Client communication is an indispensable component of the job performed by financial advisors. Not only for discussing financial decisions, but also in building trust between the client and the advisor. However, the modern era offers multiple options for communicating with clients, and advisors need to be cautious about the methods they choose in order to avoid the dangerous pitfalls of failing to meet compliance. In just the past year and a half, regulators have handed out over $2.5 billion in fines for texting and online messaging violations and are continuing to do so at an increasing pace. This article explains the reasons why financial advisors should avoid using texting and online messaging for business communications.
The Reason Why
The main reason why online messaging platforms, such as WhatsApp, Microsoft Teams, Slack, etc, and texting should be avoided for business communications is because regulators require these types of messages to be monitored, archived and captured. In order for business communications on these platforms to be permissible, an advisor’s firm would be required to have monitoring software in place. This isn’t unheard of, in fact there are several firms currently using such systems. But especially for those advisors without a separate cell phone dedicated purely for business use, this could be seen as a violation of privacy as the firm would have access to all text messages on the advisor’s phone, both business and personal.
Costly Mistakes
Despite these clear dangers, financial firms continue to find themselves on the wrong side of these regulations. In September 2022, the SEC fined 16 large, well-recognized firms a collective $1.8 billion in one of the largest disciplinary actions in regulatory history, simply for using non-monitored texting and online messaging platforms for business-related communications. In August 2023, regulators fined nine more financial firms $549 million for the same type of violations.
One small firm was fined almost $2 million by FINRA in the summer of 2023 for multiple texting violations, not due to advisor-to-client text messaging but for employee-to-employee texts discussing business-related matters. This happened despite the firm’s protocol clearly prohibiting the use of texting for any business communications. Additionally, the firm’s compliance team frequently trained and reminded employees that any business-related texting was strictly forbidden. Even though the firm had all the proper procedures and training in place, FINRA still viewed it as an overall failure of supervision and acted accordingly.
Conclusion
Building relationships with clients is important for the longevity and success of the account. But if advisors ever receive a business-related text or online message from a client, the only reply should be a short and sweet notification that their firm prohibits the texting of any business-related communications and that they’ll respond to the client’s message with an email or a phone call. This sort of reply should serve to protect the advisor and their firm should a regulator ever get a hold of such a communication.
To learn more about how advisors can avoid the dangers of non-compliance, contact us.
