we’re still in the dark ages.
The inability to move forward is costing more than missed sales with a technology-driven customer group. It’s also costing exorbitant amounts in lost productivity, as advisors and compliance staff hunt for and manually enter information across disparate data systems. And the cost to a firm when compliance professionals spend their time reviewing text and emails, rather than focusing on future risk and compliance issues, is incalculable.
The technology is here. Companies like Hearsay offer solutions that document and monitor regulatory compliance, freeing up highly paid professionals to spend their time instead in revenue-generating activities. Unlike its competitors, Hearsay’s products go beyond compliance retention and supervision to integrate with CRMs and provide business productivity tools that increase customer engagement, promote loyalty and ultimately enable agents and advisors to see more success.
The task at hand for risk and compliance professionals is to build a business case for embracing technology in their own organizations. At a time when fewer and fewer dollars are going toward compliance-related projects, we need to provide proof that leveraging technology to satisfy regulatory requirements will both save overhead and generate revenue.
This is the first of my monthly blogs for Hearsay. My goal over the next few months is to arm you with information and examples to help you build a successful business case. When it comes to leveraging technology, our industry has always lagged behind. We can’t afford to wait any longer; for the sake of our firms, it’s time to catch up.
About Mitch
Mitch Avnet is the CEO and Managing Partner at Compliance Risk Concepts.  Mitch is responsible for business development, relationship management and overseeing the execution of all client driven / business focused Compliance related projects and strategic engagements.
Throughout the course of Mitch’s 25+year career in the financial services industry, he has worked for top-tier investment banks, commercial banks and hedge funds such as Wachovia Capital Markets, PNC Bank and D E Shaw, developing an extensive knowledge of both buy side and sell side businesses.
During this time frame, Mitch has served in a key leadership positions, building and integrating Compliance teams to be a meaningful and sought after component of the business process.
Mitch maintains the Series 4, 7, 9, 10, 24, 55, 63 securities license designations. He obtained his bachelor’s degree in economics, graduating magna cum laude from the State University of New York at Oneonta.

You Need a Proactive Regulatory Approach to Advisor Texting – Here's Why

Webinar Summary

“It’s only a matter of time before regulators go after companies that are outside of compliance.” This is one of the key takeaways from Mitch Avnet, of Compliance Risk Concepts, from our joint November 7th webinar ‘Designing a Proactive Regulatory Approach to Advisor Texting.’
While the above quote may be one of the most provocative, Avnet discusses several important aspects for compliance and supervision professionals to consider regarding text messaging for business.
Avnet notes that financial advisors are typically very client service oriented people. Because of this tendency, text messaging continues to be a very effective communications channel for advisors. Often, texting is the most effective way to confirm or schedule meetings, send birthday greetings, or just stay top of mind with their clients.
As text messaging continues to become more and more common in the industry, compliance and supervision teams have responded by having advisors regularly certify that they are not using text messaging that violate firm policies. While this certification is a good step, it’s not sufficient to mitigate the risk to your firm. As stated above, sooner or later, regulators will go after companies that are outside of compliance. Avnet goes on to say, “Firms can either design and enforce policies and procedures now, or they can expect to pay later.”
A proactive regulatory approach is recommended by Avnet as the best way to neutralize the risks of text messaging for financial advisors. Luckily, there are several compliant texting solutions on the market, including Hearsay Relate, to help compliance and supervision teams monitor text messaging without adding to their workload.
Another key point that Avnet mentions is the reasonableness standard for advisor texting. As new technologies become available that help compliance and supervision teams capture, retain, and monitor text messaging, regulators will begin to enforce regulations that apply to business text messaging.
Again, Avnet strongly believes in designing a proactive approach to these inevitable regulations as the best way to ensure that the risks associated with business text messaging are reduced. Teams should also begin by extending their electronic communications policies to include text messaging and begin monitoring and surveilling this emerging communication channel for financial advisors.
To learn more about designing a proactive regulatory approach to advisor texting, please click here to access the webinar recording.

Create a Content Strategy that Works for Advisors and Agents

Back in June, Hearsay Systems published our benchmark 2018 Social Media Content Study. We analyzed approximately 3.4 million posts from the 77,000 advisors using our Hearsay Social Platform. The Hearsay team extracted key insights on what kinds of content perform best on social media and filtered it by line of business. From there, the Customer Education team hosted a webinar that same month that covered it as well as some general best practices.
The study reached the following conclusions:

  • Corporate content is suggested the most by corporate marketing teams, but receives relatively low publishing rates in the field.
  • Non-industry content is suggested the least by corporate marketing teams, but has the highest engagement rates from agents’ followers.
  • Agents seek out and publish industry-related content the most.
  • Corporate marketing teams and their agents need to digitize and automate agent-client engagement workflows.

Based on these conclusions, here is a framework to use along with some best practices we’ve pulled that will take your content strategy to the next level.

Ask Yourself…

First off, when building your content strategy, you must ask yourself the following questions:

  • What is the goal of this channel?
  • What is the desired action?
  • What is the specific type of content my audience wants to get in this channel?
  • What is the right tone?
  • What is the ideal velocity?

Using these questions as your framework, you can apply the following social network and content strategy best practices.

