On September 27, 2022 the SEC charged 15 broker dealers and one affiliated investment advisor over $1.1 billion in fines due to failure to keep appropriate records. This time, the focal point was text messaging, normally bundled with a more significant offense, but this time, a stand-alone.
As an advisor, how many times have you texted a client that you are running a few minutes late, or texted information on meeting location last minute to be sure you were on the same page? You’ve likely had clients reach out via text innocently to ask about their investments or some other financial detail. Often it is more convenient just to quickly respond than to call. But watch out, if you work at a big firm, even saying you are running a few minutes late could earn you a substantial consequence from suspensions to fines to termination. Every registered representative should be aware that if they text with a client and even their own sales team or management, harsh consequences could follow.
In the settlement agreements with the SEC, big firms such as Merrill Lynch, Morgan Stanley, Goldman Sachs, and JP Morgan pledged to review their cell phone policies and to enact stricter enforcement via more compliance and outside forensic examination counsel to review both personal and business issued cell phones. According to New York Securities Arbitration attorney, Brian Neville, firms will go back two years reviewing text messages. How did you communicate with clients during the Covid lockdowns and remote work? Neville urges advisors to seek independent outside counsel if in receipt of an email from management to turn over one’s cell phone for investigation. Neville explains that outside counsel can help provide advisors the maximum amount of privacy protection allowed by limiting the scope of searches, protecting personal information such as passwords, and more.
FINRA’s Rule 8210 according to Neville means “there is virtually no limit to what FINRA can ask for” under the guise the SEC stated of client communications being “sacrosanct.”
Advisors who feel the impact of these settlements change their practice as they know it continue to consider and move either to RIA’s or fully independent where they are able to police their communications in accordance with FINRA’s guidelines on communications, archiving and recording as needed, without having a firm privy to personal photos, emails, passwords, and more.
Roger Gershman who interviewed Brian Neville on the impact of this ruling stated that advisors complain about two things: increasing surveillance and oversight of compliance departments, this ruling, Gershman stated “is the most alarming in all of his years working in the business.”
If you’d like to learn more about the impact of the ruling, how you can protect yourself, and how a change to a RIA or going independent might protect your privacy, please contact Roger Gershman at the Gershman Group at (628) 500-7770 or at https://www.thegershmangroup.com.
As the Editor of The Gershman Group, a boutique financial services consulting firm, TGG brings expertise in financial analysis, strategic planning, and market research. With a keen eye for detail and a passion for helping businesses navigate complex financial landscapes, TGG delivers insightful, high-quality content to empower informed decisions. Backed by years of industry experience, TGG makes complex topics accessible through clear and compelling communication, shaping the firm’s thought leadership and commitment to excellence in financial services.