Social Network Best Practices

LinkedIn: Use this professional platform to demonstrate thought leadership and build your professional network. While it’s important to build up your reputation as a thought leader across all the networks, it’s most important on LinkedIn. Take a look at the “What people are talking about now” section on the right-hand side of the homepage and see if you can join the trend and create posts about those topics. It’s generally a best practice to post on LinkedIn from noon to 5pm.
Facebook: Grow your network and spread word of your business on the largest social network in the world. Make sure your posts have an informative and friendly tone. Facebook is a great place to show off how awesome your business is, but also how fun and personal you and your team are. We’ve found that the best hours to post on Facebook are from 9-10 am and 1-3 pm.
Twitter: Imagine if Facebook and LinkedIn had a child that moved at a million miles a minute and had a 280 character limit. That’s Twitter in a nutshell. It’s a platform that combines the personality of Facebook with the trending professional topics on LinkedIn and thrives on real-time pithy insights. With an educational and professional tone and by posting from noon-3pm every weekday, you’re sure to find some level of success with this challenging but worthwhile platform.

Content Strategy Best Practices

From our 2018 Social Media Content Study, these four content strategy best practices are sure winners:

  1. Share more non-industry content.
  2. Put an entertaining, engaging spin on industry and corporate content.
  3. Leverage automation and industry-specific technology to make it easier to publish the right content, at the right time.
  4. Maintain an open dialogue between your corporate marketing and compliance teams.

Not sure how to implement these findings into your strategy? Good news! This was just a sneak peek…
Join our upcoming webinar Content 201: Building and Promoting your Personal Digital Brand for deeper insights into how you take your financial services content strategy to the next level. We’ll covers how to build a strong brand strategy by focusing on your strengths and personality, as well as the latest trends in social media content strategy, based on our 2018 Social Media Content Study. Learn how to develop your unique voice on social by posting great content that will help you connect with and grow your audience!
Register now for the webinar on November 13, 2018: 8am PST/ 11am EST / 4pm GMT

The Digital Transformation Journey: Let's Take it Together

According to historians, it’s been 8,000 years since the Egyptians realized they could harness the wind with a sail to move a boat across the ocean. It was almost another 6,000 years before the first windmills were used to grind grain and pump water. Now 2,000 years later, scientists are still working to tap into wind energy, hoping it can someday replace fossil fuels to power the world. That’s quite a historic journey.
In the financial services industry, we’re on a historic journey of our own. Over the past decade, we’ve awakened to the realization that within our firms lie massive amounts of powerful data, collected over decades. And while we’re learning to tap and use that data to achieve new levels of client acquisition and loyalty, we’ve really only just begun. The possibilities that lie ahead for us will transform our industry.

Using Big Data in Financial Services

In one way, our industry is in a far more advantageous position than others. Thanks to regulatory requirements, we’ve been capturing and warehousing client data for years, while other industries are just beginning to build their databases. But having the data and being able to use it are two very different things.
Before I joined Hearsay Systems as chief business officer, I was involved in the emergence of big data, helping early adopters by bringing to market products and solutions that could capitalize on big data and eventually leading the data integration and analytics product portfolio as the market matured. I’ve examined the journey from all sides—IT, risk management, marketing, enterprise management, customer service—and I’m eager to share my insight with you. This blog is where, with help from many of my learned colleagues, I plan to do it. I hope you’ll join me.

Challenges to Data Integration

Almost since big data’s inception, the technologies and capabilities to store data foreshadowed the unlocked value and transformative effects we would see over the next 10 years. But with change comes challenge, and big data certainly poses its share. For example:

  • How do we identify the right business outcomes to apply the appropriate technology to achieve them?
  • How do we remove the almost 80% of time that is spent preparing data for analytics?
  • How do we integrate our many internal platforms?
  • Do we have the right analytics tools?
  • Who has the skills to interpret the data?
  • Can we remain compliant?
  • What role does automation play?
  • What can social media analytics tell us?

Before we can begin to capitalize on the promises big data holds, we need to explore a lot of questions. That’s why I say it’s a journey. I hope you’ll take it with me. I’m eager to hear the insights you’ve gleaned and the questions you still have. Please leave your comments and join in this conversation.

The Benefits of Digital Transformation

Already, digital evolution has led to the development of products that allow us to connect advisors to clients and enterprises to advisors with unprecedented insight and speed. In just a few short years, we’ve moved from having massive silos of data held hostage to enabling advisors to have all the tools they need delivered to their mobile phones.
Take, for instance, Hearsay Advisor Actions mobile solution, our most recent product release. It enables financial advisors, insurance agents and regulated relationship managers to turn their mobiles phones into smart work systems synched with their CRM.
Today, advisors around the world waste over two-thirds of their day on manual processes like client research, compliance verification, and activity logging, laboriously switching between systems for each task. Advisor Actions frees them from those tasks, allowing them to spend their time instead on quality interaction with clients, the best weapon to combat the increasingly competitive landscape of robo-advisors.
From an enterprise perspective, Advisor Actions’ real-time tracking of field activity helps firms to actualize the ROI of business intelligence, customer relationship management, and other expensive core systems.
That’s how far we’ve come to date. But, consider how far we can go. Big data holds the potential to continue to transform our industry in ways we are only beginning to imagine. I look forward to hearing how digital transformation is changing the way you do business. It’s going to be a journey. Let’s go together.
Hearsay’s Chief Business Officer Donna Prlich is responsible for global strategic business initiatives, marketing and partnerships at Hearsay Systems. You can reach her with comments or questions at